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Sobha Ltd. (SOBHA) achieved Q2FY23 gross sales bookings of 1.34msf worth Rs11.6bn vs. Isec estimate of Rs11.0bn and is the best ever quarter for the company in value terms for 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 had led to the company revising its FY23 guidance to 10-15% YoY volume growth and 15-20% YoY value growth. Given the strong H1FY23 performance in spite of rising mortgage rates and strong launch pipeline, we believe that the company is well on track to achieve its FY23 guidance and we maintain our FY23E and FY24E gross sales booking value estimates of Rs45.5bn and Rs49.0bn, respectively. We maintain our BUY rating with an unchanged SOTP based TP of Rs808/share. 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 Q2FY23 gross sales bookings of 1.34msf worth Rs11.6bn (Isec estimate of Rs11.0bn) was flat QoQ in volume terms and up 2% in value terms aided by the company achieving its highest ever gross realisation of Rs8,709/psf. In Q2FY23, the Bengaluru market was again the key contributor with sales volumes of 1.04msf and contributed 78% of the total volumes (same as Q1FY23). This was owing to three new launches spread over 0.88msf towards the end of the quarter including two in Bengaluru and one in Thiruvananthapuram. As per company, its consolidated net debt levels have reduced further QoQ from Rs21.1bn as of Jun’22 (net D/E of 0.8x as of Jun’22) as the company continues to generate surplus post interest/taxes operating cash flow.

On track to achieve FY23 sales booking guidance:

Sobha’s Q2FY23 gross sales bookings of 1.34msf worth Rs11.6bn (Isec estimate of Rs11.0bn) was flat QoQ in volume terms and up 2% in value terms aided by the company achieving its highest ever gross realisation of Rs8,709/psf. In Q2FY23, the Bengaluru market was again the key contributor with sales volumes of 1.04msf and contributed 78% of the total volumes (same as Q1FY23). This was owing to three new launches spread over 0.88msf towards the end of the quarter including two in Bengaluru and one in Thiruvananthapuram. As per company, its consolidated net debt levels have reduced further QoQ from Rs21.1bn as of Jun’22 (net D/E of 0.8x as of Jun’22) as the company continues to generate surplus post interest/taxes operating cash flow.

On track to achieve FY23 sales booking guidance:

For FY22 overall, the company had clocked its best ever annual sales performance with gross sales bookings of 4.91msf worth Rs38.7bn. In May’22, in spite of the company having a strong launch pipeline of ~13msf, given the cost input inflation and mortgage rates expected in FY23E, the company had 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). However, given the strong Q1FY23 performance and demand sustaining even with the rise in mortgage rates, the company had revised its FY23 guidance and expects 10- 15% YoY volume growth and 15-20% YoY value growth in FY23. Given the strong performance in H1FY23 in spite of rising mortgage rates, we believe that the company is well on track to achieve its FY23 guidance and we maintain our FY23E and FY24E gross sales booking value estimates of Rs45.5bn and Rs49.0bn, respectively.

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