IGI Logo

Launch heavy quarter; Land monetisation aids debt reduction

Sobha reported a healthy 1QFY23 with sales volumes of c.1.36msf (highest ever quarterly sales volume) and net operating cash flow of INR 1.58bn (+26% YoY; fell 59% QoQ). Sales were largely driven by 2.02msf of new launches in Bangalore and over FY23 management expects to sustain the sales run-rate with c.2-3msf of additional planned launches. On the cash flows front, given the existing sales velocity, INR 5bn of annual gross surplus can be created half of which would be utilised for business development / growth while the balance would be utilised to reduce debt. As a result, net debt is likely to trend downwards even from these levels. Even in this quarter, net debt reduced by INR 2.27bn (INR 1.32bn reduction on account of monetisation of vintage land parcel). On the contractual business, Sobha is expecting some pickup in the coming quarters and indicated of a INR 5bn order book to be executed over the next 1-1.5 years. We feel the current momentum in residential market augurs well for Sobha as it targets c.15-20% sales growth over FY22. We maintain ‘BUY’ rating with a Mar’23 TP of INR 745. Key Risks: interest rate hikes and slower-than-expected project launches.

* Bangalore launches drive an operationally strong quarter: Sobha reported a strong quarter on the back of 2.02msf of new launches in Bangalore (Sentosa - 0.78msf, Victoria Park - 0.59msf and Royal Crest - 0.65msf). Total sales volume came in at 1.36msf (highest ever quarterly sales volume) while booking values came in at INR 11.45bn (INR 9.53bn Sobha share, +2% QoQ & +67% YoY; highest ever). Realisation came in at INR 8,431psf (INR 8,265psf in 4QFY22) as 4-6% price hikes across came into effect. Bengaluru contributed c.78% of volumes in 1QFY23 (1.06msf; +60% YoY; +14% QoQ; on account of new launches) and continues to be the company’s strongest market. Gift City, Thrissur and Coimbatore showed QoQ growth while rest of the cities were down QoQ. Kozhikode saw cancellations of 39K sqft as Sobha has cancelled bookings where payments were delayed.

* Accelerated debt repayment led by one-off land monetisation: In 1QFY23, cash collections in Sobha’s real estate business came in at INR 8.88bn (+62% YoY; down 16% QoQ) resulting in net operating cash flow of INR 1.58bn (+26% YoY, down 56% QoQ). Operating cash flows coupled with land bank monetisation (inflow of INR 1.3bn) led to debt reduction by INR 2.27bn to INR 21.1bn (0.84x net debt to equity). Cost of borrowing marginally increased to 8.45% (8.40% in 4QFY22).

* Reported financials: Balance revenue of INR 85.15bn (already sold) is yet to be recognised on as of Jun’22. Revenue recognition came in at INR 5.81bn (+14% YoY; down 20% QoQ) and is expected to pick-up next year on accelerated completions. EBITDA margin came in at 14.1% (down 247bps YoY; +270bps QoQ) and is likely to remain under pressure while PAT was INR 137mn (+27% YoY; down 45% QoQ).

* Trying to diversify contractual business: Revenue from contractual business came in at INR 1.08bn (down 20% YoY and 46% QoQ) and management indicated contracts from Infosys (a key client) have slowed down while they target to diversify the order book. Focus remains on profitable growth in the segment and presently the order book stands at INR 5bn to be executed over the next 1-1.5 years.

* Forthcoming project pipeline: Sobha has a healthy launch pipeline of projects with 12.11msf in area (11.79msf of residential + 0.32msf commercial) to be launched in multiple phases over the coming quarters. Most of the projects are expected to be launched over FY23 / FY24. Launch pipeline spans across Bangalore, Gurgaon, Chennai, Trivandrum, Thrissur, Hosur, Gift City and Hyderabad

* New launches: - In 1QFY23 the company launched 3 new residential projects in Bengaluru with a super built-up area of 2.02msf:

* Sobha Sentosa – A Luxury Residential project with a SBA of 0.78msf in South Bengaluru

* Sobha Victoria Park – Spread over 6.5 acres, in North Bengaluru with 0.59msf of SBA comprising of row houses & apartments

* Sobha Royal Crest – 3 & 4 BHK apartment project near Banshankari, West Bengaluru with saleable area of 0.65msf

* Other details: i) Completions happened in Sobha Blossom, Sobha City Gurgaon, Dream Acres (one tower) and Sobha Pristine, ii) taken c.4-6% price hikes across Bangalore and, iii) Looking at other cities Hyderabad, NCR, Chennai and Pune for business development.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.jmfl.com/disclaimer

CIN Number : L67120MH1986PLC038784

Above views are of the author and not of the website kindly read disclaimer