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Published on 28/07/2021 10:24:27 AM | Source: ICICI Securities

Add Sobha Ltd For Target Rs. 540 - ICICI Securities

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Resilient performance

As per Sobha’s business update, the company has achieved Q1FY22 gross sales bookings of 0.90msf worth Rs6.8bn which were up 38% YoY in volume terms and 40% YoY in value terms driven by Bengaluru and Gurugram markets. While Q1FY21 was a washout with a complete lockdown across India, the improved Q1FY22 performance reflects ability of leading developers to utilise digital channels to drive sales. Also, a partial lockdown during the second Covid wave in Q1FY22 has been less disruptive to operations with construction activities continuing across sites. While quarterly sales volumes may remain volatile depending on Covid induced lockdowns and pace of new launches, we retain our FY22/23E sales volume estimates of 4.7/5.0msf, respectively. We retain our ADD rating with an unchanged SOTP based target price of Rs540/share. Key risks to our call are a slowdown in residential demand and rise in the company’s debt levels.

 

Bengaluru and Gurugram markets enable resilient operational performance:

Sobha’s Q1FY22 gross sales bookings of 0.90msf worth Rs6.8bn were up 38% YoY in volume terms and 40% YoY in value terms. While Q1FY21 had seen a complete washout in the months of April and May 2020 owing to a complete lockdown across India, Q1FY22 has seen a partial lockdown between April to June 2021 with construction activities continuing at project sites and developers being able to use their learnings from FY21 to drive sales through digital channels. In Q1FY22, the Bengaluru market clocked 37% YoY sales volume growth along with the Gurugram market which grew 119% YoY.

 

Expect improved showing to continue in FY22-23E:

We believe that the company’s Q1FY22 sales performance is commendable considering the second Covid wave impact across India, and expect sales momentum to sustain heading into FY22E as well on the back of new launches. We believe that the relatively muted impact of COVID-19 on the IT/ITeS sector in South India in FY21 has helped to a large extent along with increased sales through digital channels. While quarterly sales volumes may remain volatile depending on Covid induced lockdowns and pace of new launches, we model for 4.7/5.0msf of gross sales volumes in FY22E/FY23E, respectively.

 

Reduction in debt levels remain key:

In FY21, Sobha generated positive operating surplus of Rs6.4bn, which was negated by interest/tax/capex outgo of Rs4.6bn leading to net debt reducing by Rs1.7bn to Rs28.5bn (net D/E of 1.2x). The company intends to bring absolute net debt levels down by another Rs1.5-2.0bn in FY22E as well.

 

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