Retain ‘buy’ on Sobha with revised target price of Rs 505

Sobha’s Q3FY21 gross sales volumes of 1.13msf worth Rs 8.9bn wereup 6% y-o-y in volume terms and 22% y-o-y in value terms. A strong q-o-q uptick in Bengaluru and continued momentum in Kochi/Gurugram markets has enabled Sobha to cross pre-Covid sales bookings inspite of minimal launches. The company maintains its guidance of achieving a y-o-y growth in H2FY21 sales bookings on the back of new launches and monetisation of existing inventory. We have raised our FY21/22E volume estimates by 25% to 3.9/4.7msf respectively (earlier 3.2/3.8msf) to reflect the improved performance. We retain our ‘buy’ rating with a revised SOTP based target price of Rs 505/share (earlier Rs 382) as we roll forward to Mar-22 NAV and build in higher sales volumes over FY21-23E. Ability to keep debt levels in check remains the key monitorable.

Bengaluru market drives uptick in sales bookings. On q-o-q basis, Sobha’s gross sales volumes and value were up 27% and 29%, respectively driven by a strong uptick in Bengaluru where volumes surged 46% q-o-q to 0.79msf & contributed to 69% of the sales volumes. Sales trajectory in premium projects in Kochi and Gurugram remained strong as well. The sales volumes were achieved inspite of minimal new launches (one project of 0.12msf was launched in Bengaluru during the quarter).

Expect improved showing in Q4FY21. The company has achieved 9MFY21 sales volumes of 2.7msf and remains confident of an improved showing in Q4FY21 as well on the back of new launches and monetisation of existing inventory. Hence, we believe that the company remains on track to clock a y-o-y sales booking growth in H2FY21. We believe that the relatively muted impact of Covid-19 on the IT/ITeS sector in South India in 9MFY21 has helped to a large extent along with increased sales through digital channels.

While the company remains optimistic about its upcoming launch pipeline of 14.5msf, the timing and area launched for sale remains dependent on the Covid-19 containment and pace of project approvals, especially in South India.
Debt levels remain key. In Q2FY21, Sobha generated positive operating surplus of Rs 1.3bn, which was negated by interest/tax/capex and dividend payment of Rs 1.5bn leading to net debt rising by Rs 0.2bn q-o-q to Rs 30.5bn (net D/E of 1.3x).