For Q1FY18, Sobha reported 11% q-o-q rise in new sales of Rs 5.6 billion—above pre-demonetisation level and highest since Q4FY15. Bangalore and Gurgaon markets were key growth drivers. There were no new launches given RERA uncertainty. With RERA not yet operational in most of the company’s markets, we perceive near-term risk of meaningful sales slowdown post July 31 deadline of ongoing project registration. Maintain ‘Buy’. For Q1FY18, Sobha reported new sales of 0.82msf (up 13% q-o-q and 1% y-o-y) worth Rs 5.6 billion, up 11% q-o-q and 20% y-o-y; highest since Q4FY15. The q-o-q uptick was driven by improved sales in Bangalore and Gurgaon projects. Importantly, there were no new launches during the quarter in view of RERA uncertainty, implying the uptick was driven by incremental sales in existing projects. Average Q1FY18 realisation was Rs 6,900psf, down 1% q-o-q, up 19% y-o-y—second highest in Sobha’s reported history.
For Q1FY18, Bangalore new sales, 73% of Q1 new sales, rose 16% q-o-q to 0.59msf driven by release of new inventory in Dream Acres and sales pick up in Indraprastha project. Gurgaon sales rose 27% q-o-q to 0.124msf , 78% group housing sales; highest since Q4FY13, versus past 8 quarters’ average of 37ksf.
The pick-up was driven primarily by increased clarity over completion of Dwarka Expressway. With RERA becoming effective, Sobha offered refund to buyers of its Elanza project (Pune) which is awaiting environmental clearance, leading to net cancellations in Pune.
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Q-o-Q new sales were up in Thrissur, Coimbatore & Kochi and down in Mysore, Chennai & Calicut. RERA is yet to become operational in most of Sobha’s markets including Bangalore. Registration of ongoing projects by July 31, 2017, is mandatory to market/sell projects.
We, hence, perceive risk of meaningful slowdown in the company’s new sales post July. We expect Sobha’s new sales to improve in quarters ahead given favourable macros, interest rate benefits under PMAY and new demand creation led by strong office space absorption. At CMP valuations appear attractive—45% discount to our FY18E NAV of Rs 693/share. We maintain ‘Buy/SO’.