Buy Sobha Ltd for the Target Rs.1,710 by Motilal Oswal Financial Services Ltd
Multiple new launches expected in 2H Strong operational performance; Bangalore remains top performer
Sobha reported 16% YoY pre-sales growth to INR22.1b in 2QFY27 (second highest-ever bookings after 1QFY27), driven by mix of sustenance sales and new launches. It launched two projects in 2Q – Sobha Boulevard in Mysuru (plotted development) with GDV of INR1.2b and Sobha Bellevue in Calicut with GDV of INR11.5b. In 2QFY27, Bangalore remained the largest contributor with 60% share of the quarter’s presales, followed by NCR at 27% and Kerala at 10%. In terms of price segments, INR20-30m/unit contributed ~30% to the presales, followed by 26% from >INR50m. In 1HFY27, the company clocked INR59b in presales, of which 70% came from new launches.
Strong launch pipeline; well on track for 30% YoY growth
The company’s forthcoming launch pipeline consists of 18 projects covering 20.4msf (INR314b GDV), out of which 12msf (GDV of ~INR180b) across eight projects is expected to be launched during 2HFY27. This pipeline comprises three projects in Bengaluru and one project each in Hyderabad, Chennai, Gurgaon, Greater Noida and Thrissur. It also has ~INR229b worth inventory across its ongoing projects. Sobha has maintained 30% YoY presales growth guidance for FY27, which translates into ~INR105b in presales. We bake in a 27% CAGR in presales to INR130b during FY26-28E.
Highest quarterly collections; land payments increase
In 2QFY27, collections from the residential segment grew 4% YoY to INR19.2b, recording the highest-ever quarterly collections, driven by the deferred collections from 1QFY27. Net operational cash flow (NOCF) declined 14% YoY to INR4.4b, with NOCF margin at 21% (vs. 25% in 2QFY26 and 16% in 1QFY27). Sobha incurred INR6.2b, up 76% YoY, toward land investment during the quarter. We expect a 21% CAGR in residential collections in FY26-28 to INR103b
Contracts & Manufacturing business reports steady performance
As of 1HFY27, revenue from the Contracts & Manufacturing business grew 6.8% YoY to INR4.0b, of which INR1.9b (+4.5% YoY) came in from Contracts business and INR2.1b from Manufacturing & Retail. Overall, 1H collections from this division declined by 12.9% YoY to INR3.3b.
P&L performance:
* In 2QFY27, revenue declined by 31% YoY to INR9.7b. EBITDA fell 28% YoY to INR687m, with EBITDA margins of 7.1%. Adj. PAT declined 54.6% YoY to INR330m, with PAT margin of 6.1%.
* As of 1HFY27, revenue remained flat YoY at INR22.4b. EBITDA increased 23% YoY to INR1.5b, with EBITDA margins of 6.5%. Adj. PAT declined 3% YoY to INR838m with PAT margin of 3.7%.
* The company reported net cash of INR3.2b as of 2QFY27
Valuation and view
* Ongoing and upcoming projects are valued on a DCF basis at INR148b.
* We have factored in land value from only the subsequent projects (191 acres/ 15.6msf) that are in the future pipeline. However, we are now not factoring in any value from the additional 1,745 acres of land, which is still under various stages of consolidation. We would consider value from these land parcels once there are concrete plans in place. Hence, the TP is revised to INR1,710, indicating a 45% upside potential. We reiterate our BUY rating on the stock.
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