International brokerage Investec kicked off coverage on Bengaluru-based realty major Sobha Ltd., stating that the firm is a good late recovery play on the real estate cycle. Shares of the real estate firm jumped over seven percent in trade on November 22.
The brokerage issued a 'buy' rating on Sobha, with a price target of Rs 2,150 per share. This indicates a whopping 42 percent upside from the previous session's closing price of Rs 1,516.95 per share.
According to Investec, Sobha has consistently generated healthy operating cash flow (OCF) while reducing balance sheet leverage. Further, the realty player plans to strategically enter the Mumbai and Noida markets, targeting a strong long-term presence in these markets within 2- 3 years.
At 12.30 pm, Sobha shares were trading at Rs 1,610 per share, higher by 6.1 percent on the NSE.
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Investec expects an 18 percent CAGR pre-sales growth over FY24-FY27 considering Sobha's strong project pipeline. The brokerage added that if the realty player decides to monetizing its land reserves and use incremental cash flows to expand its JD business, it could enhance profitability. Further, the firm's strong project pipeline will drive pre-sales.
Global broking firm HSBC also reiterated its 'buy' call on Sobha. The brokerage noted that following its recent rights issue and improved OCF performance, the business is poised for strong growth.
For the quarter ended September, Sobha reported a 73.3 percent on-year rise in net profit to Rs 26 crore, as against Rs 15 crore which was posted in the same quarter last year. The firm's revenue from operations clocked in at Rs 933.5 crore, higher by 26 percent compared to Rs 741.2 crore in the year-ago period.
On the stock front, Sobha's shares are currently inexpensive compared to its peers. Over the past year, Sobha stock price has run up around 79 percent, as compared to the Nifty 50's run of around 18 percent during the same time period.
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