Oberoi Realty Limited (OBEROIRLTY) Q2 FY23 Earnings Concall Transcript

Oberoi Realty Limited (NSE: OBEROIRLTY) Q2 FY23 Earnings Concall dated Oct. 17, 2022

Corporate Participants:

Vikas Oberoi — Chairman and Managing Director

Saumil Daru — Director Finance

Analysts:

Parikshit Kandpal — HDFC Securities — Analyst

Puneet Gulati — HSBC — Analyst

Pritesh Sheth — Motilal Oswal Financial Services Ltd — Analyst

Saurabh Kumar — JPMorgan Chase & Co. — Analyst

Sameer Baisiwala — Morgan Stanley — Analyst

Kunal Lakhan — CLSA — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Oberoi Realty H1 FY 23 and Q2 FY 23 Earnings Conference Call. We have Mr. Oberoi, the Chairman and Managing Director of the company and Mr. Saumil Daru, Director of Finance of the Company, with us for the call.

Please note that this call will be for 30 minutes and for the duration of this conference call, all participant lines will be in the listen-only mode. And this conference call is being recorded. And the transcript for the same may be put up on the website of the company. After the management discussion, there will be an opportunity for you to ask questions. [Operator Instructions]

Before I hand the conference over to the management, I would like to remind you that certain statements made during the course of this call may not be based on historical information or facts and may be forward-looking statements, including those relating to general business statements, plans, strategy of the company, the future financial condition and growth prospect. The forward-looking statements are based on expectations and projections and may involve a number of risks and uncertainties and other factors that could be caused actual results, opportunities and growth potential to differ materially from those suggested by such statements.

I now hand the conference over to Mr. Oberoi, the Chairman and Managing Director of the company. Thank you and over to you sir.

Vikas Oberoi — Chairman and Managing Director

Thank you. Good morning, good afternoon, good evening to all of you as per the time zone from which you have logged-in and welcome to the conference call of Q2 FY 2023, half year FY 2023 results and business update. Thank you all for taking time out for this call.

Before I begin, I would like to share with you a few quick business update. I’m happy to share that we’ve had a very good quarter with Worli sales post the receipt of Occupation Certificate in June 2022. You have noted the substantial appreciation in realization compared to the earlier sales also. There is a healthy increase in the residential topline and bottom line compared to H1 last year. This is despite the challenging macro-economy, locally as well as globally. Our residential business continues to outperform on account of robust demand and lack of credible suppliers. Consumption levels in the mall are more than back compared to pre-COVID level. The annuity assets business is also witnessing a healthy margin. With this upcoming festive season and our planned launches, we are optimistic that the consumption trend in residential and retail will continue.

You all know that we will open this up for question-and-answer and happy to take it from there. Thank you. Both Saumil and I are present and happy to answer any of your questions.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] First question is from the line of Parikshit Kandpal from HDFC Securities. Please go ahead.

Parikshit Kandpal — HDFC Securities — Analyst

Yeah. Hi Vikas, congratulations on a very strong quarter on theme [Phonetic] sales, especially in 360 West. So eight units you have sold this quarter, so despite a huge 50% increase in pricing. Just wanted to understand how do you see the momentum for this project going ahead. Do you think for the rest of the year you can replicate similar success in this project?

Vikas Oberoi — Chairman and Managing Director

So thanks. I can only tell you that this project time has come. Whoever visited the project, the only reason he does not buy or will not buy is because he doesn’t have the budget. But otherwise, it ticks all the boxes and we have a fantastic pipeline and virtually no competition because there is nothing that is ready and available. There would be people launching something which is probably two or three years away, here you have an Occupation Certificate in-place, lock-in key, you move-in instantly. And I want to tell you that if everything goes well with God’s grace you will only be more and more pleasantly surprised going forward with every quarter.

Parikshit Kandpal — HDFC Securities — Analyst

Great. Just coming to — the next question is on launches. Vikas, you have said that in Diwali you look forward to launch in Thane. So I’m not hearing anything on the ground there. So if you can update what is stopping us from launching this project and also if you can update on the opening of new towers in Borivali and Goregaon?

