Buy Sobha Ltd for the Target Rs.1,900 by Emkay Global Financial Services Ltd
We initiate coverage on SOBHA with BUY and TP of Rs1,900, based on 8x EV/embedded EBITDA, at 21% premium to NAV (the stock is trading at 13% discount to NAV). SOBHA is one of the fastest-growing real estate companies, with a strong track record and presence across multiple geographies. Since its inception in 1995, the company has executed and delivered 589 real estate and contractual projects covering 152.7msf to date; currently, 41.9msf is under development across 14 cities in 8 states. In FY26, SOBHA reported its best-ever pre-sales of Rs81.36bn and operational cash flow of Rs16.37bn. With a strong pipeline for FY27 and beyond, we expect the company to clock >20% pre-sales CAGR in the medium term. We expect FY27E/FY28E pre-sales of Rs99bn/Rs112bn, respectively. The company also plans to expand its footprint in Mumbai, Noida/Greater Noida, and Hyderabad in the coming years, providing significant headroom for growth. Key monitorables include launches and business development in new markets, including Mumbai and Greater Noida.
Strong pipeline
SOBHA has a strong pipeline for FY27 and beyond. The company has forthcoming projects of 20.7msf, with gross development value (GDV) of Rs272bn, across Bengaluru, NCR, Pune, Kerala, and Tamil Nadu, of which 10msf (GDV of ~Rs150bn) is expected to be launched in FY27. In addition, the company has 20.2msf of ‘subsequent land’ (preapproval stage) across geographies.
Robust guidance for FY27
On the back of a strong pipeline across geographies and continued robust absorption both in Bengaluru and NCR, SOBHA has provided pre-sales growth guidance of 30% YoY for FY27, translating to pre-sales of Rs106bn in FY27.
Diversified presence
Although Bengaluru still contributes more than half of the pre-sales, the share of other markets has gradually increased. Bengaluru’s share of total pre-sales declined from 67% in FY19 to 55% in FY26. NCR and Kerala contributed 30% and 10%, respectively, to total sales value in FY26. As the company has forayed into MMR and is expected to increase its footprint in Greater Noida and Hyderabad, we expect SOBHA to become a pan-India player, with an increasing share from non-Bengaluru markets.
Strong balance sheet with net cash position
SOBHA’s focus on strong cash flow generation and financial discipline led to a consistent reduction in net debt from a high of Rs30.5bn in 2QFY21; the company turned cashpositive in FY25 and recorded net cash of Rs8bn as of 4QFY26-end. The successful rights issue of Rs19.99bn in FY25 also strengthened liquidity further. The current net cash balance sheet gives sufficient firepower for SOBHA to aggressively pursue business development in new markets such as Mumbai, Greater Noida, and Hyderabad.
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354
