Buy Sobha Ltd For Target Rs.2,500 By Elara Capital
Launches on track; FY26 guidance intact
Sobha (SOBHA IN) clocked in Q1 presales of INR 20.7bn, up 11% YoY and 13% QoQ. This was aided by a strong show at NCR, accounting for 57% of presales. Notably, sustenance sale at Gurugram (up 2x QoQ) is a key positive. The developer retains guidance of growing presales by at least 30% YoY in FY26, backed by > INR 100bn of new launches and unreleased inventory of INR 74bn in existing projects. Overall, it posted a healthy core FCFF print of ~INR 4bn, up 5% YoY, and trending above past eight quarters’ average of INR 3.1bn. EBITDA margin and cashflow trajectory are set to improve: 1) >INR 150bn of unrecognized revenue having a project-level EBITDA margin of ~33% vs 10% in FY25, and 2) improving company share in the new presales pipeline at >83% vs 81% in FY24 & 79% in FY25. The stock is trading at ~30% discount to our estimated March 2026E NAV that factors in land value arrived by using a higher WACC of ~16% and an effective discount of 52% to capture lack of developable opportunities for select land parcels. Reiterate Buy with a higher TP of INR 2,500.
Strong traction in NCR and sustenance sales drives record quarterly presales: SOBHA delivered its highest-ever quarterly sales of INR 20.7bn, backed by ~1.4mn sqft of volume. NCR accounted for 57% of presales with solid traction in new launches (Aurum clocking in ~80% take rate) and higher sustenance sales in Gurugram (up 2x QoQ). This is followed by Bengaluru at 29% and Kerala at 10%. Overall, the developer remains on track to deliver on FY26 presales growth of at least 30% YoY, backed by >INR 100bn and unreleased inventory in existing projects of INR 74bn. We estimate FY26 presales of INR 84bn, up 34% YoY.
Core operational performance supports value unlocking in legacy landbank: Core FCFF for the residential business has averaged INR 3-4bn on a quarterly basis since FY23. This has allowed the developer to consolidate land for unlocking value in legacy landbank while walking the deleveraging path – boasts a net cash of INR 7.0bn. Also, increased visibility on improving profitability is a key highlight – projects worth INR 6.5bn due occupancy certificate (OC) has a PBT margin of 23% vs reported EBITDA margin at 8%. Overall, EBITDA margin and cashflow trajectory is set to improve: 1) >INR 150bn of unrecognized revenue having a project-level EBITDA margin of ~33% vs 10% in FY25, and 2) improving company share in the new presales pipeline at >83% vs 81% in FY24 & 79% in FY25.
Reiterate Buy with a higher TP of INR 2,500: We believe the market is ignoring: 1) its commitment to retain the multi-regional status via expanding its footprints at NCR (ongoing + upcoming pipeline at >8mn sqft) along with exploring opportunities at Mumbai, and 2) increasing visibility on landbank monetization – activity by Grade A developer’s gaining traction in the Hoskote micro market of Bengaluru where it boasts a developable landbank of >300 acres. The stock price implies a ~30% discount to our March 2026E NAV. We lift our presales by up to 11% for FY26E-FY27E and raise our SOTP-based TP to INR 2,500 from INR 2,200, as we incorporate the new projects pipeline in our NAV having a higher economic share. The development business accounts for 95% of our SOTP.
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SEBI Registration number is INH000000933
