Buy Sobha Ltd for the Target Rs. 1,877 by Motilal Oswal Financial Services Ltd
Robust collections fuel revenue momentum
Healthy YoY performance in Gurugram and Bangalore
* SOBHA’s total bookings stood at 61%/-8% YoY/QoQ to INR19b (in line) in 2QFY26. Its share of bookings was 56%/-10% YoY/QoQ at INR15.4b. For 1HFY26, SOBHA clocked INR39.8b of sales (up 30% YoY), guided by 2.8msf of volumes (up 35% YoY).
* Bangalore contributed 69.7% for 2QFY26 with the value of INR13.3b, aided by sales momentum at SOBHA Town Park.
* NCR contributed INR3.1b during the quarter, with major sales from SOBHA Aranya and SOBHA AURUM.
* Kerala added INR1.9b to 2QFY26, fueled by a festive demand surge.
* The company’s volumes jumped 50% YoY to 1.4msf (in line). In 1HFY26, volumes were 2.8msf, up 35% YoY.
* Average realization stood at 13,647psf, up 8% YoY but down 5% QoQ (5% below our estimates).
* Completions: 591 homes comprising 1.18msf of saleable area across Manhattan Towers, Sentosa, Royal Pavilion in Bangalore, Marina One in Kochi, Nesara in Pune, and others.
* One new launch: This is an extension of SOBHA Lifestyle’s boutique luxury villa project spread across 2.12 acres in North Bangalore, close to the International Airport.
* The company's project pipeline is at ~27msf (vs. 30msf in 1QFY26), including 18msf of new residential projects, with ~8msf located in Bengaluru.
* Real estate collections increased 45% YoY to INR18.5b (20% above estimates). Total cash inflow (incl. contractual business) stood at INR20.5b, up 49% YoY. In 1HFY26, real estate collections stood at INR34.4b, up 29% YoY, while total cash inflow in 1H stood at INR38.2b, up 31% YoY.
* Net operating cash flows (before interest & taxes) surged ~3x YoY to INR5.13b.
* Aligned with its growth-focused strategy, SOBHA increased its land-related investment for the quarter to ~INR3.5b, up 111% YoY. During the quarter, the company generated a cash surplus of INR635m. In 1HFY26, land-related investment stood at ~INR6.3b, up ~2x YoY, while the company generated a cash surplus of INR1.2b.
* Net cash position was INR7.5b, or 0.16x of equity (vs. a net cash of INR6.9b, or 0.15x, in 1QFY26). The cost of borrowings reduced to 8.25% (from 8.86% in 1Q).
* P&L performance: In 2QFY26, revenue stood at +51%/+65% YoY/QoQ to INR14.1b (21% above estimate). Real estate revenue was up 53% YoY to INR12b in 1HFY26, revenue was up 44% YoY to INR22.6b, while real estate revenue stood at INR18.9b, up 50% YoY.
* EBITDA was up 24%/302% YoY/QoQ to INR956m (35% below estimate), while margin stood at 7%, down 147bp YoY (571bp below estimate). The margin for the real estate business stood at 11%. In 1HFY26, EBITDA stood at INR1.2b, down 10% YoY with a 5% margin. Real estate margin for 1H stood at 9%.
* Adj. PAT stood at INR725m, +178%/5x YoY/QoQ (17% below estimate). PAT margin stood at 5.2%, up 236bp/355bp YoY/QoQ.
Valuation and view
* SOBHA continues to provide strong growth visibility by unlocking its vast land reserves. Additionally, the recent fundraising and strong cash flows will enable the company to focus on new land acquisitions, which will further enhance its growth pipeline.
* We have incorporated the updated launch pipeline and newly acquired projects during the year. Ongoing and upcoming projects are likely to generate ~INR122b of gross cash flows, which we value at around INR72b.
* We value SOBHA’s land reserve of 154msf at INR86b, assuming 25-75 years of monetization.
* We reiterate our BUY rating on the stock with a revised TP of INR1,877 (previously 1,917), indicating a 24% upside potential.
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