Accumulate Sobha Developers; target of Rs 380: Emkay

Emkay Global Financial Services is bullish on Sobha Developers (SDL) and has recommended accumulate rating on the stock with a target of Rs 380 in its August 8, 2012 research report.

“SDL reported topline of Rs 4.2bn which included land sales in Pune of Rs 0.96bn, adjusting which, it was 9% below our estimates. EBITDA at Rs 11.3bn with EBITDA margin lower than expected due to margin on land sale was just 16%. Adjusting the gross margin, EBITDA was at Rs 960mn which is 13% below estimate due to lower topline and higher employee & other operating costs. PAT at Rs 460mn adjusted for land sale to Rs 337mn was 27% below estimate due to lower adjusted EBITDA.”

“SDL generated operating cashflow of Rs 730 in Q1FY13 including cash of Rs 957mn from land sale. Adjusting the same, the operations generated -ve cashflow of Rs 227mn. This was mainly due to lower collection in the contract business. Going forward, company intends to spend Rs 6.2bn on real estate development in FY13. We believe against the same the collections from same would be Rs 11.5bn, giving a surplus of  Rs 4.3bn which will go towards fixed operating costs of Rs 3.3bn, taxes of 0.75bn and interest cost outflow Rs 1.6bn. The gap would be filled in by net collection of Rs 0.8bn from contract business and other income as per our estimation, the net debt of the company in FY13 would decrease marginally by Rs 550mn over FY12, considering sales booking of Rs 18.6bn in FY13 against management guidance of Rs 20.0bn.”

“SDL at TP would trade at 1.71x and 1.53x P/B on FY13E & FY14E resp. Although, the OCF-to-Market Cap yield is quite healthy the FCFE-to-Market Cap yield is much lower due to higher interest cost outflow. We have marginally increased the value of land bank from 1.3 xs to 1.4x the book value considering the increase in pricing of the Bangalore real estate market,” says Emkay Global Financial Services research report.

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