Oberoi Realty: Building on expectations

Oberoi Realty: Building on expectations

The share price of Oberoi Realty surged in trade on Tuesday as hopes of better earnings prospects continue to fan investors expectations. The stock gained as much as 14.35% to Rs 446.15 per share on the NSE.
On Friday, the Mumbai-based real estate developer reported a flat consolidated net profit figure at Rs 137.74 crore on an yearly basis (YoY). The income declined 36% YoY to Rs 325 crore during the quarter ended September 30, 2020.
Despite the fall, the company’s management has declared that it has sufficient liquidity and expects to fully recover the carrying amount of its assets. The group will continue to monitor any material changes on future economic conditions.

The real estate developer is planning to do a platform deal with investors to unlock the value of its rental portfolio and also to fund growth, with the aim to develop a strong rental portfolio, especially in the office segment.
In the residential segment, management targets to surpass FY20 presales in FY21, driven by new launches in 2HFY21.
Oberoi is planning to launch three projects in H2FY21 – Sky City Phase 2, Exquisite Phase 3 and Thane – which should help drive FY21 sales higher than FY20.

On the lease income front, the management is reconsidering creating a lease asset platform with a private equity partner. It will likely shed a minority stake in the lease asset portfolio. This will help establish clear valuations, accelerate lease asset build-out and allow eventual REIT of the assets.
For malls, Oberoi is already offering a blanket 50% discount on FY21 base rentals and a 1-year lease extension. This can drive in Rs 145 million catch-up in mall revenues.
Such positive comments will obviously trigger re-rating in its valuation.

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