Oberoi Realty - Buying an expensive Rs.1,040 crore 5 Star Hotel

Oberoi Realty has bought a 221 key “5 Star” hotel property at Prabhadevi, Mumbai, for Rs.1,040 Crore only, which will be operated and managed under the Ritz-Carlton brand. This property was bought by Evenstar Hotels Pvt. Ltd., a wholly owned subsidiary of the company, from  Oasis Realty (an association of persons), which is part of the project ‘Three Sixty West’ (Project 360) developed by Oasis Realty (Oasis).This was informed to the exchanges by the company on 18th December.

This release is hiding more than what it reveals. Firstly, Oasis is a JV of Oberoi Realty, as can be seen from item 3 of JVs, in Annexure 1 to the Review Report on Unaudited Consoidated Report of the Auditors, which was not revealed so. Secondly, Project 360 has 2 Towers, with one of Hotel being Tower A with 53 floors and other one of Private Residences, being Tower B with 85 floors, being the second tallest property in India.So, whether it is only for Tower A or of Tower B as well? Thirdly, Rs.1,040 crore being paid is for 50% stake, (assumed on JV seen existing) which has not been spelt out expressly. Fourthly, project is being delayed by about 4-5 years, due to statutory clouds seen looming large on other JV Partner, Sahana, owned by Sudhakar Shetty.So, whether this buy is to give an exit to him?

Private Residence have buyers like Akshay Kumar, Abhishek Bachchan, Shahid Kappor, while in real life India inc. loves to meet filmy people, but do not like to stay with them in the same building. History shows the fate of super stars, whether he is RK, Bhagwan Dada, Dev Anand, Kaka, Jubilee Star, Paji or many other leading ladies.  

Oberoi Realty, one time used to be a debt free company, is already having Construction Finance availed of  Rs. 1,400 cr as at 30-9-20, which will rise to Rs. 2,400 crore now. As such Hospitality Division of the company is yielding negative EBIT Margin on its existing Hotel, if  calculated on its NPV.

So, Hotel with cost of Rs. 9.50 crore per room (Rs. 2,080 crore for 221 keys) should not be a drag on the profitability, which may be seen as a concern for the next atleast 2 years, till Hotel gets operational.