Sobha on Tuesday released its operational update for Q1FY16. Pre-sales were weak in the quarter, up just 5% y-o-y (down 20% q-o-q) to Rs 500 crore on account of subdued new launches. Volumes came in at 0.84msf (up 11% y-o-y and down 18% q-o-q). Average realisation declined by 6% y-o-y (down 1.7% q-o-q) led by change in product mix.
Sobha launched only one residential project in the quarter. Located in Bangalore, the project has a saleable area of 0.3msf (Sobha’s share at 0.18msf) and got a strong response. Sobha has guided to 6msf of launches in FY16.
Bangalore saw strong volumes of 0.7msf (up 32% y-o-y) aided by ‘aspirational segment’ project “Dream Acres”, which saw a soft launch in Q4FY15.
We have cut our FY16/ 17e EPS by 7%/ 6% to factor in lower pre-sales. Meanwhile, Sobha has maintained its FY16 guidance of R2,600 crore (up 24% y-o-y) in pre-sales, which hinges on new launches and absorption in the Bangalore market. We have factored in pre-sales of R2,450 crore in FY16.
Though pre-sales disappointed in Q1FY16, we expect a revival in the coming quarters aided by new launches and change in product mix. Large low-cost land bank, strong launch pipeline, steady contractual business and inexpensive valuations make Sobha an attractive buy. We maintain ‘outperformer’ rating, with a price target of R461 per share.
