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Sobha Developers (SOBHA)
Property
Robust sales with steady financials. Sobha had sales of 0.9 mn sq. ft in 2QFY12
which is a ten-quarter high while EBITDA and PAT beat our estimates. A marginal
increase in net debt qoq is the only negative. We maintain our BUY recommendation
on Sobha with a revised target price of Rs350/share (Rs370/share earlier). At current
market price, we find minimal value being ascribed to either (1) development more than
ongoing projects, (2) brand and (3) Sobha operating as a going concern.
Aggressive launches and record sales
Sobha launched 4 projects in 2QFY12 aggregating to 5.13 mn sq. ft and sold 0.94 mn sq. ft in
2QFY12E which is the highest in ten quarters which have otherwise had a range of 0.25-0.8 mn sq.
ft. New locations of Mysore and Gurgaon contributed 0.12 mn sq. ft and we now see a higher
probability of Sobha achieving its FY2012E sales guidance of 3-3.5 mn sq. ft having sold 1.6 mn
sq. ft in 1HFY12E. Average realization has gone up to Rs5,196/sq. ft from Rs4,547/sq. ft in
1QFY12 due to sales in Gurgaon (Rs8,000/sq. ft) and 8-10% price rise in ongoing projects. Sobha
has now launched 8.6 mn sq. ft in 1HFY12 which is a record for the company and has drawn
plans for launching 7.8 mn sq. ft in the coming quarters.
Steady 2QFY12
Sobha declared revenues of Rs3.3 bn (+4% qoq, -23% yoy, 4% below expectation) and EBITDA of
Rs755 mn (+21% qoq, -22% yoy, 7% above expectation) as EBITDA margin climbed 332 bps qoq.
PAT at Rs409 mn (+32% qoq, -31%) was 11% above expectation due to lower-than-expected
interest cost and effective tax rate.
Bengaluru, Sobha’s primary market, remains healthy
Absorption in the Bengaluru residential market (Sobha’s primary market) remains stable with
monthly absorption (based on 3-month rolling averages) of 4 – 4.9 mn sq. ft since October 2010.
Inventory is in line with trend (16-17 months) and prices have also remained stable though we see
marginal probability of an increase on average. We expect Bengaluru demand to continue to
remain robust given (1) positive outlook on IT services demand and hence hiring trend remaining
robust, (2) no evidence of any significant speculative element built into either volumes or prices.
Current stock price continues to assume minimal value beyond ongoing projects and book value
Almost all of Sobha’s current EV is accounted by (1) PV of cash flows from current projects +
(2) book value of land + (3) value of the contracting business. We are cutting FY2012E revenue
and net profit estimates by 8% due to lowering our land sale assumption and increasing tax rate.
Key risks include (1) delay in project launches beyond 2QFY12 and (2) a slowdown in demand for
IT services which could impact residential demand in Bangalore
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sobha Developers (SOBHA)
Property
Robust sales with steady financials. Sobha had sales of 0.9 mn sq. ft in 2QFY12
which is a ten-quarter high while EBITDA and PAT beat our estimates. A marginal
increase in net debt qoq is the only negative. We maintain our BUY recommendation
on Sobha with a revised target price of Rs350/share (Rs370/share earlier). At current
market price, we find minimal value being ascribed to either (1) development more than
ongoing projects, (2) brand and (3) Sobha operating as a going concern.
Aggressive launches and record sales
Sobha launched 4 projects in 2QFY12 aggregating to 5.13 mn sq. ft and sold 0.94 mn sq. ft in
2QFY12E which is the highest in ten quarters which have otherwise had a range of 0.25-0.8 mn sq.
ft. New locations of Mysore and Gurgaon contributed 0.12 mn sq. ft and we now see a higher
probability of Sobha achieving its FY2012E sales guidance of 3-3.5 mn sq. ft having sold 1.6 mn
sq. ft in 1HFY12E. Average realization has gone up to Rs5,196/sq. ft from Rs4,547/sq. ft in
1QFY12 due to sales in Gurgaon (Rs8,000/sq. ft) and 8-10% price rise in ongoing projects. Sobha
has now launched 8.6 mn sq. ft in 1HFY12 which is a record for the company and has drawn
plans for launching 7.8 mn sq. ft in the coming quarters.
Steady 2QFY12
Sobha declared revenues of Rs3.3 bn (+4% qoq, -23% yoy, 4% below expectation) and EBITDA of
Rs755 mn (+21% qoq, -22% yoy, 7% above expectation) as EBITDA margin climbed 332 bps qoq.
PAT at Rs409 mn (+32% qoq, -31%) was 11% above expectation due to lower-than-expected
interest cost and effective tax rate.
Bengaluru, Sobha’s primary market, remains healthy
Absorption in the Bengaluru residential market (Sobha’s primary market) remains stable with
monthly absorption (based on 3-month rolling averages) of 4 – 4.9 mn sq. ft since October 2010.
Inventory is in line with trend (16-17 months) and prices have also remained stable though we see
marginal probability of an increase on average. We expect Bengaluru demand to continue to
remain robust given (1) positive outlook on IT services demand and hence hiring trend remaining
robust, (2) no evidence of any significant speculative element built into either volumes or prices.
Current stock price continues to assume minimal value beyond ongoing projects and book value
Almost all of Sobha’s current EV is accounted by (1) PV of cash flows from current projects +
(2) book value of land + (3) value of the contracting business. We are cutting FY2012E revenue
and net profit estimates by 8% due to lowering our land sale assumption and increasing tax rate.
Key risks include (1) delay in project launches beyond 2QFY12 and (2) a slowdown in demand for
IT services which could impact residential demand in Bangalore
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