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Sobha Developers (SOBH.BO)
Buy Equity Research
Upcoming launches improve visibility, reiterate Buy (CL), raise TP
What's changed
Takeaways from a call with the regional head, NCR of Sobha Developers.
1) Launch schedule: Sobha has received most of the approvals for the
Township project including license, layout and land demarcation.
Management has guided towards a project launch over the next two
months post plot-wise zoning approval. 2) Improvement in
infrastructure. Improved connectivity with Dwarka is likely to lead to better
pricing and demand. 3) Premium projects. The township is intended to be
a high-end villa based project with pricing expected to be Rs6,000+/sq. ft
and unit sizes 3,000+sq ft. 4) Sales target. Phase I comprises the launch of
200 villas with a cumulative area of 1 mn sqft (total of 4 mn sqft). 5)
Execution control. Sobha intends to minimize delays in delivery as it plans
to launch their projects after most approvals are obtained.
Implications
This is among the largest projects being undertaken by Sobha and a
successful launch will likely improve revenue visibility. Management has
indicated that Sobha has already invested around Rs4.5 bn (around 15% of
current balance sheet). We estimate revenues from Gurgaon of Rs173 mn
in FY12E and Rs1,452 mn in FY13E, about 2% and 10% of total revenues.
Valuation
Sobha remains on our Conviction Buy list with a revised price target of
Rs344 (Rs331 prior). The revision is driven primarily by a pricing adjustment
of Rs500/sq ft for the Gurgaon project. Our 12-month RNAV-based TP of Rs344
is derived by applying a 10% discount to FY12E RNAV of Rs382. We fine-tune
FY11E-13E earnings by 0%/-1% as we marginally lower volume estimates.
Based on FY2012E P/B, Sobha trades at 1.1X versus our coverage average of
1.2X and an FY2012E P/E of 10.4X versus peers 10.9X.
Key risks
(1) lower-than-expected sales due to high interest rate environment, (2)
delay in Gurgaon project launch, and (3) order slowdown from Infosys.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Asia Pacific Conviction Buy List
Coverage View: Attractive
New infrastructure makes the project location very attractive
Sobha’s upcoming 152-acre Township project is located in Sector 106 and Sector 109
(Exhibit 1). This villa project comprises of 4 mn sqft with 1.5 mn sqft of apartments to be
launched later. Though, these sectors are in close aerial vicinity of established areas such
as Dwarka (in Delhi, 3km) and Indira Gandhi International Airport (5-6 km), current
connectivity is through a much longer route. As per Gurgan Masterplan-2021, there is a
proposed road, Northern Peripheral Road (NPR) that is expected to provide direct access
to these locations. As per media reports, The contract for Dwarka-Gurgaon road has been
awarded with a construction plan of 18 months.
Currently the differential between the two sides is 5:1 for land rates and around 2.2:1 for
apartments. Management indicated that land prices in Dwarka are Rs300,000/sq. yard
while apartment prices are in the region of around Rs7,000/sq ft despite having lower
specifications. We model the current pricing environment assuming Rs6,000/sqft for villas
and Rs3,780/sqft for apartments. Successful and timely completion of NPR is likely to
significantly improve saleable potential of the area. Management has indicated that it has
received lot of enquiries from people living on the Dwarka side. Exhibit 3 presents NAV
sensitivity of this land with respect to selling prices. Gurgaon accounts for about 16% of
our FY12E RNAV estimate for Sobha.
Competitive intensity. Exhibit 2 summarizes selling prices of various upcoming projects
in the area. Currently, we expect significant investor demand in this area which is on
account of expectation of better connectivity. Management indicated that raw land prices
in the area are around Rs50-60 mn per acre.
Sales strategy. Sobha is exploring various sales strategies including selling small
portions through the broker network. Management indicated its focus on attracting endusers
even though it may entail a lower sales pace. We currently model sales of 0.4 mn sq.
ft in FY2012E.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sobha Developers (SOBH.BO)
Buy Equity Research
Upcoming launches improve visibility, reiterate Buy (CL), raise TP
What's changed
Takeaways from a call with the regional head, NCR of Sobha Developers.
