Buy Sobha Ltd for the Target Rs.1,900 by Emkay Global Financial Services Ltd
After a disappointing FY25, SOBHA witnessed a strong rebound in FY26, with pre-sales of Rs81.4bn (30% yoy), and continued the momentum into 1QFY27 with record pre-sales of Rs36.6bn (+76% yoy). With visibility of a strong launch pipeline and continued healthy absorption in the Bengaluru market, we expect SOBHA to report another strong year and surpass pre-sales of Rs100bn in FY27E. While reported margin remains a key monitorable, we expect margins to improve from 3QFY27 onward, likely reaching the 20% level in 2HFY27 and improving progressively thereafter. 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).
Margins expected to improve from 2HFY27
Margins remain SOBHA’s key pain point. FY23-26 margins were muted, with FY26 and 1QFY27 margins at around 6.0%. Profitability was impacted by changes in financial reporting, recognition of low-margin projects, and elevated sales and marketing expenses associated with the increased scale of operations. However, the ongoing projects have higher mix of high-margin projects, including owned projects, with projectlevel 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.
Strong launch pipeline
SOBHA has upped the momentum in launches. During FY25-26, SOBHA launched a total of 14.8msf. In FY27, it is expected to launch ~15msf. In 1QFY27, SOBHA launched 6.9msf; for the remainder of the year, there is a strong launch pipeline of 8.2msf, including projects in Gurugram, Bengaluru, Chennai, Hyderabad, and Thrissur with GDV of Rs120bn, of which two projects (GDV of Rs12bn) have already been launched in 2QFY27. In addition, the company had unsold inventory of Rs192bn at the beginning of 1QFY27. Thus, even a 25% sell-through of this available inventory (unsold + new launch) would help SOBHA’s pre-sales surpass Rs100bn and potentially reach Rs120bn in FY27E.
Bengaluru market resilient; supply to see uptick
Real estate demand continues to be resilient, with momentum of FY26 continuing in FY27 so far. While demand remains resilient, supply is expected to go up. Although the regulatory environment is improving, challenges persist. As approval challenges ease, launches are expected to see an uptick in the market. In addition, the notification for the Premium FAR policy, which was introduced 1–1.5 years ago, has recently been issued. This scheme allows developers to buy extra FAR above the standard limit by paying official charges to the government. Thus, we expect to see significant supply, especially from well-funded developers in Bengaluru.
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