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* Sobha during the quarter achieved pre-sales(volumes) of 0.9mnsft. During the quarter the company registered 32% degrowth in pre-sales to Rs11.79bn and collection of Rs.12.22bn. Company reported net sales revenues of Rs.9.3bn in Q2FY25 (+26% YoY/+46% QoQ). Operating profit for the quarter stood at Rs.771mn (+2% YoY/+38% QoQ). Margin for the quarter stood at 8.3%. Revenue from the contract manufacturing segment de-grew by 23% YoY to Rs.1.522bn. Sobha has launched 5 projects worth 3.5 mn sft in H1-FY25 and expect to launch a total 5.5 mnsft in HFY25, taking total yearly launches to 9mnsft and plan to launch 10mnsft in FY26.

* The Company generated a net operating cash flow of Rs.1.84bn. and real estate cash flow decreased by 3% YOY to Rs.12.23bn. Net debt has majorly reduced to Rs.2.8bnpost the rights issue, down from Rs 11.88 Bn in Q1FY25 with the cost of debt unchanged since Q1FY25,at 9.4%. Net debt/equity stood at 0.08X. The current debt equity is at a very comfortable level and the management may take new debt for future expansion (land acquisition).

* Right issue of Rs19.99bn to support future growth: Over the past several quarters, the company has been able to reduce its debt through the healthy cash flow generation and sales as well as by monetizing its land assets. Recently the company finished the 1 st tranche of its Rs19.99bn rights issue to support the future growth by way of acquiring land, project related expenses and debt repayment. Of the total rights issue amount this, 50% has been raised as Application Money, balance to be called in December 2024. Currently land bank prices have increased significantly across Tier-I and Tier II cities, which may impact the overall IRR of the new projects, however, Sobha is relatively better placed with a good capital base and a rich pipeline in order to capture opportunities. Going forward, the company aims to keep its debt/equity level below 1x.

* Expanding into new geographies: Sobha is slowly and gradually expanding its presence beyond the Southern market, as it is not in a hurry to increase its inventory within a short span of time. It is looking to consistently increase its yearly sales by 20% from the current ~6.4mnsft to 7-8mnsf in coming years. Corresponding to this, the company has started investing in all the new geographies like Pune and Hyderabad and an increasing presence in Kerala. They have also started looking into the MMR market, although it is at a nascent stage.

* Looking for healthy launches: In the launch pipeline for FY24 and FY25 most of the projects have average sales price upwards of 11000/sft in a fast growing region like NCR, Kerala and Bangalore. Out of the 19 mnsft launch pipeline, they are planning to launch 10mnsft in FY26. We believe, Sobha is on the cusp of generating healthy pre-sales in coming years, led by a robust launch plan, low inventory, and increasing presence in the non-Bengaluru markets like Hosur, Gurugram,Pune,GIFT city and also plans of gradually penetrating the MMR market too. Further in H1FY25, NCR region contributes 18% on sales volume front and 30% on sales value front. With the new launch pipeline from the high ASP region we expect Sabha to generate healthy sales growth from FY26 onwards with a subdued FY25 in terms of growth in presales

* Outlook & Valuation: Currently the company has low levels of inventory and is looking to add a launch pipeline up to 40mnsft (17.6mnsft+24.4mnsft new) over the next few years with most of the launches where Sobha’s share will be 90%+.. We recommend SELL rating on the stock with a SoTP price target of Rs.1421, by factoring all the positives such as healthy Launch pipeline, increase in ASP due to change in mix, and similar level of margin.

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