Accumulate Sobha Ltd For Target Rs.1,802 By Geojit Financial Services Ltd
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Strong launches in pipeline
Sobha Ltd., based in Bangalore, is a leading real estate company with a track record of completing ~136msft across 546 projects. The company's operations extend across 14 states, highlighting its significant presence in India's real estate market.
* In Q2FY25, Sobha reported a 32% YoY decline in pre-sales due to lower traction from recent launches of ~3.5msf in the first half.
* Total sales volume stood at 0.9msf, marking –45% decline YoY. However, average realisation improved by 56%(YoY).
* During the quarter, completions stood at ~0.9msf(+28% YoY), supporting strong revenue growth of ~26% YoY. However, EBITDA margin contracted by 192bps YoY.
* The company expects to recognize Rs.14,500 crore in revenue over the next 4 -5 years with an anticipated margin of 33%.
* Despite a weak first half, Sobha is expected to do well in H2FY25 on back of strong inventory in ongoing projects and upcoming launches across all ticket sizes. The company plans to launch ~5.5msf in the latter half, from its massive pipeline of ~19.3msf (15.4msf in Q2FY24).
Outlook & Valuation
Despite a weak Q2, Sobha is on a healthy footing in the residential segment on the back of strong launches and inventory in the ongoing project. Also, the company's extensive landbank across multiple cities further strengthens its market position. Still, Sobha as a premium player in the sector, any moderation in real estate demand is a key risk along with any delay in obtaining approvals. However, given the significant correction in the price and strong H2 expectation, we cautiously revise our rating on the stock to Accumulate based on NAV per share, with a target price of Rs. 1,802.
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SEBI Registration Number: INH200000345
