Sobha Developers - Q1 preview: Volumes soft amid limited launches - Religare

Sobha reported Q1FY14 sales of 0.92msf (+10% YoY, -14% QoQ) worth Rs 6bn (+14% YoY, -11% QoQ). Sales declined QoQ possibly due to limited launches during the quarter and muted sales in Gurgaon, even as ASP improved on account of sales in the high-priced Sobha Indraprastha. While Sobha has been able to maintain volumes, cash flows need to grow at a steady pace for sustained stock performance. This would ultimately hinge upon inventory levels, commercial capex and land acquisitions. HOLD.

- Q1FY14 volumes softer on limited new launches: Sobha reported Q1FY14 sales of 0.92msf (+10% YoY, -14% QoQ) at an ASP of Rs 6,467psf (+8% QoQ, +24% YoY). While volumes were low QoQ across cities, Gurgaon put up a rather weak show due to limited new projects. ASP was higher largely because of sales in Sobha Indraprastha. Given the high inventory levels, growth in volumes will largely depend on the company's ability to sell a higher proportion from under-construction projects.

- Commercial capex begins: In Q1, Sobha started the construction of St Marks' property (developable area 0.4msf; ~Rs 15bn), thus kicking-off its commercial capex (to rise further when the ~2msf/Rs 40bn APMC project comes on board). The company remains confident of funding the capex through internal accruals which, in our view, will depend on its ability to sell a higher proportion from under-construction projects vis-à-vis new launches.

- Q1FY14 likely to be non-event: We estimate Q1 revenues/PAT at Rs 5.0bn/ Rs 0.61bn, and flat debt QoQ. Key result monitorables include: (a) cash flows generated during the quarter and (b) a resultant change in debt levels.

- Maintain HOLD: We see limited scope for near-term outperformance because of higher focus on investment capex and land purchases.

Source : Equity Bulls

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