ICICI Securities

Sobha (Buy)

Target: ₹505

CMP: ₹442.15

Sobha’s Q3-FY21 gross sales volumes of 1.13 msf worth ₹890 crore were up 6 per cent y-o-y in volume terms and 22 per cent y-o-y in value terms. A strong q-o-q uptick in Bengaluru and continued momentum in Kochi/Gurugram markets has enabled Sobha to cross pre-Covid sales bookings inspite of minimal launches.

The company maintains its guidance of achieving a y-o-y growth in H2-FY21 sales bookings on the back of new launches and monetisation of existing inventory.

While the company remains optimistic about its upcoming launch pipeline of 14.5 msf, the timing and area launched for sale remains dependent on the Covid-19 containment and pace of project approvals, especially in South India.

We have raised our FY21/22 volume estimates by 25 per cent to 3.9/4.7msf respectively (earlier 3.2/3.8msf) to reflect the improved performance.

We retain our BUY rating with a revised SOTP based target price of ₹505/share (earlier ₹382) as we roll forward to Mar-22 NAV and build in higher sales volumes over FY21-23.

In Q2-FY21, Sobha generated positive operating surplus of ₹130 crore, which was negated by interest/tax/capex and dividend payment of ₹150 crore leading to net debt rising by ₹0.2 crore q-o-q to ₹3,050 crore (net D/E of 1.3x).

The company’s ability to keep debt levels in check remains a key monitorable.

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