We maintain our ‘buy’ rating on Sobha Developers and view on growth in the next two years from current case.
We also maintain our target price of Rs 545 a share. Sobha recorded Rs 71.6 crore in negative operating cash flows in Q1, the weakest in the past five years which increased debt.
Consolidated sales were steady on good Bangalore sales, but most other markets remained weak. Two projects were added during the quarter at good terms.
We expect another one-two quarters of negative OCF before collections start improving again. Sobha’s quarterly collections dropped to a three-year low in Q1FY16, primarily on slowing sales.
The first quarter was also the weakest quarter for Sobha in years as negative operating cash flow from operations. This, along with capex of around R50 crore and land payments of just under Rs 100 crore, resulted in debt increasing by Rs 170 crore.
Sobha sold 0.84 million sq. ft of area for Rs 500 crore in Q1FY16. Blended realisations for the quarter stood at Rs 5,990 per sqft, marginally lower than usual. Higher sales contribution from Sobha Dream Acres, Bangalore and weak sales in other markets having dearer projects were key reasons for this.
Its traditional product in Bangalore also slowed down to 0.35 million sq. ft from 0.5 million sq ft.