The property would be acquired for an aggregate consideration of ₹4,000 crore, Oberoi said in a notice to the stock exchanges on 9 November. The company said an extraordinary general meeting would be held on 1 December to get shareholders’ approval. On 10 November, the stock fell nearly 4% to ₹876 on the NSE.
Investors could have been worried about a potential rise in Oberoi’s debt levels to fund this transaction coupled with adjustments for Oberoi’s share, analysts said. Oberoi currently holds a 32.5% profit share in this project. To calm investors, the company issued a detailed clarification on 24 November. Oberoi said that it would acquire a little over 50% of the remaining unsold inventory in Three Sixty West and would remain involved in the sales of the entire project.
ICICI Securities Ltd expects Oberoi to clock marginal gains considering that it proposes to pay up to ₹70,000 per sq ft on a carpet area basis versus a carpet area selling price of over ₹100,000 per sq ft. As of 30 September, this project had an unsold inventory of 1.57msf. Oberoi will be making this payment in one or more tranches in a year.
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More importantly, Oberoi expects this entire transaction to be cash neutral, excluding taxes. After these clarifications, investor concerns over the company’s debt levels rising may be allayed, said ICICI. On Friday, the stock was up 2% to ₹894.5 a piece.
Oberoi’s proposal suggests that the earlier joint venture will collapse and Oberoi’s economic interest will move from a gross profit share to an area share, said Parikshit Kandpal, vice president of institutional research, HDFC Securities Ltd. “In simple terms, this means that the company will recognise revenue and Ebitda on this project versus share of profit earlier," he added.
So, for now, investors in the stock can heave a sigh of relief. In this calendar year so far, the Oberoi Realty stock has risen by 3.8%, beating sector index Nifty Realty’s negative returns. With real estate demand momentum having sustained so far, expectations are that the company would be able to maintain its sales trajectory. “That said, for the next leg of growth, the company will have to look at faster land bank addition in Mumbai as well as other markets such as the NCR, considering they have a lot of completed inventory," Kandpal said.
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