Vikas Oberoi — Chairman and Managing Director

So you know as far as Thane is concerned, we actually have the show apartment ready where literally we’ve covered it and kept. I don’t know how many of you know or remember, having read an article about the new Eco Sensitive Zone that had cropped up in August. Luckily, that died in the previous quarter itself. Supreme Court then again intervened and clarified. Mumbai, Maharashtra had already defined its Zone. And in another matter, you know when the court was hearing, I think it was not brought to the notice of the Honorable Judge and they passed an order saying that all the properties within x kilometers or something, wherever there is a fault, that work stops. So literally there was a lull, but luckily the government moved quickly. The court realized that they were not appraised and they reversed it. So we are back on the saddle [Phonetic] and I hope within this quarter we should be in a position to get going. I mean an unfortunate issue was that nothing was happening when this court order was in place. So that also is resolved and hopefully, I mean, again, fingers crossed, we should see within this quarter we start our work, we start our launches, both including Borivali. Anyway, Borivali was the same issue again, but now all of that is back and we are ready to go.

Parikshit Kandpal — HDFC Securities — Analyst

So [Indecipherable] Pokhran and Borivali so all this may happen during this quarter?

Vikas Oberoi — Chairman and Managing Director

Yeah. Hopefully, yes.

Parikshit Kandpal — HDFC Securities — Analyst

Okay, great. And just one last question Vikas, on the business development. I think last year 1Q FY 22 you spoke about adding smaller projects of redevelopment of INR2,000 crores plus non-MMR some foray happening, till now we are waiting to hear from you. So going ahead if you can just highlight your strategy how you’ll go about both the things because redevelopment is clearly picking-up big-time in Mumbai and we are not there and even MMR media reports do suggest you are looking for something but have anything [Technical Issues]. That’s my last question.

Vikas Oberoi — Chairman and Managing Director

Again, see, as far as BD goes, we are very aggressive on BD whether it is redevelopment or whether it is anything else. I don’t want to do — like we are close to some redevelopment projects, in some of them we have been awarded the contract as in like as a preferred developer, but I don’t want to talk about it right now. We unnecessarily end-up building pressure from next quarter, what happened there. All I want to say is that we are very committed, very aggressive when it comes to any sort of development, be it redevelopment or business development or for new land parcels. And yeah, one positive is that we took-up project next to our Borivali site, which was in a SRA redevelopment. 95% of the site is now cleared. So this gives us a lot of heart that we being an organized developer were able to you know, rather the SRA was able to see value and we don’t have any intermediary, we have directly gone to the slum developers, we have convinced them that we are a good option. And they vacated, site is clean and we are starting construction soon. And this is next to Sky City, actually adjacent to Sky City. So some more development potential here getting unlocked now.

Parikshit Kandpal — HDFC Securities — Analyst

This is residential or commercial because I think you were doing commercial, planning to do 1 million square feet of commercial.

Vikas Oberoi — Chairman and Managing Director

Correct. This is exactly commercial right now.

Parikshit Kandpal — HDFC Securities — Analyst

Okay, Vikas. Thank you for that one more question. I’ll join the queue. Thank you.

Operator

Thank you. The next question is from the line of Puneet from HSBC. Please go-ahead.

Puneet Gulati — HSBC — Analyst

Yeah. Thank you so much and congratulations on good sales. Can you also talk about what is the update on the Glaxo land parcel and how is the leasing for the balance Commerz III turning out to be?

Vikas Oberoi — Chairman and Managing Director

So, again thanks Puneet. Firstly on the Glaxo land parcels, now internally we have two choices, one is either we do residential or we do commercial and a mall. So we need to take a call and it’s high time we do that. Both numbers look equally good. And it’s a choice one needs to make, what we need to go ahead with. We hope to now decide within this quarter and move on with that.

