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Record quarter for sales bookings

Sobha Ltd. (SOBHA) achieved its highest ever quarterly gross sales bookings in Q4FY21 at 1.34msf worth Rs10.7bn which is up 48% YoY in volume terms and 54% YoY in value terms. A strong QoQ uptick in Bengaluru and continued momentum in Kochi/Gurugram markets has enabled Sobha to cross pre-COVID sales bookings. For H2FY21, the company has achieved its guidance of achieving a YoY growth in sales bookings (up 25% YoY in volume and 38% YoY in value) and has ended FY21 with flattish gross sales volumes of 4.01msf worth Rs31.4bn (Sobha share at Rs24.8bn). We maintain our FY22/23E sales volume estimates of 4.7/5.0msf, respectively. We revise our SOTP based target price to Rs540/share (earlier Rs505) adjusting for lower net debt and cut our rating to ADD from BUY post the recent run up in stock price. Key risks to our call are a slowdown in residential demand and rise in the company’s debt levels.

Bengaluru/Gurugram/Kochi markets drive uptick in sales bookings:

Sobha’s Q4FY21 gross sales bookings of 1.34msf worth Rs10.7bn were up 48% YoY in volume terms and 54% YoY in value terms. On QoQ basis, gross sales volumes and value were up 18% and 21%, respectively driven by a strong QoQ uptick in Bengaluru and Gurugram volumes. During the quarter, the company launched two luxury residential projects – Sobha Windsor in Whitefield, Bengaluru (1.35msf) and Sobha Metropolis in Thrissur, Kerala (1.17msf) and a plotted development - Chartered Woodpecker in Devanahalli, Bengaluru (0.25msf). Driven by a significant recovery in H2FY21 where sales volume and value grew by 25% and 38% YoY, respectively, Sobha has ended FY21 with flattish gross sales volumes of 4.0msf worth Rs31.4bn.

Expect improved showing to continue in FY22-23E:

We believe that the company’s FY21 sales performance is commendable considering a weak Q1FY21 owing to Covid impact, 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 4.7/5.0ms 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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