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Sobha Ltd. (SOBHA) achieved Q1FY23 gross sales bookings of 1.36msf worth Rs11.5bn vs. Isec estimate of Rs10.5bn and is the best ever quarter for the company in terms of sales bookings. While the company had earlier guided for flattish gross sales volume of ~5.0msf in FY23E (4.9msf in FY22) citing cost input pressures and rising mortgage rates, the strong start to FY23 on the back of three new project launches in Bengaluru is encouraging. We currently model for FY23E and FY24E sales booking value of Rs40.3bn and Rs43.9bn, respectively vs. FY22 sales bookings worth Rs38.7bn. However, given the outperformance in Q1FY23, we see an upside risk to our estimates. We maintain our BUY rating with a revised SOTP based TP of Rs744/share (earlier Rs712) owing to project level and balance sheet adjustments. Key risks to our call are a slowdown in residential demand and a rise in the company’s debt levels

* Bengaluru launches enable strong operational performance: Sobha’s Q1FY23 gross sales bookings of 1.36msf worth Rs11.5bn (Isec estimate of Rs10.5bn) was flat QoQ in volume terms and up 3% in value terms aided by the company achieving its highest ever gross realisation of Rs8,431/psf. In Q1FY23, the Bengaluru market was again the key contributor with sales volumes of 1.06msf and contributed 78% of the total volumes. This was owing to three new launches in Bengaluru during the quarter including Sobha Sentosa (0.8msf in South Bengaluru), Sobha Victoria Park (0.58msf in North Bengaluru) and Sobha Royal Crest (0.65msf in West Bengaluru). As per company, the company’s consolidated net debt levels have reduced further QoQ from Rs23.3bn as of Mar’22 (net D/E of 0.9x as of Mar’22) as the company continues to generate surplus post interest/taxes operating cash flow.

* FY23E sales bookings estimates have an upside risk: For FY22 overall, the company has clocked its best ever annual sales performance with gross sales bookings of 4.91msf worth Rs38.7bn. Heading into FY23E, while the company has a strong launch pipeline of ~13msf, given the cost input inflation and mortgage rates expected to rise further in FY23E, the company believes that it will need to take further price hikes of 5-6% in FY23E (6% price hike in FY22) to protect margins which may marginally impact demand. Hence, the company has guided for flattish gross sales volume of ~5.0msf in FY23E (4.9msf in FY22) with gross sale value growing 5-6% to ~Rs40bn (Rs38.7bn in FY22). We currently model for FY23E and FY24E sales booking value of Rs40.3bn and Rs43.9bn, respectively vs. FY22 sales bookings worth Rs38.7bn. However, given the outperformance in Q1FY23, we see an upside risk to our estimates.

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