By Edelweiss Securities
Sobha clocked best-ever pre-sales in Q4FY21, fuelled by robust demand across segments. Volumes surged to 1.3msf (up 18% QoQ and 48% YoY); by value, sales (company’s share) were at Rs 8.7billion (up 29% QoQ and 58% YoY) aided by higher realisation (up 5% YoY). FY21 sales volume at ~4msf was flat YoY, while sales value (company’s share) was up 4% YoY despite the lockdown. The company launched projects spanning ~3.0msf during the quarter (~3.2msf in FY21). With housing demand bouncing back sharply, we expect the sales momentum to remain strong in the near term. Maintain ‘buy’ with revised SOTP-based target price of Rs 572 (Rs 555 earlier).
Sales momentum gathers traction: Bengaluru contributed 67%. New sales volume grew across most cities; sales in Bengaluru recovered 13% QoQ and contributed 67% to overall sales. Other cities that reported strong QoQ growth include Gurugram (91% QoQ), Pune (130% QoQ) and Kochi (268% QoQ). Bengaluru, Gurugram and Kochi cumulatively accounted for 88% of sales during the quarter. Bengaluru contributed ~67% to FY21 sales volumes; except Bengaluru, total contribution of other regions to sales during FY21 was the highest eve.
Price realisation rises 5% YoY: Average price realisation during Q4FY21 jumped 5% YoY (2% QoQ) to ~`8,000/sft — highest in the past eight quarters. This was partly due to change in product mix and partly due to price hikes taken by the company in certain projects. Realisations during FY21 jumped 10% YoY on average.
New launches, cash flows and debt remain key monitorables: Sobha launched three housing projects spanning 2.77msf and 0.27msf of commercial space during the quarter. It expects launch activity to remain healthy going ahead. The company’s focus on cash flow management has helped it reduce net debt during the quarter.
Outlook and valuations: Balance sheet key; maintain ‘buy’. As highlighted in our comprehensive sector report, Real Estate – The Charge of the Consolidating Brigade, RERA-driven consolidation is throwing up growth opportunities for organised players such as Sobha.
We like Sobha’s strong presence in the South India realty market and robust execution capabilities. Revival in housing demand (refer to, Hot Property – Rising like a phoenix), Sobha’s focus on cash flows and geographical expansion should hold it in good stead. Cash flow improvement is a key stock catalyst, in our view. We maintain ‘BUY/SN’ with revised SOTP-based target price of INR572/share while rolling forward the valuation to September 2022E. We derive the TP by applying 10% discount to its NAV of INR589/share for the residential business plus value of the contractual business.