Sobha Developers - Eminence at discount - Motilal Oswal

Stable core market-mix | throwing positive FCFE | fundamentals intact

Sobha Developers' (Sobha) stock price is down 30% from peak of YTD FY14, though the recent upswing partially offset the steep discount. It offers a preferred play as strong operations and liquidity aid resilience amid the macro uncertainty.

Our conviction on Sobha emerges from (1) performing market-mix and gain in market share, (2) healthy core operations, consistent positive FCFE, and earnings visibility, (3) solid fundamentals - land quality, superior execution, brand and clientele, independent functioning of board etc and (4) liquidity comfort.

Correction in the stock price, which was led by concerns over future capital allocation in capex business and land, was overdone. We expect recent recovery to continue further.

Consistent growth in cash flow (24% CAGR in core cash EBITDA over FY13-15E) and healthy operations should render balance sheet comfort and drive re-rating.

We estimate Sobha's SOTP at INR47b (INR479/share) and initiate coverage with a Buy rating and target price of INR410 (15% discount to SOTP, implied 8.8x EV/FY15E cash EBITDA of INR6.1b), rendering 40% upside.

Source : Equity Bulls

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