Sobha gains nearly 3% after healthy Q1 pre-sales data; Elara sees 20% upside

Sobha shares gained nearly 3 percent intraday on July 5 after steady growth in pre-sales data for June quarter. Elara Capital has retained buy rating and sees 20 percent potential upside from current levels.

The Bangalore-based real estate company reported steady pre-sales of Rs 660 crore (Sobha’s share), up 8 percent YoY and down 7.1 percent QoQ. For Q1FY20, volume came in at around 1.06 million square feet, up 10.8 percent YoY and down 5.8 percent QoQ. Average realization declined by 2.5 percent YoY and 1.4 percent QoQ, led by the change in product mix.

Sales volume for Bangalore in Q1 remained healthy at 0.84 million square feet, up 21.3 percent YoY and down 11.4 percent QoQ, aided by new launches over Q3-Q4FY19, which had a strong positive response.

In Q1FY20, Sobha launched two projects: Sobha Nesara, a super luxury project at Pune and Sobha Verdure, designed row houses at Coimbatore, with a total saleable area of 0.6 million square feet. In FY19, the company launched eight new projects, with a total saleable area of 7.36 million square feet.

Sales volume for Gurugram was 0.66 million square feet, flat QoQ while volumes in Chennai grew by 8 percent QoQ.

After June quarter sales data, Elara Capital recommended buying Sobha with a price target at Rs 672, implying 20 percent potential upside.

"The implementation of RERA is aiding in sales for organized developers. Sobha’s pre-sales run-rate and cash collections have been steady for several quarters, and they are expected to pick up, aided by new launches and resilient demand in markets where the company operates. Its strong brand presence in the market, execution track record and sales momentum provide comfort on sustainable growth," the brokerage reasoned.

The faster monetisation of its legacy landbank would be a key thing to monitor, it said.

The stock was quoting at Rs 569.20, up Rs 9.05, or 1.62 percent on the BSE at 1025 hours IST.