As far as our Commerz III, we are looking at topping up our construction by March and then one more year for the finish and operation. We are talking to larger occupiers and there is a very, very good steady flow of demand, I mean people who want it. Again, we were amongst the only few who probably build something post-COVID. One, we were anyway committed. So we went ahead — all this we defied this work-from-home concept, I mean didn’t have a choice frankly because we had committed. So we went ahead and build that. In hindsight, today we feel that we are lucky, we went ahead and made this development. So we literally have few years of what you call lead from anybody who would want to start today. So yeah, again no doubt of demand and we are now getting ready with some of the mockups and we’ve done with it, IPCs have come, they have loved the way the whole [Indecipherable] and the way things have worked here from design point-of-view. It’s absolutely top-class commercial building, it could be anywhere in the world that sort of product, little over 50 elevators and really not done in India almost as yet, that sort of product. So very confident, not worried about it at all.

Puneet Gulati — HSBC — Analyst

Great. That’s useful. Thank you very much. Saumil, just one question for you. In the cash flow statement for the first half, there is a INR650 crore change in loans and advances. Can you talk about what exactly does it relate to.

Saumil Daru — Director Finance

Sorry, which — in the —

Puneet Gulati — HSBC — Analyst

Cash flow statement for the first half, change in loans and advances of INR650 crores I guess.

Saumil Daru — Director Finance

The financing cash flows is only about INR80 crores.

Puneet Gulati — HSBC — Analyst

The change in working capital part.

Saumil Daru — Director Finance

Operating cash flows are at about INR150 crores. Investing cash flows is about INR913 crores. Investing cash flows is the capex as well as some of those aspects, which are there. So it’s been pretty standard and there has been no unnatural movement in [Indecipherable].

Puneet Gulati — HSBC — Analyst

All right. I’ll take it up separately. Thank you.

Saumil Daru — Director Finance

We are happy to take up with you offline, but the investing cash flows represents the investments made in the capital assets, that’s all.

Puneet Gulati — HSBC — Analyst

Understood. Thanks. Okay, great. All the best.

Operator

Thank you. The next question is from the line of Pritesh Sheth from Motilal Oswal. Please go ahead.

Pritesh Sheth — Motilal Oswal Financial Services Ltd — Analyst

Hi, thanks for the opportunity. So I mean on cash flows, Saumil if you can. Opening cash flows were negative INR164 crores this quarter while collections we have seen it, they were strong on quarter-on-quarter basis. I can guess, I mean there were some land or premium investments, if I’m not wrong. So if you can highlight on what projects and how much was the quantum.

Saumil Daru — Director Finance

So these are certain — this represents both advances towards certain lands as well as for TDR. So once those transactions kind of culminate, then I think we will be in a better position to discuss that with you Pritesh. But as you are aware and we have told you all earlier also that for us whenever we have these transactions related to land or related FSI, unfortunately for me since that becomes a part of my current asset, it becomes a part of my working capital changes and hence it reflect that number, but if you were to take-out the impact of that, then this again is a very heavily positive number.

Pritesh Sheth — Motilal Oswal Financial Services Ltd — Analyst

Sure, absolutely, I mean clear on that front. And in terms of realization for 360 West, this quarter we are seeing somewhere over 80,000 kind of number, 80,000 per square feet. Is it something like optically, I mean taking it higher or that’s the reference rate we can take it ahead, because I think carpet rate is somewhere around 90,000, 95,000 for the transactions we have closed and have been reported in media. So how should we look at the rate which on the sellable area that we see.

Vikas Oberoi — Chairman and Managing Director

So now everybody has moved on to RERA carpet and these rates are RERA carpet rates. So one other thing I want to tell you is that there are some of the sales that are done previously who have been living on allotment letters and things like that. So you may see like — you may see discrepancies in sale value, but these would be pertaining to some older documents being registered today only because now occupation has come — some of the people who are paying us will be on allotment letter and all that, but the new sales are at close to 1,00,000 and 1,10,000 on RERA carpet.

Pritesh Sheth — Motilal Oswal Financial Services Ltd — Analyst

Sure, got it. Thanks for answering my question and all the best.

Vikas Oberoi — Chairman and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Saurabh Kumar from JPMorgan. Please go ahead.

