Hold Sobha Developers; target of Rs 354: Nirmal Bang

Nirmal Bang has recommended hold rating on Sobha Developers with a target of Rs 354 in its May 8, 2012 research report.

“Sobha Developers’ (SDL) 4QFY12 profits were ahead of our as well as consensus estimate on account of land sales worth Rs1,365mn during the quarter. Adjusted for this, the results were broadly in line with our expectations. Operationally, it was a strong quarter with pre-sales of Rs4.6bn up 4% QoQ and 57.3% YoY, driven by the launch of new projects of 1.73mn sq ft - Bangalore (0.57mn sq ft), Chennai (0.9mn sq ft) and Coimbatore (0.26mn sq ft). Further, there was debt reduction of Rs1,300mn QoQ in 4QFY12, resulting in the net D/E ratio going down to 0.57x from 0.65x in 3QFY12. The management has given volume guidance of 3.75mn sq ft (up 14% YoY) and pre-sales guidance of Rs20bn (up 18% YoY) for FY13. We retain our Hold rating on SDL with a target price of Rs354.”

“SDL reported 12.5% QoQ (up 5.5% YoY) revenue growth (adjusted for land sales) for 4QFY12, which was marginally (5%) below our estimate on account of lower revenue recognition from the realty segment. EBIDTA margin of 37.6% (up 878bps QoQ and 1340bps YoY) continued to remain strong, thanks to higher realisation in projects and profits from land monetisation booked during the quarter. Consequently, SDL posted a profit Rs890mn, much more than our estimate (Rs441mn) and consensus (Rs482mn). SDL is the only company in our real estate coverage universe to report positive operating cash flow of Rs652mn for FY12 after accounting for capex and interest costs. This resulted in reduction of the net D/E ratio to 0.57x in FY12 from 0.64x in FY11. We expect SDL to maintain positive operating cash flow over FY12-14, with improvement in cash collection on account of pick-up in execution at its ongoing projects and sustained momentum in presales. Hence, we expect the net D/E ratio to improve to 0.5x in FY13E.”

“We have tweaked our model to factor in higher OPM and higher interest cost, based on the change in accounting with respect to revised Schedule VI norms. However our FY13 and FY14 earnings estimates remain broadly unchanged. At the CMP, the stock is trading at 1.3x P/BV and 9.7x P/E on FY14E earnings and at a 28% discount to our one-year forward NAV. We continue to retain our positive stance on South India property markets where the absorption continues to remain strong,” says Nirmal Bang research report.        

Non-Institutions holding more than 90% in Indian cos

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