Sobha Developers Q1FY13 Update: Strong performance continues
Investment Analysis
- Strong sales performance continues: Although launches were subdued for the quarter with only a small villa launch in Coimbatore, sales momentum continued at the company’s previously launched projects, thereby, ending the quarter at 0.83m sq.ft, representing 25% YoY growth and a marginal sequential decline. Sales from the Gurgaon project witnessed a strong sequential increase of 24%.
Realizations too remained firm at Rs5,737, an increase of 26% & 7% on a YoY and QoQ basis, respectively, resulting in total sales of Rs4.79bn. The company’s sales guidance for FY13 stands at Rs20bn as against sales of Rs17bn clocked in for FY12.
- Upward trajectory to continue: Sobha has a launch visibility of ~5m sq.ft in the near term, with the Dairy Circle property in Bengaluru and a Thrissur launch being next in queue. Besides, the company has been releasing additional area at its previously launched projects, thereby, providing momentum to sales. We expect sales growth of 14% in volume terms to 3.75m sq.ft.
- Deleveraging in process: On account of strong launches and monetization of old sales, coupled with a steady execution, the company has brought its net debt down from Rs12.1bn in FY11 to Rs11.4bn in FY12. Prabhudas Lilladher further expects net debt to reduce to Rs8.9bn FY13, resulting in a DER of 0.56, down from 0.67 in FY11.
Stock Valuation and Recommendation:
Sobha’s NAV stands at Rs39.8bn, translating to Rs406/ share. Prabhudas Lilladher attributes a 20% discount to this to arrive at the value of the real estate business. To this, they are adding the value of the contract business which is calculated at Rs35/share which translates to a target price of Rs360. Prabhudas Lilladher maintains ‘Accumulate’ on the stock.
- Strong sales performance continues: Although launches were subdued for the quarter with only a small villa launch in Coimbatore, sales momentum continued at the company’s previously launched projects, thereby, ending the quarter at 0.83m sq.ft, representing 25% YoY growth and a marginal sequential decline. Sales from the Gurgaon project witnessed a strong sequential increase of 24%.
Realizations too remained firm at Rs5,737, an increase of 26% & 7% on a YoY and QoQ basis, respectively, resulting in total sales of Rs4.79bn. The company’s sales guidance for FY13 stands at Rs20bn as against sales of Rs17bn clocked in for FY12.
- Upward trajectory to continue: Sobha has a launch visibility of ~5m sq.ft in the near term, with the Dairy Circle property in Bengaluru and a Thrissur launch being next in queue. Besides, the company has been releasing additional area at its previously launched projects, thereby, providing momentum to sales. We expect sales growth of 14% in volume terms to 3.75m sq.ft.
- Deleveraging in process: On account of strong launches and monetization of old sales, coupled with a steady execution, the company has brought its net debt down from Rs12.1bn in FY11 to Rs11.4bn in FY12. Prabhudas Lilladher further expects net debt to reduce to Rs8.9bn FY13, resulting in a DER of 0.56, down from 0.67 in FY11.
Stock Valuation and Recommendation:
Sobha’s NAV stands at Rs39.8bn, translating to Rs406/ share. Prabhudas Lilladher attributes a 20% discount to this to arrive at the value of the real estate business. To this, they are adding the value of the contract business which is calculated at Rs35/share which translates to a target price of Rs360. Prabhudas Lilladher maintains ‘Accumulate’ on the stock.
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