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New launches drive sales volumes

About the stock: Sobha Ltd (Sobha) is a leading real estate player with ongoing real estate projects with ~13.5 mn sq feet (msf) of unsold saleable area and ongoing contractual projects aggregating to 3.1 msf in various stages of construction. As on Q1FY23, the company has delivered ~120+ msf of developable area.

* It has a real estate presence in 10 cities, viz. Bengaluru, Gurugram, Chennai, Pune, Coimbatore, Thrissur, Kozhikode, Kochi, Gift City and Mysore

Q1FY23 Results: Sobha reported a steady operating and financial performance.

? Sobha’s sales booking value was at | 1145.5 crore (up ~68 YoY) with sales volume up 52% YoY (flattish QoQ) at 1.36 msf, driven by strong launch of projects of ~2 msf in Bengaluru during the quarter

? On the financial front, reported revenues were up 13.5% YoY at | 581.6 crore, driven by strong real estate revenues recognition (up ~25.7% YoY at | 473.6 crore) and PAT at | 13.7 crore, up 26.9% YoY

? Sobha has managed to reduce its net debt position by | 227 crore QoQ to | 2,110 crore (net D/E: 0.84x), aided by receipt from land sales of | 155 crore

What should investors do: Sobha’s share price has grown at 12.4% CAGR over the past five years.

* We incorporate higher sales volumes and remove discount to NAV. We maintain HOLD, given the ~30% run up in the last three months

Target Price and Valuation: We value Sobha at | 735/share.

Key triggers for future price performance:

* Robust ongoing & completed project with | 6382 crore of potential cash flow

* Huge captive land bank providing enough ammunition to expand overall residential sales volumes trajectory

* Further improvement in leverage

Alternate Stock Idea: Besides Sobha, we like Brigade Enterprises in the realty sector

* A play on Bengaluru residential and commercial real estate

* BUY with a target price of | 595

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