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Sobha Developers
Overweight
SOBH.BO, SOBHA IN
In line 3QFY11 results. Operational performance
remains healthy
Sobha's stock price has fallen by 30% from its highs in October. While the
recent share price weakness is not at odds with its peer group and overall
sector performance; it could primarily be attributable to macro headwinds
(political, inflation) and credit tightening concerns. We note that hiring
and salary trends reported by the IT companies remain fairly robust and
should continue to drive real estate demand in Bangalore. In this context,
we remain positive on Bangalore based developers; but we prefer Prestige
over Sobha given its market leadership position, diversified presence
(across segments) and growing annuity stream (rental business).
• In line 3QFY11 – Sobha reported 3QFY11 net income of Rs490MM
(+20% Y/Y,–17% Q/Q) in line with our estimates. 3Q revenues of
Rs3.6B (+17% Y/Y, -16% Q/Q) included land sales of Rs300MM (vs.
Rs1.1B in 2Q). Adjusted for land sales, revenues were up 5%Q/Q while
net income was up 30% Q/Q aided by margin improvement (3Q adjusted
EBITDA - 22% vs. 20% in 2Q).
• Sales update - Dec-Q volumes remained largely stable at 0.7msf
thereby taking overall 9MFY11 sales to 2.1msf/~Rs8B (+47% Y/Y).
Average realizations at Rs3,950psf improved by 5% Q/Q; though costs
too have started to increase at the margin. Overall, management remains
confident of achieving its full year target sales target of 3msf (~70%
done in 9MFY11) given unsold inventory of 3.3msf across its ongoing
projects and aggressive launch plan of 11.3msf over FY11/12 (vs. 4msf
launched over 9MFY11). Execution has picked up with 2.5msf (RE –
2.1msf) of projects being delivered during the Dec-Q; overall FY11
delivery target stands at 6.9msf (RE– 4.2msf).
• Net debt at Rs12.5B remained largely stable Q/Q despite land sales
and decent operational performance (Net D/E-0.7x). As per the
management, this was on account of payments for approval charges for
new launches (Rs400MM). Sobha has Rs5.5B of debt maturing over the
next one year; however management indicated that it has debt facilities
in place to re-finance this. Additionally, the co. expects Rs12.2B of cash
flows from its sold/unsold inventory over the next 2-3 years.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Sobha Developers
Overweight
SOBH.BO, SOBHA IN
In line 3QFY11 results. Operational performance
remains healthy
Sobha's stock price has fallen by 30% from its highs in October. While the
recent share price weakness is not at odds with its peer group and overall
sector performance; it could primarily be attributable to macro headwinds
(political, inflation) and credit tightening concerns. We note that hiring
and salary trends reported by the IT companies remain fairly robust and
should continue to drive real estate demand in Bangalore. In this context,
we remain positive on Bangalore based developers; but we prefer Prestige
over Sobha given its market leadership position, diversified presence
(across segments) and growing annuity stream (rental business).
• In line 3QFY11 – Sobha reported 3QFY11 net income of Rs490MM
(+20% Y/Y,–17% Q/Q) in line with our estimates. 3Q revenues of
Rs3.6B (+17% Y/Y, -16% Q/Q) included land sales of Rs300MM (vs.
Rs1.1B in 2Q). Adjusted for land sales, revenues were up 5%Q/Q while
net income was up 30% Q/Q aided by margin improvement (3Q adjusted
EBITDA - 22% vs. 20% in 2Q).
• Sales update - Dec-Q volumes remained largely stable at 0.7msf
thereby taking overall 9MFY11 sales to 2.1msf/~Rs8B (+47% Y/Y).
Average realizations at Rs3,950psf improved by 5% Q/Q; though costs
too have started to increase at the margin. Overall, management remains
confident of achieving its full year target sales target of 3msf (~70%
done in 9MFY11) given unsold inventory of 3.3msf across its ongoing
projects and aggressive launch plan of 11.3msf over FY11/12 (vs. 4msf
launched over 9MFY11). Execution has picked up with 2.5msf (RE –
2.1msf) of projects being delivered during the Dec-Q; overall FY11
delivery target stands at 6.9msf (RE– 4.2msf).
• Net debt at Rs12.5B remained largely stable Q/Q despite land sales
and decent operational performance (Net D/E-0.7x). As per the
management, this was on account of payments for approval charges for
new launches (Rs400MM). Sobha has Rs5.5B of debt maturing over the
next one year; however management indicated that it has debt facilities
in place to re-finance this. Additionally, the co. expects Rs12.2B of cash
flows from its sold/unsold inventory over the next 2-3 years.
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