POCM revenues yet to pick up; land sales prop results: Sobha reported
revenues to the tune of Rs4.3bn, YoY growth of 56%, while a sequential decline
of 17%. Revenues, however, consisted of Rs950m of proceeds from a land sale
in Pune. Hence, the POCM revenues from Real estate stood at Rs2.42bn, while
Rs958m was from the contracts & manufacturing division. The company’s POCM
revenues have remained in the Rs2-2.5bn band and are likely to inch-up in
H2FY13, with several projects likely to reach the completion threshold.
Margins appear subdued due to land sale: Sobha’s EBITDA margins stood at
27.7% for Q1FY13 as against 23.7% in Q1FY12 and 38% in Q4FY12. With margins
on the land sale component being low at 16%, overall margins for the company
look subdued. However, excluding the same, margins stood at 29%. The
company’s PAT for the quarter stood at Rs450m, YoY growth of 73% and a
sequential decline of 54% on account of high margin land sales in Q4FY12.
Strong sales performance continues: Although launches were subdued for the
quarter, with only a small villa launch in Coimbatore, sales momentum
continued at the company’s previously launched projects, thereby, ending the
quarter at 0.83m sq.ft, representing 25% YoY growth and a marginal sequential
decline. Sales from the Gurgaon project witnessed a strong sequential increase
of 24%. Realizations, too, remained firm at Rs5,737, an increase of 26% and 7%
on a YoY and QoQ basis, respectively, resulting in total sales of Rs4.79bn. The
company’s sales guidance for FY13 stands at Rs20bn as against sales of Rs17bn
clocked in for FY12.
Purchase of stake in project derails deleveraging: Although operational cash
flows were positive (post the land sale), Sobha bought its partner’s stake in a
project for Rs550m and spent Rs250m towards fixed assets during the quarter
which led to its net debt increasing by Rs464m to Rs11.8m from Rs11.3m in
Q4FY13.
Concall Highlights: 1) The company shall be adopting new accounting guidelines
which shall lead to a delay in revenue recognition for its new projects 2) Debt is
expected to move up marginally in Q2FY13; however, the management expects
debt to be lower by March 2013. Its target net debt: equity levels are 0.5-0.6. 3)
The company maintains its launch target for the year at 4.3m sq.ft, of which, the
Dairy Circle property is due for launch this month. 4) The company repaid loans
to the tune of Rs1.56bn during the quarter and the balance that is to be repaid
in FY13 stands at Rs2.01bn 5) The company has made an application to the
Kerala government for a 160acre project in Cochin which is likely to materialize
soon.
Valuations: Sobha’s NAV stands at Rs39.8bn, translating to Rs406/share. We
attribute a 20% discount to this to arrive at the value of the real estate business.
To this, we are adding the value of the contract business which is calculated at
Rs35/share which translates to a target price of Rs360. We maintain
‘Accumulate’ on the stock.
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