Sobha Developers
BSE Sensex
26,933
S&P CNX
8,153
6 October 2015
Update | Sector: Real Estate
CMP: INR281
TP: INR400 (+42%)
Buy
Operational normalcy yet to return
Bangalore momentum down; QoQ uptick in Kerala, Chennai
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
12M Avg Val (INR M)
Free float (%)
SOBHA IN
98.1
536 / 244
-5/-26/-30
27.5
0.4
87
39.4
SOBHA’s 2QFY16 presales were down 2% QoQ to INR4.9b (0.85msf). 1HFY16
cumulative presales stood at ~42% of annual guidance (19% in 1Q).
Bangalore volumes were down 13% QoQ, led by slower momentum in Dream
Acres; Chennai and Kerala markets posted an uptick.
The stock appears attractive post corrections, which factors in operational
weakness. Re-rating hinges on operational normalcy, which might take another
six months to play out. Maintain Buy with a target price of INR400.
Operational disappointment continues
SOBHA’s 2QFY16 presales stood at 0.85msf (INR4.9b) v/s 0.84msf (INR5.0b) in
1QFY16 and expectation of INR0.9msf (INR5.5b).
Sobha Retreat(0.02msf)
at
Langford Road (Bangalore), a presidential apartment property with 7 units, was
the only new launch (@INR25,000 psf).
Dream Acres
continued to remain the
key contributor; however, it run-rate appears to plateauing (ASP INR4,875/sf).
Average realization, consequently, was down ~3% QoQ to INR5,821/sf.
Financial Snapshot (INR b)
Y/E Mar
2015 2016E 2017E
Net Sales
EBITDA
Adj PAT
EPS (INR)
EPS Gr. (%)
BV/Sh (INR)
P/E (x)
P/BV (x)
RoE (%)
RoCE (%)
24.4
6.2
2.4
24.3
1.3
11.6
1.1
7.5
2.5
24.2
6.8
2.7
27.1
11.7
10.3
1.0
7.2
2.5
27.2
7.7
3.1
31.5
16.0
8.9
1.0
6.1
2.5
248.0 266.9 290.2
Bangalore momentum down; Kerala and Chennai post an uptick
Bangalore mix declined to 71% in 2Q (v/s ~83% QoQ and 75% in FY15), largely
due to decline in presales run-rate of key project
Dream Acres.
However, luxury
projects in Bangalore posted sequential improvement (~7% QoQ). Chennai and
Kerala projects recorded an uptick—led by projects such as
Lake Edge
(Thrissur)
and
Sobha Evergreen
(Chennai) and better NRI demand in 2Q. Gurgaon launch
is likely by 4QFY16 while uncertainty over Thrissur and Chennai launches
persists.
Shareholding pattern (%)
As on
Jun-15 Mar-15 Jun-14
Promoter
DII
FII
Others
60.6
3.6
31.8
4.0
60.6
4.1
31.7
3.6
60.6
3.6
32.2
3.6
Valuation favorable post corrections
Only 42% of the 4msf (INR26b) guidance has been achieved till 1HFY16.
Therefore, we expect another year of operational disappointment unless the
company’s Gurgaon launch springs a strong positive surprise. We estimate FY16
presales of 3.4msf (INR21.7b). The recent corrections have made the stock
attractive, with operational negativity largely factored in. However, re-rating
hinges on operational normalcy—which might take another six months to play
out. Sobha trades at 8.9x FY17E EPS, 1x FY17E BV and EV of ~7x FY17E cash
EBITDA. Maintain
Buy
with a target price of INR400 (25% discount to SoTP
valuation of INR520)
FII Includes depository receipts
Stock Performance (1-year)
Sandipan Pal
(Sandipan.Pal@MotilalOswal.com); +91 22 3982 5436
Anchit Agarwal
(Anchit.Agarwal@MotilalOswal.com); +91 223010 2397
Investors are advised to refer through disclosures made at the end of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.