Buy Sobha Ltd For Target Rs. 1,447 By Geojit Financial Services Ltd
Strong outlook coupled with valuation comfort.
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 Q3FY25, Sobha reported a 29% YoY decline in pre-sales due to its high base and lower traction in recent launches.
* Total sales volume stood at 1.02msf, marking a 39% decline YoY. However, average realisation improved by 17%(YoY).
* During the quarter, completions stood at ~1.64msf (+27% YoY), leading to a revenue growth of ~79% YoY.
* EBITDA margin contracted by 533bps YoY, due to losses in the contract and manufacturing segment and realisation of lower margin JV products.
* The company has an unrecognized revenue of Rs.15,000cr from sold units, with an anticipated margin of 28% at project level.
* Despite the weak quarter, Sobha’s solid pipeline in the residentials is expected to aid strong pre-sales in the coming quarters. Currently, the company has a pipeline of ~21msf, including an inventory of 8.91msf.
Outlook & Valuation
Despite the decline in pre-sales during 9MFY25, Sobha has a robust launch pipeline and substantial inventory in the ongoing projects, ensuring strong pre-sales visibility. Also, the management has been focusing on strategic acquisitions of landbank, expanding its footprint across multiple cities. However, any moderation in residential demand remains a key risk, leading to increased time in monetizing the land and inventories. Despite that, given the significant correction in the price and the strong pipeline, we revise our rating on the stock to BUY with a target price of Rs. 1,447, based on NAV per share.
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SEBI Registration Number: INH200000345