Saurabh Kumar — JPMorgan Chase & Co. — Analyst

Hi, so just two questions. One is, Saumil, on this Worli, your recognized revenues of INR3,300 crores [Technical Issues] so the margin, correct me if I am wrong is just 8%, 10% of the deposits or what am I missing here?

Saumil Daru — Director Finance

Sorry. Margin is —

Saurabh Kumar — JPMorgan Chase & Co. — Analyst

So you recognized INR100 crores of JV income, right.

Saumil Daru — Director Finance

Correct.

Saurabh Kumar — JPMorgan Chase & Co. — Analyst

So effectively, at the project-level you would have recognized INR300 crores [Indecipherable], right.

Saumil Daru — Director Finance

Correct. So basically what happens over here is our share of profit over here — I mean, sorry, on the P&L side it is about 32.5%, Saurabh. So that is what kind of take and that is at the gross level. So then out of that you take-out, so you take-out multiple things, expenses as well as taxes. This is not a full consolidation in all fairness. If you [Speech Overlap] share of profit, net of tax which flows into [Technical Issues].

Saurabh Kumar — JPMorgan Chase & Co. — Analyst

I agree. My point is the net margin on the project will be about 10% odd because you will recognize INR100 crores, the project profit would have been something like INR300 crores on a recognition of INR3,300 crores. Is that —

Vikas Oberoi — Chairman and Managing Director

So basically what has happened is as far as the earlier ones are concerned, on the INR3,300 crores we have already been recognizing revenues from the last year itself, Saurabh, so it is not the entire INR3,300 crore, which comes into play now. In this quarter it is only the INR600 crores, which comes into play, because again when I received the OC in June that’s when I kind of trued-up the financials and I had a share of profit till then and after that every quarter from here onwards what you will see is only revenue recognition and the corresponding profit element from that quarter.

Saurabh Kumar — JPMorgan Chase & Co. — Analyst

Okay. So the incremental margin will be how much, Saumil, on that, you have built something like 60% odd. Will that be —

Saumil Daru — Director Finance

I will have to [Indecipherable] and come back to you.

Saurabh Kumar — JPMorgan Chase & Co. — Analyst

Okay, got it. Thank you.

Operator

Thank you. The next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.

Sameer Baisiwala — Morgan Stanley — Analyst

Thank you so much and good evening everyone. Saumil, just on the previous question, this INR100 crore profit recognition that you have done on 360 West, is it on the revenue recognition basis or collection basis because collection was INR400 crores and revenues were INR600 crores, so just wanted —

Saumil Daru — Director Finance

Revenue recognition, Sameer, for all of our projects including, Goregaon, Mulund, Borivali, our revenue recognition always proceeds on the basis of agreement value and it has nothing to do with the levels [Phonetic] of collection. So accounting [Technical Issues] carpet level on accrual basis so we consider it on the basis of that, and not cash collection.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, got it. Very clear. And the second question is on the two rental assets, Commerz III and Borivali Mall. Can you just share with us how much capex or construction spend is left to be done and how much has been done on both these projects.

Saumil Daru — Director Finance

So for that I will have to get more deeper into some of these numbers, Sameer. But I’ll take [Indecipherable] come back to you separately?

Sameer Baisiwala — Morgan Stanley — Analyst

Okay. Just broad level would have been okay.

Saumil Daru — Director Finance

About INR400 crores each.

Sameer Baisiwala — Morgan Stanley — Analyst

Is pending. Is it?

Saumil Daru — Director Finance

Yeah. One second, just give me a second. Let me come back to you on that. I have some numbers over here, but I just — you want to know the balance, right.

Sameer Baisiwala — Morgan Stanley — Analyst

Yeah, that’s right.

Saumil Daru — Director Finance

So let me come back to you on that.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay. And one final question. Vikas, how are you thinking about the prices going forward and aside of 360 West, did you take any price action in 2Q.

