H2 is expected to be better; TP cut to `575; a good bet in long term; ‘Buy’ retained
Sobha reported flat pre-sales in terms of area of 1.06 msf in Q2FY20, but pre-sales in terms of value were lower at `5.6 bn (Sobha’s share; down 9% y-o-y) due to low-realisation sales and low new launches (only one project launched totaling 0.18 msf). However, management expects H2 to be better than H1 as the impact of floods has allayed across the key cities and with the beginning of the festive season.
In the wake of the slowdown in the industry, even reputed developers such as Sobha have slowed down new launches, which impacted their sales growth. As pre-sales (value terms) in H1FY20 are lower (down 3% y-o-y), we cut our FY20 pre-sales growth estimate to flat y-o-y (vs. 10% growth earlier). Our TP stands revised to `575 (vs. `641 earlier). However, we like Sobha in the long term as we believe it will be a key beneficiary of market consolidation in South India. Maintain Buy.
Other highlights: Pre-sales in its key market —Bangalore —were strong and contributed 75% to total volumes (vs. ~70% in Q1FY20). Average realisation was lower at `6,584 psf (`7,181 psf in Q2FY19) mainly due to change in product mix (high contribution from low-realisation projects). Launch pipeline remains strong across Bangalore, Gurgaon, Delhi, Hosur, Chennai Thrissur and Hyderabad over the next 4-6 quarters.