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Residential and commercial realty firm, Sobha witnessed strong buying sentiment on stock exchanges after it recorded strong sales that surpassed analysts' estimates for the quarter ending June 2022 (Q1FY22) period. On Friday, Sobha shares settled on a bullish note, however, in a week the company has given double-digit growth. On the back of strong sales booking and new launches, Sobha is well-positioned in the industry ahead. ICICI Securities has given a buy rating on the Sobha stock.
On Friday, Sobha shares closed at ₹675.40 apiece up by ₹34.60 or 5.40%. The shares had touched an intraday high of ₹678.80 apiece - resulting in overall gains of 5.93% on the day compared to Thursday's closing of ₹640.80 apiece. The company's market cap is around ₹6,405.89 crore.
This week, Sobha shares skyrocketed by at least 21.21% due to strong quarterly sales data. On July 1, Sobha shares were around ₹557.2 apiece on BSE.
In Q1FY23, the Bangalore-based real estate developer clocked the highest ever quarterly sales volume of 1.36 million sft rising by 51.7% yoy. The company's share of sales value is also the highest ever since inception at ₹951.7 crore in Q1FY23 compared to ₹570.9 crore in Q1 of FY22.
Sobha recorded total sales of ₹1,145.5 crore in Q1FY23 compared to ₹682.9 crore in Q1FY22 and ₹1,109.6 crore in Q4FY22. Average Price realization improved to ₹8,431 per sft, with price increases across ongoing projects.
In its regulatory filing, the company said Bengaluru sales volume and value have been the highest ever since inception on the back of 3 new project launches. Meanwhile, cash flows remained healthy during the quarter resulting in further net debt reduction.
During the quarter, Sobha launched 3 new residential projects in Bengaluru with over 2mn sft of Saleable Area.
"We have continued our calibrated price increases in all projects & cities to counterbalance the inflationary forces. Despite the increase in prices, higher homes loan rates, demand for our homes continues to be strong across segments, particularly in Bengaluru and Gurugram," Sobha said in its filing.
Should you buy Sobha stocks?
Post the provisional sales data, Adhidev Chattopadhyay, Research Analyst at ICICI Securities said, achieved Q1FY23 gross sales bookings of 1.36msf worth ₹11.5 billion versus Isec estimate of ₹10.5 billion and is the best ever quarter for the company in terms of sales bookings. While the company had earlier guided for flattish gross sales volume of ~5.0msf in FY23E (4.9msf in FY22) citing cost input pressures and rising mortgage rates, the strong start to FY23 on the back of three new project launches in Bengaluru is encouraging.
For FY22 overall, the company has clocked its best-ever annual sales performance with gross sales bookings of 4.91msf worth ₹38.7 billion, the analyst pointed out.
While strong sales books and new launches are seen as the positives for Sobha going ahead in FY23, the company is also likely to hike prices as inflation and mortgage rates may put pressure on its margins.
According to the analyst, heading into FY23E, while the company has a strong launch pipeline of ~13msf, given the cost input inflation and mortgage rates expected to rise further in FY23E, the company believes that it will need to take further price hikes of 5-6% in FY23E (6% price hike in FY22) to protect margins which may marginally impact demand. Hence, the company has guided for flattish gross sales volume of ~5.0msf in FY23E (4.9msf in FY22) with gross sale value growing 5-6% to Rs40 billion (Rs38.7 billion in FY22).
"We currently model for FY23E and FY24E sales booking value of Rs40.3 billion and Rs43.9 billion, respectively vs. FY22 sales bookings worth Rs38.7 billion. However, given the outperformance in Q1FY23, we see an upside risk to our estimates," the analyst added.
Following the above, ICICI Securities has given a buy rating on Sobha stock. The analyst said, "We maintain our BUY rating with a revised SOTP based TP of Rs744/share (earlier Rs712) owing to project level and balance sheet adjustments. Key risks to our call are a slowdown in residential demand and a rise in the company’s debt levels."
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.