Buy Sobha Ltd For Target Rs.1,840 by Choice Institutional Equities Ltd
Project Completions Lead to Strong Revenue and PAT YoY Growth
Sobha Ltd (SOBHA) delivered a strong pre-sales growth backed by a healthy demand and successful launches of cumulatively 6.89 msf in Bengaluru and Gurugram markets. The management remains confident on sustaining presales and collection, going forward. Moreover, the Board approved the private placement of up to INR 10 Bn in NCDs, issuance will be raised in tranches over the next few quarters, to fund future land acquisitions and aggressive expansion
Robust Pipeline in FY26 and FY27E will Drive Pre-sales Growth:
The management is confident of delivering ~30% YoY growth in pre-sales in FY27E, building on its record pre-sales of INR 81.36 Bn achieved in FY26. SOBHA has launched 9 projects of ~6.04 msf in FY26, covering 6 cities. From its existing inventory of 14.94 msf, SOBHA expects to generate pre-sales of INR 192.24 Bn, while future projects of 20.77 msf are forecast to yield pre-sales of INR 295.57 Bn.
Expanding into New Geographies:
SOBHA is gradually expanding its presence beyond the Southern market. The company has already made an impressive start in NCR and is also increasing its presence in Kerala. In addition, SOBHA is investing in new geographies, such as Pune, Hyderabad and MMR.
Robust Balance Sheet to Support Future Pipeline:
SOBHA maintains a historically low debt-to-equity ratio (~0.14), providing ample headroom to invest in business development and sustain pre-sales growth. Despite higher land prices across Tier-I and Tier II cities, we believe SOBHA has the execution wherewithal to generate over 30% project-level EBITDA.
Valuation:
We maintain our ‘BUY’ rating on SOBHA with a TP of INR 1,840/sh (unchanged), factoring in the residential business with a strong pipeline, growth trajectory in commercial segment, stable contract & manufacturing business, as well as its land bank.
Risks: A possible broad-based slowdown in the domestic economy and probable changes in regulatory guidelines.
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SEBI Registration no.: INZ 000160131
