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Sobha Developers (SOBH.BO)
Buy Equity Research
Below expectations: Revenues lower, pre-sales velocity in line
What surprised us
Sobha reported 1QFY12 revenues of Rs3,167 mn (11% below our estimate
of Rs3,548 mn) and PBT of Rs453 mn (vs. our estimate of Rs599 mn).
Management indicated lower revenues were due to a few projects not
reaching the revenue recognition threshold in the quarter. Key highlights
of the results and conference call include: (1) management is maintaining
annual pre-sales guidance of 3.3-3.5 mn sqft with cumulative value of Rs15
bn, (2) a gross debt reduction target of Rs2 bn for FY12, and (3) the launch
of 3.48 mn sqft in 1QFY12, with a further launch of 4.5 mn sqft achieved in
July 2011. The remaining launches of 3.2 mn sqft are scheduled in the next
3-4 months, and (4) a debt increase of Rs1 bn, primarily due to approval
charges for Gurgaon project. Management has indicated that post recent
launches, monthly pre-sales velocity has increased to 0.3+ mn sqft
compared with 0.2-0.25 mn sqft over the past few quarters. Higher presales velocity and upcoming launches in Coimbatore and Chennai give us
confidence that the company is in line to meet annual pre-sales guidance.
What to do with the stock
We reiterate our Buy rating (on CL) and retain our 12-month RNAV-based
target price of Rs340. We adjust our model for (1) delay in revenue
booking for recently launched projects, and (2) higher-than-expected
selling price in “Dewflower” and “Forestview” projects. Consequently, we
revise our FY12E-FY14E estimates by -6% to -7%. Sobha is trading at a 36%
discount to our Mar-12 RNAV of Rs378. Ongoing and upcoming residential
projects provide cashflow visibility of Rs25 bn. Key catalysts are upcoming
launches in Chennai and sales progress in Gurgaon/Bangalore. Key risks
are lower-than-expected volumes sold and slower execution.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sobha Developers (SOBH.BO)
Buy Equity Research
Below expectations: Revenues lower, pre-sales velocity in line
What surprised us
Sobha reported 1QFY12 revenues of Rs3,167 mn (11% below our estimate
of Rs3,548 mn) and PBT of Rs453 mn (vs. our estimate of Rs599 mn).
Management indicated lower revenues were due to a few projects not
reaching the revenue recognition threshold in the quarter. Key highlights
of the results and conference call include: (1) management is maintaining
annual pre-sales guidance of 3.3-3.5 mn sqft with cumulative value of Rs15
bn, (2) a gross debt reduction target of Rs2 bn for FY12, and (3) the launch
of 3.48 mn sqft in 1QFY12, with a further launch of 4.5 mn sqft achieved in
July 2011. The remaining launches of 3.2 mn sqft are scheduled in the next
3-4 months, and (4) a debt increase of Rs1 bn, primarily due to approval
charges for Gurgaon project. Management has indicated that post recent
launches, monthly pre-sales velocity has increased to 0.3+ mn sqft
compared with 0.2-0.25 mn sqft over the past few quarters. Higher presales velocity and upcoming launches in Coimbatore and Chennai give us
confidence that the company is in line to meet annual pre-sales guidance.
What to do with the stock
We reiterate our Buy rating (on CL) and retain our 12-month RNAV-based
target price of Rs340. We adjust our model for (1) delay in revenue
booking for recently launched projects, and (2) higher-than-expected
selling price in “Dewflower” and “Forestview” projects. Consequently, we
revise our FY12E-FY14E estimates by -6% to -7%. Sobha is trading at a 36%
discount to our Mar-12 RNAV of Rs378. Ongoing and upcoming residential
projects provide cashflow visibility of Rs25 bn. Key catalysts are upcoming
launches in Chennai and sales progress in Gurgaon/Bangalore. Key risks
are lower-than-expected volumes sold and slower execution.
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