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Q3FY22 sales: Building on performance

Sobha continued its strong sales performance, clocking ~1.32msf presales in Q3FY22, (up 17% YoY but down just 2% QoQ). By value, sales (company’s share) were INR9.1bn, its best-ever for a quarter (up 34% YoY/6% QoQ). Realisations edged up 1% YoY/4% QoQ to INR7,920/sft. YTD, sales volumes are up 33% YoY while Sobha’s share of sales is up 46% YoY. The company launched one project spanning ~0.3msf during the quarter (~1.5msf in 9mFY22).

With the housing cycle likely turning, we expect the sales momentum to remain healthy. We expect the launch trajectory to gather pace going ahead. Maintain ‘BUY’ with a SoTP-based target price of INR1,132 per share.

Sales momentum continues; Bengaluru contributes 72%

New-sales volume grew YoY across major cities such as Bengaluru, Pune, Gurugram, and GIFT City; sales in Bengaluru rose 22% YoY (up 20% QoQ). Other cities that reported strong YoY growth included Pune (139% YoY), Gurugram (97% YoY) and GIFT City (65% YoY). Bengaluru share of sales increased to 72% (59% in Q2FY22). Overall sales value in Q3FY22 at INR10.5bn was up 18% YoY, while Sobha’s share of sales value was up 34% YoY at INR9.1bn. YTD, sales volumes are up 33% YoY, total sales value is up 34% YoY, while Sobha’s share of sales is up 46% YoY.

Price realisation edges up 1% YoY

Average price realisation during Q3FY22 edged up 1% YoY to ~INR7,920/sft; it was up 4% QoQ.

New launches, cash flow and debt remain key variables

The company launched one project spanning ~0.3msf during the quarter; YTD launches stand at ~1.5msf. It has a robust launch pipeline of 10.8msf projects going ahead. The company’s focus on cash flow management has helped it reduce net debt for the past five consecutive quarters. Along with debt, interest costs too declined this quarter.

Outlook and valuation: Balance sheet key; maintain ‘BUY’

As highlighted in our comprehensive sector report Real Estate - The Charge of the Consolidating Brigade, RERA-driven consolidation is throwing up growth opportunities for organised players such as Sobha. We like the company’s strong presence in the South India realty market and robust execution capabilities.

Revival in housing demand coupled with Sobha’s focus on cash flows and geographical expansion should hold it in good stead. Cash flow improvement is a key stock catalyst, in our view. We believe Sobha will be a key beneficiary of robust tech hiring and maintain ‘BUY/SN’ with an SoTPbased target price of INR1,132/share (on a par with its NAV of INR1,085/share for the residential business plus value of the contractual business at INR47/share).

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