Sobha Developers - Q1 Operational Update - Strong performance continues - Prabhudas Lilladher

- Strong sales performance continues: Although launches were subdued for the quarter with only a small villa launch in Coimbatore, sales momentum continued at the company's previously launched projects, thereby, ending the quarter at 0.83m sq.ft, representing 25% YoY growth and a marginal sequential decline. Sales from the Gurgaon project witnessed a strong sequential increase of 24%.

Realizations too remained firm at Rs5,737, an increase of 26% & 7% on a YoY and QoQ basis, respectively, resulting in total sales of Rs4.79bn. The company's sales guidance for FY13 stands at Rs20bn as against sales of Rs17bn clocked in for FY12.

- Upward trajectory to continue: Sobha has a launch visibility of ~5m sq.ft in the near term, with the Dairy Circle property in Bengaluru and a Thrissur launch being next in queue. Besides, the company has been releasing additional area at its previously launched projects, thereby, providing momentum to sales. We expect sales growth of 14% in volume terms to 3.75m sq.ft.

- Deleveraging in process: On account of strong launches and monetization of old sales, coupled with a steady execution, the company has brought its net debt down from Rs12.1bn in FY11 to Rs11.4bn in FY12. We further expect net debt to reduce to Rs8.9bn FY13, resulting in a DER of 0.56, down from 0.67 in FY11.

- Valuations: Sobha's NAV stands at Rs39.8bn, translating to Rs406/ share. We attribute a 20% discount to this to arrive at the value of the real estate business. To this, we are adding the value of the contract business which is calculated at Rs35/share which translates to a target price of Rs360. We maintain 'Accumulate' on the stock.

Source : Equity Bulls

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