1) Launch schedule: Sobha has received most of the approvals for the
Township project including license, layout and land demarcation.
Management has guided towards a project launch over the next two
months post plot-wise zoning approval. 2) Improvement in
infrastructure. Improved connectivity with Dwarka is likely to lead to better
pricing and demand. 3) Premium projects. The township is intended to be
a high-end villa based project with pricing expected to be Rs6,000+/sq. ft
and unit sizes 3,000+sq ft. 4) Sales target. Phase I comprises the launch of
200 villas with a cumulative area of 1 mn sqft (total of 4 mn sqft). 5)
Execution control. Sobha intends to minimize delays in delivery as it plans
to launch their projects after most approvals are obtained.
Implications
This is among the largest projects being undertaken by Sobha and a
successful launch will likely improve revenue visibility. Management has
indicated that Sobha has already invested around Rs4.5 bn (around 15% of
current balance sheet). We estimate revenues from Gurgaon of Rs173 mn
in FY12E and Rs1,452 mn in FY13E, about 2% and 10% of total revenues.
Valuation
Sobha remains on our Conviction Buy list with a revised price target of
Rs344 (Rs331 prior). The revision is driven primarily by a pricing adjustment
of Rs500/sq ft for the Gurgaon project. Our 12-month RNAV-based TP of Rs344
is derived by applying a 10% discount to FY12E RNAV of Rs382. We fine-tune
FY11E-13E earnings by 0%/-1% as we marginally lower volume estimates.
Based on FY2012E P/B, Sobha trades at 1.1X versus our coverage average of
1.2X and an FY2012E P/E of 10.4X versus peers 10.9X.
Key risks
(1) lower-than-expected sales due to high interest rate environment, (2)
delay in Gurgaon project launch, and (3) order slowdown from Infosys.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Asia Pacific Conviction Buy List
Coverage View: Attractive
New infrastructure makes the project location very attractive
Sobha’s upcoming 152-acre Township project is located in Sector 106 and Sector 109
(Exhibit 1). This villa project comprises of 4 mn sqft with 1.5 mn sqft of apartments to be
launched later. Though, these sectors are in close aerial vicinity of established areas such
as Dwarka (in Delhi, 3km) and Indira Gandhi International Airport (5-6 km), current
connectivity is through a much longer route. As per Gurgan Masterplan-2021, there is a
proposed road, Northern Peripheral Road (NPR) that is expected to provide direct access
to these locations. As per media reports, The contract for Dwarka-Gurgaon road has been
awarded with a construction plan of 18 months.
Currently the differential between the two sides is 5:1 for land rates and around 2.2:1 for
apartments. Management indicated that land prices in Dwarka are Rs300,000/sq. yard
while apartment prices are in the region of around Rs7,000/sq ft despite having lower
specifications. We model the current pricing environment assuming Rs6,000/sqft for villas
and Rs3,780/sqft for apartments. Successful and timely completion of NPR is likely to
significantly improve saleable potential of the area. Management has indicated that it has
received lot of enquiries from people living on the Dwarka side. Exhibit 3 presents NAV
sensitivity of this land with respect to selling prices. Gurgaon accounts for about 16% of
our FY12E RNAV estimate for Sobha.
Competitive intensity. Exhibit 2 summarizes selling prices of various upcoming projects
in the area. Currently, we expect significant investor demand in this area which is on
account of expectation of better connectivity. Management indicated that raw land prices
in the area are around Rs50-60 mn per acre.
Sales strategy. Sobha is exploring various sales strategies including selling small
portions through the broker network. Management indicated its focus on attracting endusers
even though it may entail a lower sales pace. We currently model sales of 0.4 mn sq.
ft in FY2012E.
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