Maintain ‘buy’ with a revised target price (TP) of Rs 291 (Rs 212 earlier) while rolling forward the valuation to September 2021E. (Representative image)

By Edelweiss Securities

Sobha’s Q4FY20 new sales fell 22% y-o-y and 9% q-o-q to Rs 550 crore due to the pandemic-induced dislocation. Net debt offered a reason to cheer, edging down to Rs 3,020 crore (from Rs 3,090 crore at Q3FY20 end). The management indicated Bengaluru’s realty market has recovered well with enquiries now at pre-lockdown levels, adding that the focus in the current fiscal will be on cash flow management. While the health crisis may disrupt H1FY21 operations, we expect sales momentum to improve going ahead riding the robust 14.6 msf launch pipeline. Pending further clarity on certain aspects of the new accounting standard Ind AS 115 adopted wef April 1, 2018, we continue to follow the old AS. Maintain ‘buy’ with a revised target price (TP) of Rs 291 (Rs 212 earlier) while rolling forward the valuation to September 2021E.

During Q4FY20, the company reported new sales of 0.9 msf (down 20% y-o-y, 15% q-o-q). Volume slipped in Bengaluru, but rose in Gurgaon and Pune. The management indicated that while sales were muted during April–May 2020, enquiry levels are now back to pre-Covid-19 levels. The management believes sales performance will improve in H2FY21 on the back of its robust launch pipeline aggregating 14.6 msf.

The management said it will refrain from any major investments in land during the fiscal, which should keep debt contained.

While Covid-19 will mar near-term performance of realty players, we believe Sobha’s focus on cash flows should hold it in good stead.

Cash flow improvement is a key stock catalyst. Maintain ‘buy/SP’ with a revised TP of Rs 291 per share. We derive the TP by applying a 30% discount to NAV of Rs 355 per share for the residential business plus value of the contractual business.