Well poised for growth: We recently hosted Jagadish Nangineni, the newly appointed managing director of Sobha (SOBHA) for an interaction with investors. Nangineni has been elevated to the role of MD effective 14th March 22 and served as the deputy MD of the company prior to his elevation. He brings ~20 years of experience in the field of real estate and has been associated with the company since 2009, overseeing its operations in Ahmedabad, Chennai, Gurugram and Pune regions. Nangineni reiterated in the call that he will look to take the company forward in its growth aspirations to reach 6-7msf of annual sales volumes while looking to reduce debt levels further. He also stressed on the need to bring in quality supply rather than just quantity to ensure increased sales velocity in new project launches taking into account customer preference and project location. We believe that the company’s strategy to elevate incumbent senior management personnel is a positive move and will ensure continuity in executing the company’s strategy. We upgrade our rating to ‘buy’ from ‘add’ with an unchanged March 22 SOTP-based target price of Rs 902/share post the recent correction in the stock price. Key risks to our call are a slowdown in residential demand and a rise in the company’s debt levels.
New MD brings rich experience across functions and regions across India: The new managing director has ~20 years of experience in the fields of real estate, consulting and technology. He has been associated with Sobha since 2009 in senior strategic and operational roles. He was recently the deputy managing director of the company and overseeing the operations of Ahmedabad, Chennai, Gurugram and Pune regions. He has established the business ground up at Gurugram, one of the key markets for the company.
Expect improved showing to continue in Q4FY22-FY24E: We believe that the company’s Q2FY22 and Q3FY22 sales performance is commendable considering the second Covid wave impact across India, and expect momentum to sustain heading into Q4FY22E as well on the back of new launches. As per company, it is on track to get approvals for ~13 msf of planned launches in FY23E of which inventory will be released for sale in phases. Low mortgage rates, stable property prices and robust hiring outlook for IT/ITeS and financial services, especially in south India, are expected to support residential housing demand in FY23-24E as well. We model for Sobha to clock 4.8msf of gross sales bookings worth Rs 3,800 crore in FY22E vs. 9MFY22 sales of 3.56msf worth Rs 2,706 crore. We expect the company to clock gross sales booking value of Rs 4,701 crore and Rs 4,900 crore in FY23E and FY24E, respectively.