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On a strong footing

As per Sobha’s Q3FY22 operations update, the company has achieved gross sales bookings of 1.32msf worth Rs10.5bn (Isec estimate of Rs9.9bn) which were up 17% YoY in volume terms and 18% YoY in value terms driven by Bengaluru, Gurugram and Pune markets. While Q1FY22 saw a muted performance owing to the second Covid wave across India, the strong performance in Q2FY22 and Q3FY22 (best ever quarters for sales bookings) reflects the strong demand in South India driven by hiring in IT/ITeS sector accompanied by salary hikes and low mortgage rates of 6.5- 7.0%. We expect this momentum to continue into Q4FY22 and beyond, and model for 4.8/5.3/5.4msf of sales volumes in FY22/23/24E. We maintain our HOLD rating with an unchanged SOTP-based target price of Rs887/share including new planned launches and an expected upcycle for residential housing in South India in the medium term. Key risks to our call are a slowdown in residential demand and a rise in the company’s debt levels.

* Bengaluru and Gurugram markets enable strong operational performance: Sobha’s Q3FY22 gross sales bookings of 1.32msf worth Rs10.5bn were up 17% YoY in volume terms and 18% YoY in value terms and flattish on QoQ basis. In Q3FY22, the Bengaluru market was the key contributor with sales volumes of 1.0msf and contributed 73% of the total volumes. The Gurugram market also saw a 97% YoY volume uptick to 0.19msf (flat QoQ) and contributed 14% of sales volumes for the quarter with the Pune and GIFT City markets also seeing traction. During the quarter, the company launched one project called “Sobha Avalon” in GIFT City, Gujarat spread over 0.33msf. The company has also mentioned that its consolidated net debt levels have reduced further QoQ (the company had net debt of Rs27.8bn as of Sep’21 with net D/E of 1.1x).

* Expect improved showing to continue in Q4FY22-FY24E: We believe that the company’s Q2FY22 and Q3FY22 sales performance is commendable considering the second Covid wave impact across India, and expect momentum to sustain heading into Q4FY22E as well on the back of new launches. As per company, it has planned four launches spread across 2msf in H2FY22 with another 8.8msf of additional launches over FY23-24E. Low mortgage rates, stable property prices and robust hiring outlook for IT/ITeS and financial services, especially in South India and continued work-from-home trend are expected to support residential housing demand in FY23- 24E as well. Any adverse impact on account of a third Covid wave across India is the key risk to our estimates. We model for Sobha to clock 4.8msf of gross sales bookings worth Rs38.0bn in FY22E vs. 9MFY22 sales of 3.56msf worth Rs27.6bn.

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