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S o u t h e r n s i r e n…
Sobha Developers (Sobha) is a leading Bengaluru based real estate
player. Currently, it is executing ongoing projects of 15 million (mn) sq ft
(Sobha’s saleable share: 12.8 mn sq ft) and has a land bank of 222 mn sq
ft (Sobha’s saleable share: 219 mn sq ft). The Bengaluru market
(accounting for 70% of Sobha’s sales volume) has seen better absorption
than the Mumbai and Delhi market in the last few quarters. Going ahead,
given the sharp rise in inventory in the market and cautious commentary
from leading IT companies post Q3FY12 results, we remain cautious on
sales volumes and build in stable sales volumes for Sobha at 3.1-3.2 mn
sq ft during FY12-14E. In terms of leverage, we anticipate Sobha’s net
debt to equity will come down to 0.59x by Q4FY12E with further debt
reduction of | 70-80 crore. However, we do not anticipate any meaningful
debt reduction in FY13 given our stable sales volume assumption and
pick-up in construction activity.
Presence in stable Bengaluru market, outlook remains cautious
The Bengaluru market (~70% of Sobha’s sales volume & 64% of ongoing
- 12.8 mn sq ft & proposed projects – 7.0 mn sq ft) has seen better
absorption than Mumbai & Delhi markets in the last few quarters. Given
the healthy Bengaluru market absorption coupled with Sobha launches,
Sobha’s sales volume has grown sharply to 0.82 mn sq ft in Q3FY12 from
0.67 mn sq ft in Q1 FY11. However, we remain cautious on the absorption
trend given the sharp rise in inventory in the market and cautious
commentary from leading IT companies indicating Bengaluru may not
witness same absorption, which it has seen in the past. Hence, though we
anticipate Sobha’s sales volume from Bengaluru market will come down
to 63% in FY14 from 76% in FY11 due to launches in other geographies,
we build in stable sales volume of 3.1-3.2 mn sq ft in FY12-14.
Expect | 70-80 cr debt reduction in Q4FY12E but not significant one in FY13E
We anticipate Sobha’s net debt to equity will come down to 0.59x by
Q4FY12E with further debt reduction of | 70-80 crore. However, we do
not anticipate any meaningful debt reduction in FY13 given our stable
sales volume assumption and pick-up in construction activity (please refer
page no. 11-12 for further details).
Valuations
At the CMP, the stock is trading at 1.3x FY13 P/BV and 0.9x its NAV (after
adjusting for the construction business valuation). We have valued Sobha
at | 290/share using SoTP methodology and initiated coverage on the
stock with a HOLD recommendation. The real estate business has been
valued at | 251/share and the construction business at |39/share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
S o u t h e r n s i r e n…
Sobha Developers (Sobha) is a leading Bengaluru based real estate
player. Currently, it is executing ongoing projects of 15 million (mn) sq ft
(Sobha’s saleable share: 12.8 mn sq ft) and has a land bank of 222 mn sq
ft (Sobha’s saleable share: 219 mn sq ft). The Bengaluru market
(accounting for 70% of Sobha’s sales volume) has seen better absorption
than the Mumbai and Delhi market in the last few quarters. Going ahead,
given the sharp rise in inventory in the market and cautious commentary
from leading IT companies post Q3FY12 results, we remain cautious on
sales volumes and build in stable sales volumes for Sobha at 3.1-3.2 mn
sq ft during FY12-14E. In terms of leverage, we anticipate Sobha’s net
debt to equity will come down to 0.59x by Q4FY12E with further debt
reduction of | 70-80 crore. However, we do not anticipate any meaningful
debt reduction in FY13 given our stable sales volume assumption and
pick-up in construction activity.
Presence in stable Bengaluru market, outlook remains cautious
The Bengaluru market (~70% of Sobha’s sales volume & 64% of ongoing
- 12.8 mn sq ft & proposed projects – 7.0 mn sq ft) has seen better
absorption than Mumbai & Delhi markets in the last few quarters. Given
the healthy Bengaluru market absorption coupled with Sobha launches,
Sobha’s sales volume has grown sharply to 0.82 mn sq ft in Q3FY12 from
0.67 mn sq ft in Q1 FY11. However, we remain cautious on the absorption
trend given the sharp rise in inventory in the market and cautious
commentary from leading IT companies indicating Bengaluru may not
witness same absorption, which it has seen in the past. Hence, though we
anticipate Sobha’s sales volume from Bengaluru market will come down
to 63% in FY14 from 76% in FY11 due to launches in other geographies,
we build in stable sales volume of 3.1-3.2 mn sq ft in FY12-14.
Expect | 70-80 cr debt reduction in Q4FY12E but not significant one in FY13E
We anticipate Sobha’s net debt to equity will come down to 0.59x by
Q4FY12E with further debt reduction of | 70-80 crore. However, we do
not anticipate any meaningful debt reduction in FY13 given our stable
sales volume assumption and pick-up in construction activity (please refer
page no. 11-12 for further details).
Valuations
At the CMP, the stock is trading at 1.3x FY13 P/BV and 0.9x its NAV (after
adjusting for the construction business valuation). We have valued Sobha
at | 290/share using SoTP methodology and initiated coverage on the
stock with a HOLD recommendation. The real estate business has been
valued at | 251/share and the construction business at |39/share.
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