Sobha reported FY16 sales at 3.4msf, which were broadly in line with our estimate. The company had guided for 4msf of sales at the beginning of the year and has missed guidance by 15%. In 4QFY16, which is generally a stronger quarter, sales remain muted with total area sold at 0.9msf and sales value of R5.3 billion, down 15% yoy. This is the weakest fourth quarter in the last four years. The company launched Sobha Retreat (0.33 msf), a plotted development in Mysore, which helped boost sales for the quarter.
Contribution of Dream Acres project is declining as it formed c50% of total sales in Bangalore. We believe sales could be dented given phase I (2.04 msf) is nearly exhausted and slower sales are anticipated in new phases due to slow markets with little room for price increases. Much anticipated launch of group housing project in NCR has been deferred to 1QFY17 despite all approvals already in place. We believe the NCR project has not generated an encouraging response as total sales in NCR came in at only 36,884 sq ft, which appears low. The Chennai market, where sales declined 70% yoy, was likely impacted by floods.
We maintain our ‘reduce’ rating. Sobha’s key market, Bangalore, is facing pressure, with absorption down 16% YTD on a y-o-y basis and inventory now at 30 months.
There were launches over FY11-FY14 that could be nearing completion, and some inventory with investors might now compete with unsold inventory from developers. Slowing sales in its anchor Dream Acres project and weak response to the NCR launch could pressurise cash flows.
