Sobha Ltd - Q4FY21 Results Review Report - Launch momentum key - HDFC Securities

Mr. Parikshit D Kandpal, CFA, HDFC Securities and Mr. Chintan Parikh, Institutional Research Analyst, HDFC Securities

Sobha Ltd. (SDL) reported an operationally robust 4QFY21 with presales volume at 1.33msf (+48%/+18% YoY/QoQ). Presales value grew by 54% YoY to INR 10.7bn. Real estate collections also improved to INR 7.2bn (vs INR 6.6bn in 3QFY21). With the launch of 2.8msf of projects in 4Q, the company is well on track to launch another 7 msf by Mar-22. Management will continue to focus on cash flow and net D/E reduction to 1x by Dec-22. We maintain BUY on SDL as we expect the strong momentum in presales to continue. We cut our FY22/FY23 estimates to factor in delays in project completion due to the second wave of COVID- 19 and slower recovery in contractual business. We reduce the target price to INR 580/sh (INR 600/sh earlier).

Deferred revenue recognition leads to miss on estimates: Sobha reported revenue of INR 5.5bn (-39%/-19% YoY/QoQ), 28% below our estimates, on slower-than-expected recovery in real estate/contracts segment execution. EBITDA margin came in at 18.7% (+39/31bps YoY/QoQ). While interest cost remained flattish sequentially, other income declined by 26% YoY. Consequently, APAT declined 65% YoY to INR 179mn (51% miss). Construction activity has continued during 1QFY22 as labour strength remains intact. Management expects the price hike that was taken in 3QFY21 to protect margin from the sharp increase in commodity prices. INR 8bn revenue is expected from contracts and manufacturing business.

Launch pipeline robust: SDL registered presales of 1.33msf (up 48% YoY) in 4Q. While bookings were dominated by Bengaluru (67% of sales) market, Gurgaon and Kochi saw good traction too. Sobha launched new residential projects Sobha Windsor, Bengaluru (1.35 msf), Sobha Metropolis, Thrissur (1.17 msf), and plotted development Chartered Woodpecker, Bengaluru (0.25 msf). The unsold inventory of ~16msf from ongoing and completed projects and 7msf of additional launches by Dec-21 would support recovery in presales. 1QFY22 presales are expected to be similar to 1QFY21.

Balance sheet remains stable: Consolidated net debt reduced marginally to INR 28.5bn (vs Rs 29.7bn on Dec-20), with net D/E at 1.17x (1.23x on Dec-20). Sobha plans to reduce net debt further by INR 1.5-2bn in FY22 and bring net D/E to 1x by 3QFY23. ~INR 0.8bn land payments for launches will be met through internal accruals. Construction spends for real estate business would range between INR 10bn to INR 12bn in FY22.

Shares of Sobha Limited was last trading in BSE at Rs.463.05 as compared to the previous close of Rs. 468.1. The total number of shares traded during the day was 28337 in over 1872 trades.

The stock hit an intraday high of Rs. 474.95 and intraday low of 457.65. The net turnover during the day was Rs. 13190614.

Source : Equity Bulls

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