Vikas Oberoi — Chairman and Managing Director

So I wanted to tell you all that. Frankly, input costs have gone up, right from manpower to material to approval to all other costs have gone up. So we have to increase prices. Worli is already out there. We have increased prices in Goregaon, we have increased prices in Borivali and in fact across. And there is no option really and I really fear and wonder how other developers are going to deliver if they do not increase prices because costs have gone up and interest costs have gone up from developers also. So there is a huge input cost. We had to take them up and we have done that everywhere.

Sameer Baisiwala — Morgan Stanley — Analyst

Vikas, you’re talking about 2Q specific or going a little bit more further?

Vikas Oberoi — Chairman and Managing Director

Going forward. I mean we have taken a decision only a week ago and we’ve now, like already passed it on to the new buyers now. Obviously, we don’t increase prices for flats that are sold, but wherever we haven’t sold, the inventory will have to go at a higher price. Really, I mean we are doing the math and wonder how these guys are able to sell and deliver, that will become a question mark and that actually worries us because then again developers get a bad name.

Sameer Baisiwala — Morgan Stanley — Analyst

Yeah, sure. Vikas, just to conclude on that, so this increase has been, say roughly October 1 onwards. And if you can just quantify, is it roughly about 3% to 5% or is it what kind of price increase have you taken.

Vikas Oberoi — Chairman and Managing Director

So we increased this only a week ago. So I wouldn’t say it from October 1. It is probably somewhere around 10, 12 of October. And somewhere we’ve increased 5%, somewhere we’ve increased 10% and so on. So it’s not like a standard increase. Different projects have been given different treatment and also depending on different stages of the project we’ve gone out and done that, like Borivali we hardly have anything to sell today. In our Tower A and B if you’ve seen Goregaon, we hardly have anything to sell. And if you look at the comparative product which is Exquisite and Esquire, they are selling at a particular price. So what we’ve also done is we’ve been prudent, we’ve discounted value of their existing apartment and we have given in the benefit of the pre-booking and all that and we made a attractive proposition, but just to appreciate that the ready apartment is selling at an x price and this is discounted to that value today and that value is certainly higher because all the ready product is sold and it’s selling today at you know at 40,000 and 50,000 on carpet in Goregaon. And there are no I mean like, I mean there is no dearth of buyers there. You’ve seen how A and B tower have been sold-out. So we hardly have anything in A and B, now obviously when we launch C, we will think of a price strategy and then do that. And it is imperative for us to do it, I mean frankly you know.

Sameer Baisiwala — Morgan Stanley — Analyst

Yeah. Sure Vikas. Correct. Thank you so much.

Vikas Oberoi — Chairman and Managing Director

Thanks.

Operator

Thank you. The next question is from the line of Kunal Lakhan from CLSA. Please go ahead.

Kunal Lakhan — CLSA — Analyst

Yeah. Hi Vikas and Saumil. Firstly, on the Thane project, you still sounded a little apprehensive in terms of launch this quarter. I thought that issue is resolved as you said. So what could happen that could make the launch spillover to next quarter?

Vikas Oberoi — Chairman and Managing Director

Frankly, it is just sequencing whether — nothing, really nothing, actually nothing. I mean I don’t know why you are you making it out to be apprehensive, I mean one has learned to kind of build in some cushion just in case it doesn’t happen, then probably you know, but there is really no apprehension, actually I did not even think but because you’re asking me, I am saying that maybe it’s just become our second nature to be a little more cautious when we commit and like surprises like these just keep coming and that’s it, but otherwise there is really nothing.

Kunal Lakhan — CLSA — Analyst

Sure. Thanks for clarifying. And secondly on Worli, right. So we have around unsold inventory of about 150 odd units now?

Vikas Oberoi — Chairman and Managing Director

No. We have sold about 77, out of total is close to about 200. So 125 odd.

Kunal Lakhan — CLSA — Analyst

Okay So what will be that monetization timeline that you will be looking at to, I mean going by the current traction that you see in the pipeline of enquiries that are there, what kind of timeline you are looking at monetizing this project?

