Sobha will have a new MD for the first time since its listing in 2006. The promotion of an internal candidate and comments at the analyst call suggest a continuation of Sobha’s core values and broad direction. Management may accelerate growth. Incrementally, part of the Op. CF surplus will be deployed for new project acquisitions, instead of full deleveraging focus currently. With gearing at 1.0x, balancing growth while managing the balance sheet will be key.

First MD change since listing: Sobha has followed the model of a professional CEO/MD since its listing in 2006, with J C Sharma at the helm throughout. The incoming MD, Jagadish Nangineni, has been with Sobha since 2009. He was elevated as Deputy MD in 2019.

Strategic objectives…. Sobha’s pre-sales have recently accelerated, rising 34% y-o-y in 9MFY22 to Rs 28 bn. The company looks on track to achieve record pre-sales volumes of 5m sf in FY22; and had earlier set a target of 7m sf in the medium term. To achieve the same, an 14m sf launch pipeline has been created for the near term. Mgmt has also worked towards reducing its leverage to 1.0x over last 2 years. Driven by cashflow discipline, net debt has declined by 14% over the past 8 quarters.
….and likely changes: Initial comments from Jagadish suggest that Sobha could adopt a faster sales trajectory, while maintaining the debt reduction path. We currently forecast a 14% value sales CAGR over FY22E-24E; with vols rising to 5.7m sf. While debt would still decline, mgmt now proposes to deploy a greater part of Op. CF surplus to land/new projects, compared to just 6% of op.CF during the past 7 quarters.

Greater thrust on JVs a possibility:We note that Jagadish has been responsible for setting up the successful Gurgaon business for Sobha (16% of 9MFY22 pre-sales), wherein the project is run as a joint development with a local partner. To pursue a balance-sheet light growth strategy, higher reliance on JD/JV is likely.

Maintain BUY: Both the CFO and MD for Sobha have now seen a change in FY22, causing some volatility in the stock. We see the promotion of internal candidates for both the roles as a positive. Meanwhile, strong housing markets across India, and Sobha’s own leverage of the same through timely launches & execution, are likely to keep sales bouyant. As such we see the stock correction as a BUYing opportunity.