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Sobha Developers
FY12 guidance on expected
lines; Reiterate Buy
4Q - Earnings miss but better cash flows; Reiterate Buy
Sobha reported 4Q earnings at Rs405mn, 10% below our estimate due to
compression in margin by 4%, primarily due to higher revenue contribution from
the construction division in this quarter (37% against 26% in 9MFY11). Positively,
net debt reduced by 5% to Rs11.8bn due to positive cash flow from operations.
We reiterate our Buy rating with PO of Rs390, offering potential upside of 40%,
due to strong fundamentals of the Bangalore market, strong balance sheet and
expected strong cash flows as new launches pick up pace in FY12.
Sales guidance in line with expectation
Sobha has guided towards 3.5mn sq ft of sales in FY12 (growth of 25% over FY11
and in line with our estimate) and 10% higher realization of Rs4500/sq ft due to
better mix and NCR launch. The sales in 4Q were muted at 0.66mn sq ft given
delays in launches due to lack of approvals. But the management is confident on a
slew of launches (11 projects) over the next 3-6 months starting June’11.
Leverage under control, cash flows improving
Sobha saw marginal reduction in debt in 4Q by 5% to Rs11.8bn helped by strong
operational cash flow, and expects further reduction in net debt to ~Rs10bn in
FY12. We estimate Sobha to generate surplus cash of Rs2.5bn in FY12 from its
core operations, and since its is not looking to reduce leverage beyond 0.5x, think
it may start investing in development of income yielding assets from FY13.The
liquidity also remains comfortable as it has unutilized loan sanction of Rs8bn (at
interest cost of 13%) against debt repayment obligation of Rs5.5bn in FY12.
Risk – high mortgage rates, response in new locations
Sobha is planning to launch over 63% of the new projects in new location like
NCR and Chennai, and therefore the success of these projects is critical for
sustaining above 20% volume growth over the next 2-3 years.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sobha Developers
FY12 guidance on expected
lines; Reiterate Buy
4Q - Earnings miss but better cash flows; Reiterate Buy
Sobha reported 4Q earnings at Rs405mn, 10% below our estimate due to
compression in margin by 4%, primarily due to higher revenue contribution from
the construction division in this quarter (37% against 26% in 9MFY11). Positively,
net debt reduced by 5% to Rs11.8bn due to positive cash flow from operations.
We reiterate our Buy rating with PO of Rs390, offering potential upside of 40%,
due to strong fundamentals of the Bangalore market, strong balance sheet and
expected strong cash flows as new launches pick up pace in FY12.
Sales guidance in line with expectation
Sobha has guided towards 3.5mn sq ft of sales in FY12 (growth of 25% over FY11
and in line with our estimate) and 10% higher realization of Rs4500/sq ft due to
better mix and NCR launch. The sales in 4Q were muted at 0.66mn sq ft given
delays in launches due to lack of approvals. But the management is confident on a
slew of launches (11 projects) over the next 3-6 months starting June’11.
Leverage under control, cash flows improving
Sobha saw marginal reduction in debt in 4Q by 5% to Rs11.8bn helped by strong
operational cash flow, and expects further reduction in net debt to ~Rs10bn in
FY12. We estimate Sobha to generate surplus cash of Rs2.5bn in FY12 from its
core operations, and since its is not looking to reduce leverage beyond 0.5x, think
it may start investing in development of income yielding assets from FY13.The
liquidity also remains comfortable as it has unutilized loan sanction of Rs8bn (at
interest cost of 13%) against debt repayment obligation of Rs5.5bn in FY12.
Risk – high mortgage rates, response in new locations
Sobha is planning to launch over 63% of the new projects in new location like
NCR and Chennai, and therefore the success of these projects is critical for
sustaining above 20% volume growth over the next 2-3 years.
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