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Missing new launch action
In a quarter where most of the real estate companies are reporting
stronger sales on new project launches; Sobha missed action as approval
delays for key projects at new locations are taking longer time to come
by. Results were also below expectations, as margins disappointed.
Sobha has meanwhile maintained its track record of continuous debt
reduction over the past three quarters, best amongst peers, as cash flows
from core operations remain strong. We cut our volume estimates by 15-
20% over FY12-13 to factor in delayed launches. A strong core business
and attractive valuations imply that any dip will be a BUYing opportunity.
Results below expectations on margin miss
Sobha’s 4QFY11 net profit declined 18% QoQ/28% YoY to Rs402m - below
expectations. Adjusted for land sales, profit was down c.10% QoQ on a 6%
decline in real estate revenues to Rs2.16bn. Ebitda margins at 18.7% were
down 390bps QoQ, partly on higher costs and greater contribution from lower
margin contracting business. Contractual business revenues grew 31%
QoQ/36% YoY to Rs1.29bn on a seasonally strong quarter.
Sales miss guidance as new launches awaited
Sales fell 7% QoQ/+3% YoY to 0.66m sf. For FY11, sales missed the 3m sf
guidance, as new launches at new locations got delayed. Pricing was a bright
spot, at Rs4,519/sf for 4Q, up 4% QoQ and c.33% YoY – leading to value
sales being near record at Rs3.0bn. Sobha has guided for 3-3.5m sf sales in
FY12, which at higher end is based on 10% higher sales at existing locations
(mainly Bangalore) and additional 0.5m sf from new locations. With new
launches necessary to drive new sales we set our target closer to lower end.
Net debt down Rs1.9bn YoY, balance sheet much improved
Sobha reported a QoQ decline in net debt of Rs608m to Rs11.8bn, without
any aid from land sales, taking YoY net debt reduction to Rs1.9bn. Net
gearing at 0.64x is lowest since Mar07. Sobha’s management is looking at a
net gearing of 0.5-0.6x by Mar’12, without any incremental land sale,
reflective of its confidence in continued FCF generation from core operations.
Launch delays lead to cuts but temporary; Maintain BUY.
We cut our FY12-13 earnings by 20% each – partly on delayed new launches
and partly on an end to land sales (assumed Rs1bn/annum earlier). Launch
delays and stopping land sales also leads to a cut in Mar’12 NAV of about 4%
to Rs504/share. Meanwhile contractual business is expected to remain strong
and with new launches expected to gain traction by June/July; the same
should lead to an awaited rise in asset turns. Maintain BUY.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Missing new launch action
In a quarter where most of the real estate companies are reporting
stronger sales on new project launches; Sobha missed action as approval
delays for key projects at new locations are taking longer time to come
by. Results were also below expectations, as margins disappointed.
Sobha has meanwhile maintained its track record of continuous debt
reduction over the past three quarters, best amongst peers, as cash flows
from core operations remain strong. We cut our volume estimates by 15-
20% over FY12-13 to factor in delayed launches. A strong core business
and attractive valuations imply that any dip will be a BUYing opportunity.
Results below expectations on margin miss
Sobha’s 4QFY11 net profit declined 18% QoQ/28% YoY to Rs402m - below
expectations. Adjusted for land sales, profit was down c.10% QoQ on a 6%
decline in real estate revenues to Rs2.16bn. Ebitda margins at 18.7% were
down 390bps QoQ, partly on higher costs and greater contribution from lower
margin contracting business. Contractual business revenues grew 31%
QoQ/36% YoY to Rs1.29bn on a seasonally strong quarter.
Sales miss guidance as new launches awaited
Sales fell 7% QoQ/+3% YoY to 0.66m sf. For FY11, sales missed the 3m sf
guidance, as new launches at new locations got delayed. Pricing was a bright
spot, at Rs4,519/sf for 4Q, up 4% QoQ and c.33% YoY – leading to value
sales being near record at Rs3.0bn. Sobha has guided for 3-3.5m sf sales in
FY12, which at higher end is based on 10% higher sales at existing locations
(mainly Bangalore) and additional 0.5m sf from new locations. With new
launches necessary to drive new sales we set our target closer to lower end.
Net debt down Rs1.9bn YoY, balance sheet much improved
Sobha reported a QoQ decline in net debt of Rs608m to Rs11.8bn, without
any aid from land sales, taking YoY net debt reduction to Rs1.9bn. Net
gearing at 0.64x is lowest since Mar07. Sobha’s management is looking at a
net gearing of 0.5-0.6x by Mar’12, without any incremental land sale,
reflective of its confidence in continued FCF generation from core operations.
Launch delays lead to cuts but temporary; Maintain BUY.
We cut our FY12-13 earnings by 20% each – partly on delayed new launches
and partly on an end to land sales (assumed Rs1bn/annum earlier). Launch
delays and stopping land sales also leads to a cut in Mar’12 NAV of about 4%
to Rs504/share. Meanwhile contractual business is expected to remain strong
and with new launches expected to gain traction by June/July; the same
should lead to an awaited rise in asset turns. Maintain BUY.
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