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Reported numbers sedate; sales and launches remain healthy. Sobha reported
adjusted revenues of Rs3.1 bn (9% below our estimate) and EBITDA of Rs717 mn which
is 4% below our estimate. Sales volume increased marginally qoq belying fears of
seasonality impacting this quarter. Sobha intends to launch 13 mn sq. ft over the next
two-three quarters. Debt reduced qoq led by land sales proceeds used for repayment
and quarterly operational cash flow is positive. Retain ADD.
2QFY11 below estimates post adjusting for land sale
Sobha recorded Rs1.1 bn of land sale in 2QFY11. Adjusting for which, 2QFY11 revenues are
Rs3.1 bn (+41% yoy, 0.6% qoq), 9% below our estimate of Rs3.4 bn, and EBITDA (based on
management commentary of 23% margins excluding land sale) is Rs717 mn (-4% versus KIE
estimate, +52% yoy and +19% qoq). With this land sale in Pune (50 acres), there is higher visibility
of Sobha achieving its Rs2 bn target of land sales in FY2011E.
Sales and launches are the key positives in 2QFY11
Sobha reported sales volumes of 744,678 sq. ft in 2QFY11 versus 670,883 sq. ft in 1QFY11,
2.1 mn sq. ft in FY2010 and 0.9 mn sq. ft in FY2009. Management indicated they are seeing
significantly better volumes in the Bangalore market at current prices which have gone up 5% to
10% over the previous two quarters. We note that Sobha has 8.35 mn sq. ft of ongoing projects
(Sobha’s share of saleable area) out of which it has already sold 5.7mn sq. ft. Sobha has Rs12 bn
worth of unsold stock and has to receive Rs9 bn for the sold portion while incurring an additional
cost of Rs10.3 bn for the ongoing projects, resulting in a surplus of Rs10.9 bn.
Sobha has launched four projects with a total area of 1.6 mn sq. ft in the past six months and has
an aggressive launch calendar for the rest of FY2011E when it is planning to launch around 13 mn
sq. ft, including around 6 mn sq. ft in NCR. In October 2010, Sobha has already launched Sobha
Forest View in Banashankari in South Bangalore which is a 492 apartment project for a total area
of around 0.5 mn sq. ft. Sobha maintained its guidance of 3 mn sq. ft which we believe is easily
achievable with 1.4 mn sq. ft already sold in 1HFY11. Sobha has launched Sobha Classic (3BHK
super luxury apartments) in Bangalore and Sobha Turquoise (95 3BHK row houses) in Coimbatore.
Contractual business steady on IT services-led growth
Sobha booked revenues of Rs717 mn from contractual segment in 2QFY11 versus Rs690 mn in
1QFY11. Sobha currently has 4.27 mn sq. ft under contracts from Infosys and other leading
companies in India and a strong pipeline of 6.58 mn sq. ft that will progressively start over
FY2011E. It intends to deliver 29 projects with a total area of 3.5 mn sq. ft.
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