Maintain ‘buy’ on Sobha, target Rs 360

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Published: April 8, 2016 6:13:48 AM

Sobha's 4QFY16 pre-sales were up 11% q-o-q to Rs 5.3 billion (0.9msf). FY16 cumulative pre-sales stood at Rs 20.12 billion (-4% y-o-y). Bangalore aids 76% volume mix as Chennai and Kerala worsened further.

Sobha’s 4QFY16 pre-sales were up 11% q-o-q to Rs 5.3 billion (0.9msf). FY16 cumulative pre-sales stood at Rs 20.12 billion (-4% y-o-y). Bangalore aids 76% volume mix as Chennai and Kerala worsened further. New launches led Mysore and NCR contribution higher.

The stock appears attractive at 1X BV, but operations and market momentum lack visibility of immediate normalization. Maintain ‘buy’ with a target price of R360. Sobha delivered marginal improvement in pre-sales in 4QFY16 at 0.9msf (R5.3 billion v/s est of R5.6 billion) v/s 0.8msf (R4.8 billion) in 3QFY16.

Average realisation, consequently, was up by 2% q-o-q to R6,023/sf. Barring launch of Sobha Retreat (Mysore), it made soft launch of phase 1 of group housing project in NCR-Gurgaon. FY16 pre-sales were down 4%y-o-y at Rs 20.1 billion, which turned out to be 23% miss from beginning of the year guidance.

With continued weakness in other operating markets, dependency on Bangalore volume mix remained at 76% in 4Q. New launch led high contribution from Mysore (11% v/s 2-4% in past 3-4 quarters) and NCR (4% v/s 1% over past 3 quarters).

However, weakness worsened in other southern states. The formal launch of NCR project is scheduled in 1QFY17 (approval in place), while launch of Cochin

projects is likely subsequently. Focus of management remains more on clearing existing inventory and cash flows.

Operational disappointment for three straight years coupled with lack of immediate recovery visibility remains overhang on the stock.

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