Omaxe indicates real estate slowdown - Impact on results

Omaxe Ltd is projecting a slowdown in its annual net profit for the next three years to about 40%, down from a more than a doubling of profit in the year ended March, citing a relative cooling of the property market and an increase in building material costs.

“There are a lot of cost pressures,” said Vipin Aggarwal, executive director of Omaxe. “Steel and cement prices have gone up in the last quarter and that is affecting our profit margin. The cost of a sq. ft has gone up by Rs70 just because of an increase in steel prices.” For instance, he noted, the price of steel strips has gone up by 29-30% in the past year.

Meanwhile, real estate companies are finding it more expensive to borrow and fund their projects.

“Debt has become expensive. If we were earlier paying Rs7 crore as interest payment for a Rs100 crore loan, today we are paying Rs15 crore,” Aggarwal said. “This is affecting our margins.” In its fourth quarter (Q4), Omaxe registered revenues of Rs574.97 crore and a profit after tax of Rs107.01 crore. It wasn’t a listed company in the year-ago period. But, Aggarwal said the margins in Q4 were down by 200 basis points over the third quarter.“In the last quarter, there was a 30-40% increase in input cost. This has affected our margin in the fourth quarter,” he added.

Like most developers, Omaxe is also looking at raising money through the private equity (PE) route. The company is looking to raise $500 million (Rs2,100 crore) through PE placements either at the company level or by setting up a special purpose vehicle, or a body that will hold some of its properties. The company is looking to dilute as much as 20%, Aggarwal said. Promoters of Omaxe currently hold a 90% stake in the company with the rest held by the public. “We can reduce the stake up to 70%,” he added.

The company said it has raised Rs100 crore by allotting 100 secured non-convertible debentures of Rs1 crore each amounting to Rs100 crore to LIC Mutual Fund on a private placement basis. Omaxe will use this money to fund construction.

Omaxe also plans to enter the real estate market in West Asia because it feels it can get good returns there. The company is in the process of identifying projects for development in the region and it plans to either incorporate or acquire a firm to start operations.