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Sobha Developers
Missed 1Q, FY12 guidance
intact; Reiterate Buy
1Q disappointed on earnings and cash flow; Reiterate Buy
Sobha reported 4Q earnings at Rs309mn, 15% below our estimate due to higher
interest cost and taxes. But the larger disappointment was due to increase in debt
by Rs1bn due to investment in its Gurgaon project. We have cut our earnings
estimate by 12% for FY12 to factor in lower sales estimate and higher taxes, and
adjusted our PO lower to Rs375 (Rs390 earlier). We reiterate our Buy rating as
we expect the benefit of recent launches to reflect in cash flows and earnings
from 2HFY12, and as balance sheet remains strong.
FY12 guidance intact, cautious but optimistic
Sobha management has maintained its guidance for FY12 and sounded confident
of achieving the same. It expects to achieve sales value of Rs15bn (MLe
Rs14.2bn), 25% growth in PAT (MLe 16%) and reduction in debt by Rs3bn (MLe
Rs2bn) in FY12. While the sales were muted in 1Q at 0.65mn sq ft, management
indicated significant pick up in July, having already sold 0.35mn sq ft so far in 2Q.
Also as further projects are launched across geographies we expect Sobha to
improve on its run rate of 0.65mn sq ft to 0.9mn sq ft per qtr in rest of FY12.
Debt reduction to be back ended in FY12
We have cut our cash surplus estimate for FY12 from Rs3bn to Rs2bn on
disappointing 1Q. We believe the recent and upcoming launches in
Bangalore/Gurgaon will start translating into strong cash flows only from 3Q as
Sobha already has commitment of Rs700mn in 2Q for dividend payout and
purchase of stake in one of its project.
Increasing risk due to global uncertainty
South Indian real estate market is highly dependent on IT/ITeS sector and if the
uncertainty on global economic outlook persists longer we could see downside
risk to our volume and NAV estimate.
Price objective basis & risk
Sobha Developers (SBDRF)
Our preferred valuation methodology is NAV, calculated by discounting the cash
flows from each of the real estate projects. Our price objective of Rs375 is
therefore based on our NAV of Rs441. We expect Sobha to trade at a discount of
15% to large developers like DLF on discount to NAV basis, because of its
smaller size and concentration of land bank primarily in one location, Bangalore.
Key assumptions underlying our NAV are WACC of 15.1%, capitalization rate of
11% and inflation of 5% from FY13 on both selling price and construction costs.
On a P/E basis, at our PO of Rs375, the stock would trade at 15x FY12E
earnings. Downside risks are lower than expected volume and prices in the
Bangalore residential market.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sobha Developers
Missed 1Q, FY12 guidance
intact; Reiterate Buy
1Q disappointed on earnings and cash flow; Reiterate Buy
Sobha reported 4Q earnings at Rs309mn, 15% below our estimate due to higher
interest cost and taxes. But the larger disappointment was due to increase in debt
by Rs1bn due to investment in its Gurgaon project. We have cut our earnings
estimate by 12% for FY12 to factor in lower sales estimate and higher taxes, and
adjusted our PO lower to Rs375 (Rs390 earlier). We reiterate our Buy rating as
we expect the benefit of recent launches to reflect in cash flows and earnings
from 2HFY12, and as balance sheet remains strong.
FY12 guidance intact, cautious but optimistic
Sobha management has maintained its guidance for FY12 and sounded confident
of achieving the same. It expects to achieve sales value of Rs15bn (MLe
Rs14.2bn), 25% growth in PAT (MLe 16%) and reduction in debt by Rs3bn (MLe
Rs2bn) in FY12. While the sales were muted in 1Q at 0.65mn sq ft, management
indicated significant pick up in July, having already sold 0.35mn sq ft so far in 2Q.
Also as further projects are launched across geographies we expect Sobha to
improve on its run rate of 0.65mn sq ft to 0.9mn sq ft per qtr in rest of FY12.
Debt reduction to be back ended in FY12
We have cut our cash surplus estimate for FY12 from Rs3bn to Rs2bn on
disappointing 1Q. We believe the recent and upcoming launches in
Bangalore/Gurgaon will start translating into strong cash flows only from 3Q as
Sobha already has commitment of Rs700mn in 2Q for dividend payout and
purchase of stake in one of its project.
Increasing risk due to global uncertainty
South Indian real estate market is highly dependent on IT/ITeS sector and if the
uncertainty on global economic outlook persists longer we could see downside
risk to our volume and NAV estimate.
Price objective basis & risk
Sobha Developers (SBDRF)
Our preferred valuation methodology is NAV, calculated by discounting the cash
flows from each of the real estate projects. Our price objective of Rs375 is
therefore based on our NAV of Rs441. We expect Sobha to trade at a discount of
15% to large developers like DLF on discount to NAV basis, because of its
smaller size and concentration of land bank primarily in one location, Bangalore.
Key assumptions underlying our NAV are WACC of 15.1%, capitalization rate of
11% and inflation of 5% from FY13 on both selling price and construction costs.
On a P/E basis, at our PO of Rs375, the stock would trade at 15x FY12E
earnings. Downside risks are lower than expected volume and prices in the
Bangalore residential market.
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