Sobha Ltd - H2FY21 to see better sales traction - ICICI Securities

Sobha Ltd's Q2FY21 gross sales volumes of 0.89msf worth Rs6.9bn were down 14% YoY in volume terms, but up 1% YoY in value terms. As per the company, enquiry levels and sales bookings in October 2020 were above pre-Covid levels and it is now targeting YoY growth in H2FY21 sales bookings on the back of improved demand in ongoing projects and a strong launch pipeline in Bengaluru/Chennai. We retain our FY21/22E gross sales bookings estimates of Rs24.1/Rs28.3bn, respectively, which builds in flattish sales booking value in H2FY21E. We retain our BUY rating with a revised SoTP-based target price of Rs382/share (earlier: Rs288) as we now value the company's land bank at 25% discount to market value (earlier 50% discount) owing to improved demand visibility. Ability to keep debt levels in check remains the key monitorable.

- Q2FY21 sales bookings encouraging in a tough quarter: Sobha's Q2FY21 gross sales bookings of 0.89msf worth Rs6.9bn were down 14% YoY in volume terms, but up 1% YoY in value terms. On QoQ basis, gross sales volumes and value were up 37% and 41%, respectively, and as per the company, enquiry levels and sales bookings in October 2020 are above pre-Covid levels. Incremental sales in Q2FY21 were driven by premium segment Marine Drive project in Kochi, which clocked sales of 0.13msf during the quarter vs usual quarterly run-rate of 0.04msf. We believe the numbers are encouraging considering July 2020 saw a lockdown in Bengaluru, which impacted sales along with no new project launches during the quarter. Sobha's Q2FY21 real estate collections improved 50% QoQ to Rs5.0bn (86% of Q2FY20 levels) and with faster pace of construction expected in H2FY21, incremental collections are likely to trend back to pre-Covid levels by Q4FY21.

- Expect improved showing in H2FY21: The exit run-rate for monthly sales volumes in August-September 2020 would be 0.30-0.35msf, which is almost 90-100% of pre-Covid monthly run rate. Sobha's management has indicated that it is now targeting YoY growth in H2FY21 sales bookings on the back of improved demand in ongoing projects and a strong launch pipeline in Bengaluru/Chennai of 4-5msf. While the company remains optimistic about its upcoming launch pipeline of 14.5msf, the timing and area launched for sale remains dependent on the Covid-19 containment in India and project approvals in H2FY21E, especially in Bengaluru.

- Debt levels remain key: In Q2FY21, Sobha generated positive operating surplus of Rs1.3bn, which was negated by interest/tax/capex and dividend payment of Rs1.5bn leading to net debt rising by Rs0.2bn QoQ to Rs30.5bn (net D/E of 1.3x). The company's ability to keep debt levels in check remains a key monitorable.

Shares of Sobha Limited was last trading in BSE at Rs.299 as compared to the previous close of Rs. 296.2. The total number of shares traded during the day was 3069 in over 203 trades.

The stock hit an intraday high of Rs. 299.65 and intraday low of 296. The net turnover during the day was Rs. 916706.

Source : Equity Bulls

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