Vikas Oberoi — Chairman and Managing Director

This surely will qualify as forward-looking statements and — okay, all I can tell you is we are committed to selling. And like I said that there is tremendous demand. We are probably the only one with pole position there and loving all the attention we’re getting from the buyers, we respect that, love that and want to honor that also and want to continue to sell, don’t want to become complacent. But like I said that there is no problem, I mean I genuinely don’t want to put in a timeline, but the product is ready, ready for people to enjoy and we certainly won’t come in their way, we’d be happy to sell.

Kunal Lakhan — CLSA — Analyst

In your opening comments you did mention that the only reason why people are not able to buy it is because they can’t afford it. So how do you look at that with context of the price hikes that you’ve taken like —

Vikas Oberoi — Chairman and Managing Director

No, I didn’t say that they cannot afford it. The only reason they will not buy as and if somebody comes in, it is so compelling as a product that he will want to buy it. I mean you don’t buy it only because let’s say the person who is coming in doesn’t have the money. Barring that, it ticks all the boxes, that’s what I meant. So it’s not about and there are plenty of people. I want to tell you all that nobody seems to be buying just one apartment, people are buying one, two and three apartments, amalgamating them joining them, making a duplex out of it and all that. Really it’s like a splurge of real estate volume and people are buying 12,000 and 14,000 square feet and making — I mean I’m telling you I have been to people’s homes and it’s such a delight to see them make their own version of the shell that I give them and live so beautifully. So really it’s so amazing to see and these are people with deep pockets, bringing their own set of designers, they’ve been there, seen the world, they bring the best of the world and put it in. So again, I must say that very, very fulfilling apart from the fact that it’s making us money, it is very fulfilling to see that how people are adapting to what we have made. The entire outdoor living area, the inside apartment, no building has one floor plate which is 5,500 or 7,000 square feet at single level. And when people make a duplex out of it, it is 15,000, 12,000, the effect is something else. Beautiful, like, really I must say that, really feel good about it.

Kunal Lakhan — CLSA — Analyst

Sure. And my last question was on — so if you exclude say, Worli this quarter, our overall sales excluding Worli were about INR550 crores odd, which was lower than what we sold last quarter or even in previous quarters, right, especially like projects like Borivali and Goregaon where we usually sell well, were quite tepid this quarter. How should we read this and what’s the outlook there going forward?

Vikas Oberoi — Chairman and Managing Director

So you know you should read it very nicely and happily because there is really nothing to sell in Borivali and Goregaon, which means that we have to make a launch, I mean here we have to launch our next phase and we have so much demand for the next phase I can’t tell you. I mean actually there are people who are telling me you know what, I don’t care when you open, take my money. And I tell them, listen, I can’t do that, I need to follow a certain decorum and that’s how I will do it. So because we haven’t launched, we haven’t sold, I mean whatever like the remaining apartment that got sold and now we have tremendous demand, people available for new purchases.

Kunal Lakhan — CLSA — Analyst

So Elysian it shows that we have about 1 million square feet odd of inventory, unsold inventory.

Vikas Oberoi — Chairman and Managing Director

Sorry.

Kunal Lakhan — CLSA — Analyst

Elysian it shows that about 1 million square feet of unsold inventory. So wouldn’t that be —

Vikas Oberoi — Chairman and Managing Director

That is like you’re talking about the entire A,B,C,D.

Kunal Lakhan — CLSA — Analyst

Yeah, the launched inventory.

Saumil Daru — Director Finance

Yeah. Kunal, I think 25 lakh square feet, out of that, we have sold 15 lakh square feet. There is 10 lakhs, but in all fairness, building is also going to get another four years to build Kunal. So we have got that time period over which also we can sell the balance.

Vikas Oberoi — Chairman and Managing Director

Yeah, 60% is sold.

Kunal Lakhan — CLSA — Analyst

Sure. All right. Thanks and all the best.

Vikas Oberoi — Chairman and Managing Director

Thank you so much.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Oberoi for closing comments.

Vikas Oberoi — Chairman and Managing Director

Thank you all for taking time out for this call. We look forward to hearing from you on an ongoing basis. Please feel free and reach-out to us or our Investor team for any other additional questions that you have. Thank you. And Happy Diwali to everybody. Thank you again.

Operator

[Operator Closing Remarks]