Buy Sobha Ltd for the Target Rs.1,900 by Emkay Global Financial Services Ltd
SOBHA’s strong sales momentum seen in FY26 continued into 1HFY27, aided by resilient demand in the Bengaluru real estate market. Although SOBHA had limited launches in 2Q, the company witnessed strong sustenance sales in its Bengaluru projects. SOBHA clocked pre-sales of Rs22.1bn (16% yoy) in 2QFY27, vs our estimate of Rs20bn, resulting in Rs58.6bn of pre-sales in 1HFY27. With another Rs70-90bn GDV launches planned and estimated unsold inventory of Rs45bn for 2HFY27, we expect SOBHA to easily surpass pre-sales of Rs110-120bn (35-45% yoy) in FY27E against its guidance of Rs106bn. We maintain BUY and TP of Rs1,900, based on 8x Sep-28E EV/embedded EBITDA, at 21% premium to NAV (the stock currently trades at a 23% discount to NAV).
A record 2Q and 1H
Sobha clocked record quarterly pre-sales of Rs22.1bn (16% yoy) and half-yearly presales of Rs58.6bn (47% yoy). Quarterly pre-sales growth was driven by healthy realization growth (14% yoy) and marginal volume growth (2% yoy). In 2Q, Sobha had just two small project launches—one each in Kozhikode and Mysore—with aggregate GDV of Rs10-11bn. However, sustenance remained healthy in its prominent Bengaluru projects—OneWorld and Neopolis. Bengaluru contributed 60% to pre-sales, followed by NCR (27%) and Kerala (10%).
Healthy pan-India launches
The company has a strong launch pipeline across key markets in 2HFY27:
i) Bengaluru (GDV of Rs32bn)
ii) NCR (GDV of Rs15bn)
iii) Kerala (GDV of Rs9bn)
iv) Chennai (GDV of Rs15bn)
v) Hyderabad (GDV of Rs20bn). The Hyderabad project may spill over to FY28E. Thus, if all the planned launches materialize, we expect SOBHA to
Revenue recognition from high-margin projects to start from 3Q onward
In 2QFY27, SOBHA delivered 720 homes (1.5msf). However, margins are expected to see an uptick from 3Q onward, with key projects such as Sobha Neopolis (own project) and Sobha Manhattan expected to commence delivery. Reported margins remain SOBHA’s key pain point and hover in single digits. However, its ongoing projects have a higher mix of high-margin projects, including owned projects, with project-level EBITDA margins upward of 35%. These projects are expected to come up for recognition from 2HFY27 onward, and thus, SOBHA is expected to see a strong uptick in reported EBITDA margins from 2HFY27 onward.
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