Sobha Developers-- Q4 Operational Update - Strong performance continues :: Prabhudas Lilladher,

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Sobha Developers                        Accumulate             

Company Update - Q4 Operational Update - Strong performance continues

n  Q4 sales volumes strong, in-line with expectations: As per Sobha’s operational update released today, the company has recorded strong sales for the quarter at 0.86m sq.ft, fuelled by two Chennai launches and one Bengaluru launch in Whitefield, totalling to 1.83m sq.ft. For FY12, the company ended the year with total sales of 3.28m sq.ft valued at Rs17bn as against 2.78m sq.ft valued at Rs11.3bn in FY11. Average realizations too increased sharply by 27% from Rs4,082 in FY11 to Rs5,181, led by the high-value NCR launch.

Launches during the fiscal saw a strong pick up to 10.45m sq.ft as against 4.3m sq.ft launched in FY11. Besides, Sobha entered three new geographies in FY12, NCR, Chennai and Mysore, all of which have performed fairly well.

n  Sales momentum to remain strong, Cash flow generation to accelerate: With Sobha’s strategy of releasing additional area at the existing launches as well as with new launches lined up, we expect sales growth of 28% to 4.2m sq.ft in FY13. The company has a near-term pipeline of over 5m sq.ft of launches.

New launches and monetization of old sales is likely to lead to positive cash generation for the company on account of which we expect a steady decline in the company’s debt levels. The company’s DER is likely to reduce from 0.67 in FY11 to 0.59 by FY13.

n  Valuations: Sobha’s gross asset value stands at Rs50bn. From this, we deduct its net debt of Rs11.7bn to give us a net asset value of Rs38.2bn which translates to Rs390/share. To arrive at our target price, we have factored in a 20% discount to the company’s real estate NAV which gives us a value of Rs312. To this, we are adding the value of the contract business which translates to a target price of Rs348. We maintain ‘Accumulate’ on the stock.