Buy Sobha; target of Rs 1024 HDFC Securities

HDFC Securities' research report on Sobha

In our Sobha (SDL) deep dive note ‘R’eset, ‘R’estart, ‘R’efocus = ‘R’erating, we had premised our investment thesis on a strong demand undercurrent in the Bengaluru market and SDL hitting the Reset-Restart button. There is a clear focus on deleveraging, tying up new business development (15msf new launch pipeline, 20msf advance stage tie-up), and ramping up new launches (with minimal incremental INR 8-10bn of residual capex). Q2FY24 operational data further strengthens our thesis as Sobha reported lifetime high presales of INR 17.2bn (+48.1%/+17.7% YoY/QoQ). In terms of area, it sold 1.7msf (+26.1%/+21.0% YoY/QoQ). The average price realisation stood at INR 10,223 psf (+17.4%/-2.7% YoY/QoQ).

Outlook

Valuation comfort, robust FCF generation, and likely deleveraging are the main near-term triggers for rerating. We maintain BUY with an NAV-based TP of INR 1,024/sh.