Hold Sobha Ltd For Target Rs. 1,650 By JM Financial Services
Confident of resuming growth trajectory
Sobha reported healthy improvement in quarterly pre-sales, which came in at INR 18.4bn (+22% YoY; +32% QoQ) – in-line with our estimates. The quarterly performance was driven by healthy response to two new launches in Bengaluru having a cumulative GDV of c. INR 40bn. In FY25, bookings value declined 6% YoY to INR 62.8bn. The company is optimistic about resuming its growth trajectory, backed by a robust pipeline of c.30msf across ongoing and upcoming projects and is targeting a 30-35% growth in bookings in FY26E. With a strong balance sheet post the INR 20bn rights issue, the management has accelerated its business development efforts, adding INR 150bn worth of new projects in FY25, almost 2x from last year. We expect Sobha to clock 23% CAGR in bookings over FY25-28E; higherthan-anticipated launches remain an upside risk to our estimates. We maintain BUY with an increased TP of INR 1,650.
* Healthy performance aided by new launch: After a subdued performance in 9MFY25, Sobha reported a healthy improvement in pre-sales, which came in at INR 18.4bn (+22% YoY; +32% QoQ), and was largely in-line with our estimates. Sobha’s share accounted for INR 13.7bn (+8% YoY; +10% QoQ). Sales volume for the quarter stood at 1.55msf (+16% YoY) and realisation improved 5% YoY to INR 11,781 psf. During the quarter, the company achieved 60% of bookings from Bengaluru aided by two new project launches having a total saleable area of 4.1msf and GDV of c. INR 40bn. In FY25, volume declined 23% YoY to 4.7msf but bookings value declined just 6% YoY to INR 62.8bn driven by higher realisation of INR 13,412psf (+23% YoY).
* Targeting over 30% growth on the back of strong pipeline: Sobha achieved 28% CAGR in bookings over FY21-24 but the performance was significantly impacted in FY25 due to delayed launches. Looking ahead, the company is optimistic about resuming its growth trajectory, backed by a robust pipeline of c. 23msf along with an inventory of 6.3msf across its on-going projects. The company has guided for a 30-35% growth in bookings in FY26. The upcoming projects are expected to be launched in 6-8 quarters with c. 3.5msf coming in 1HFY26 with a GDV of c. INR 50bn. Furthermore, if key launches happen as per schedule, the management has indicated that pre-sales can potentially surpass INR 100bn in pre-sales in the current financial year itself (implying 60% growth in FY26E).
* Accelerated business development: In 4QFY25, collections increased 19% YoY to INR 15.8bn and operating cash flows (before interest) was up 29% YoY to INR 4.7bn. With INR 100bn of surplus expected from on-going projects and successful closure of the rights issue, the management has accelerated investment on business development. Net land payments for the year stood at INR 9.4bn, which led to addition of INR 150bn worth of new projects (vs. INR 80bn in FY24) including its maiden project in Noida and Mumbai.
* Reported financials: In 4QFY25, revenue increased 63% YoY to INR12.4bn and the company achieved EBITDA of INR 0.9bn (+52% YoY; +40% QoQ) with 8% margin. In FY25, revenue stood at INR 40.4bn (+30% YoY) and EBITDA came in at INR 2.9bn (+6% YoY) with margin of 7%. The management highlighted that most of the legacy contractual projects have been fully recognised, and the margin performance will improve gradually from FY26E led by the real estate vertical.
* Maintain BUY with an increased TP of INR 1,650: After a subdued year, we expect the company to clock 23% CAGR in bookings over FY25-28E; higher-than-anticipated launches remain an upside risk to our estimates.
* Key conference call takeaways:
- Sobha has a strong pipeline of 30msf that will be launched in 7-8 quarters and if approvals are received as per expected timelines, 50% of these projects will be launched in FY26
- For the first time, the company has a strong visibility on launches and net cash balance sheet which will drive the scale-up to the next level
- The management expects that 40% of annual targeted launches will be in NCR, 15% in Gurugram, 10% in Chennai, and 5% in Mumbai and other markets
- The company has added INR 150bn worth of projects in FY26 with Sobha's share at 80%. Over 50% of new addition was in NCR, 40% in Bengaluru, and the balance in Chennai, Pune and Kerala
- In the ongoing portfolio, the company has INR 160bn of revenue to be recognised and it has embedded margin of 33% at the project level
- Margin improvement journey should commence in FY26 since most of the legacy lowmargin contractual projects are now behind
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