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Sobha Developers
Sobha's balance sheet holds `2bn of advances from customers (over 10%
of net worth). As collections are made on units already sold, we expect
cash flows to remain strong in the coming quarters. Through a
combination of operational cash flows and land sales, the group targets to
reduce its debt to equity ratio from 0.7x to 0.5x over the next six months.
The stock is currently trading at 1.1x September 2011 P/B multiple.
Company Background
Sobha is a real estate developer with around 95% of its land bank based in South
India, primarily in Bengaluru. The group is also in the contractual business
executing civil contracts for third parties. Infosys is Sobha’s key client contributing
to 88% of the group’s total contractual revenues.
Recent Financial Performance
For 2QFY12, the group reported a sales volume growth rate of 41% QoQ and
26% YoY and a sales value growth rate of 61% QoQ and 77% YoY. Average
realisation rates increased to `5,196 per sq ft in 2QFY12 v/s `4,547 per sq ft in
1QFY12 helped by the launch of plotted developments in Gurgaon. Net cash
generated from operating activities stood at `1.3bn for the quarter. Net
debt/equity ratio was at 0.7x with the weighted average cost of debt during the
quarter being 13.98%. Contractual projects order book is of about 12msf and an
unbilled value on contractual sales of `9.8bn.
Outlook
With 49% of Sobha's customers over the past 15 months self financing their
purchase, buyer sentiment on the customer base is likely to be relatively less
exposed to the current interest rate environment. As collections are made on units
already sold, we expect cash flows to remain strong in the coming quarters.
Management has reiterated its targets for: a) achieving sales of 3msf worth `1.5bn
in FY12; b) reducing the amount of debt on the balance sheet to around `10bn,
thereby reducing the group's debt/equity ratio to 0.5 by March 31, 2012.
Conference Meeting Notes
Sobha Developers represented by Mr Baaskaran, CFO
Analyst:
Rakshit Ranjan, CFA, rakshitranjan@ambitcapital.com, +91 22 3043 3201
1. Balance sheet de-leveraging: Management remains focused on meeting its
4-6 month targets around reduction in (a) debt/equity ratio to below 0.5x and
(b) quantum of debt on the balance sheet to less than `10bn from `13bn
currently. The ongoing run-rate of operating cash flows is expected to provide
for `1.5-`2.0bn of the targeted `3bn reduction in overall debt. The balance
`1.0-`1.5bn of debt reduction will come from land bank sales. Operating cash
flows in 2QFY12 stood at `1.3bn.
2. Ongoing sales run rate in projects already launched has continued to
remain high. With 49% of Sobha's customers over the past 15 months self
financing their purchase, buyer sentiment on the group's customer base is
likely to be relatively less exposed to the current interest rate environment. In
2QFY12, the group reported sales volume growth rate of 41% QoQ and 26%
YoY and a sales value growth rate of 61% QoQ and 77% YoY. Infosys, the
group's largest contractual revenue client, is planning to launch construction of
a 500-acre complex in Bangalore. Phase 1 of this project is expected to
commence construction in 1QFY13.
3. Run rate of collections: The group collects 30% of the unit cost from
customers as booking amount usually within one month of the sale of unit.
Consequently, ru -rate of collections on the group's portfolio remains strong.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sobha Developers
Sobha's balance sheet holds `2bn of advances from customers (over 10%
of net worth). As collections are made on units already sold, we expect
cash flows to remain strong in the coming quarters. Through a
combination of operational cash flows and land sales, the group targets to
reduce its debt to equity ratio from 0.7x to 0.5x over the next six months.
The stock is currently trading at 1.1x September 2011 P/B multiple.
Company Background
Sobha is a real estate developer with around 95% of its land bank based in South
India, primarily in Bengaluru. The group is also in the contractual business
executing civil contracts for third parties. Infosys is Sobha’s key client contributing
to 88% of the group’s total contractual revenues.
Recent Financial Performance
For 2QFY12, the group reported a sales volume growth rate of 41% QoQ and
26% YoY and a sales value growth rate of 61% QoQ and 77% YoY. Average
realisation rates increased to `5,196 per sq ft in 2QFY12 v/s `4,547 per sq ft in
1QFY12 helped by the launch of plotted developments in Gurgaon. Net cash
generated from operating activities stood at `1.3bn for the quarter. Net
debt/equity ratio was at 0.7x with the weighted average cost of debt during the
quarter being 13.98%. Contractual projects order book is of about 12msf and an
unbilled value on contractual sales of `9.8bn.
Outlook
With 49% of Sobha's customers over the past 15 months self financing their
purchase, buyer sentiment on the customer base is likely to be relatively less
exposed to the current interest rate environment. As collections are made on units
already sold, we expect cash flows to remain strong in the coming quarters.
Management has reiterated its targets for: a) achieving sales of 3msf worth `1.5bn
in FY12; b) reducing the amount of debt on the balance sheet to around `10bn,
thereby reducing the group's debt/equity ratio to 0.5 by March 31, 2012.
Conference Meeting Notes
Sobha Developers represented by Mr Baaskaran, CFO
Analyst:
Rakshit Ranjan, CFA, rakshitranjan@ambitcapital.com, +91 22 3043 3201
1. Balance sheet de-leveraging: Management remains focused on meeting its
4-6 month targets around reduction in (a) debt/equity ratio to below 0.5x and
(b) quantum of debt on the balance sheet to less than `10bn from `13bn
currently. The ongoing run-rate of operating cash flows is expected to provide
for `1.5-`2.0bn of the targeted `3bn reduction in overall debt. The balance
`1.0-`1.5bn of debt reduction will come from land bank sales. Operating cash
flows in 2QFY12 stood at `1.3bn.
2. Ongoing sales run rate in projects already launched has continued to
remain high. With 49% of Sobha's customers over the past 15 months self
financing their purchase, buyer sentiment on the group's customer base is
likely to be relatively less exposed to the current interest rate environment. In
2QFY12, the group reported sales volume growth rate of 41% QoQ and 26%
YoY and a sales value growth rate of 61% QoQ and 77% YoY. Infosys, the
group's largest contractual revenue client, is planning to launch construction of
a 500-acre complex in Bangalore. Phase 1 of this project is expected to
commence construction in 1QFY13.
3. Run rate of collections: The group collects 30% of the unit cost from
customers as booking amount usually within one month of the sale of unit.
Consequently, ru -rate of collections on the group's portfolio remains strong.
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