We attended the conference call hosted by Sobha to discuss its Q1FY18 results. Recall, it had reported decent results for Q1 earlier on August 7 with net debt reduction of Rs 500 m driven by positive operating cash flows. We maintain our Outperform rating with a target price of Rs 472.
RERA notified in Karnataka, registration underway
The Real Estate Regulatory Authority (RERA) was notified in Karnataka — Sobha’s key market is Bangalore — on July 10, 2017. Registrations for various projects are underway.
GST could be inflationary for houses priced above Rs 6,000/sf
As we had noted in our recent industry note (RERA and GST to cause near term disruption), there is an offset of 33% for land cost in GST taxation of 18%. However, given that land cost forms a higher proportion of value for houses priced above Rs 6,000/sf, GST could be inflationary to the extent of 2-3%.
Operational performance remains strong
Sobha clocked Rs 1 bn of operating cash flow, driven by robust cash collections from customers at Rs 7.3 bn (a 13-quarter high, +23% y-o-y). Positive cash flow generation helped Sobha reduce its net debt by ~Rs 500m (q-o-q) to Rs 20.2 bn (flat y-o-y).
Launch pipeline for 2H to aid pick up in presales
Sobha clocked presales of Rs 5.65 bn (its share, +20% y-o-y) in Q1FY18 despite no new launches and a focus on liquidating inventory in ongoing projects. Sobha has lined up launch of two projects in Bangalore (one premium and another affordable) in H2 once GST and RERA related uncertainties settle down. We expect Sobha to clock Rs 20 bn presales in FY18e.
Q1 FY18 result highlights
Revenues at Rs 6.8 bn (+19% y-o-y), Ebitda margin at 18% (flat y-o-y) and PAT at
Rs 470m, (+30.5% y-o-y). Presales (reported earlier in July) were up 20% y-o-y to Rs 5.65 bn.