Maintain BUY on Sobha - Launches key trigger - HDFC Securities

Mr. Parikshit D Kandpal, Institutional Research Analyst, HDFC Securities

Sobha Ltd. (SDL) reported an operationally robust 3QFY21 with pre-sales volume of 1.13msf (+7%/+27% YoY/QoQ). Pre-sales value grew by 22% YoY to Rs 8.9bn. Real estate collections have also improved to Rs 6.6bn (vs Rs 5bn in 2QFY21). With 14.4 msf of new launch pipeline, management expects further momentum in sales as largely the current pre-sales is driven by older projects under execution. We maintain BUY on SDL as we expect the strong momentum in pre-sales to continue. We leave the TP unchanged at Rs 600/sh and cut FY21 EPS by 49%, owing to lagged completions and slow contract business execution.

Revenue misses estimates: Sobha reported revenue at Rs 6.8bn (-23%/+31% YoY/QoQ), 6% below our estimates, on slower-than-expected recovery in real estate/contracts segment execution. EBITDA margin came in at 20% (- 117bps YoY, -224bps QoQ). While interest cost remained flattish sequentially, other income declined by 34%/50% YoY/QoQ. Consequently, APAT declined 71% YoY and 59% behind our estimates.

Launch pipeline robust: SDL registered pre-sales at 1.13msf (up 7% YoY), with average realisation at Rs 7,830/sqft. Bookings were dominated by Bengaluru (70% of the sales) market, which nearly recovered to pre-COVID level. The total unsold inventory from ongoing projects stood at 14.3msf at the end of the quarter. SDL is looking to launch 14msf of new projects across geographies, of which 10mn sq ft would be launched by 1HFY22. We believe new project launches would support recovery in pre-sales.

Balance sheet remains stable: Consolidated net debt reduced marginally to Rs 29.7bn (vs Rs 30.5bn on Sep-20). With Rs 1.6bn of cash, net D/E decreased to 1.23x (1.28x on Sep-20). We expect debt to remain at a similar level. Total collections, including from contracts segment, have improved from Rs 6.9bn in 2QFY21 to Rs 8.7bn during the quarter. SDL generated net operating cash flow of Rs 1.8bn in 3QFY21.

Shares of Sobha Limited was last trading in BSE at Rs.453.05 as compared to the previous close of Rs. 445.65. The total number of shares traded during the day was 16527 in over 668 trades.

The stock hit an intraday high of Rs. 465.9 and intraday low of 445.15. The net turnover during the day was Rs. 7514112.

Source : Equity Bulls

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