Buy Sobha; target of Rs 1447: Geojit Financial Services

Geojit Financial Services research report on Sobha

Sobha Ltd., based in Bangalore, is a leading real estate company with a track record of completing ~136msft across 546 projects. The company's operations extend across 14 states, highlighting its significant presence in India's real estate market. In Q3FY25, Sobha reported a 29% YoY decline in pre-sales due to its high base and lower traction in recent launches. Total sales volume stood at 1.02msf, marking a 39% decline YoY. However, average realisation improved by 17%(YoY). During the quarter, completions stood at ~1.64msf (+27% YoY), leading to a revenue growth of ~79% YoY. EBITDA margin contracted by 533bps YoY, due to losses in the contract and manufacturing segment and realisation of lower margin JV products. The company has an unrecognized revenue of Rs.15,000cr from sold units, with an anticipated margin of 28% at project level. Despite the weak quarter, Sobha’s solid pipeline in the residentials is expected to aid strong pre-sales in the coming quarters. Currently, the company has a pipeline of ~21msf, including an inventory of 8.91msf.

Outlook

However, any moderation in residential demand remains a key risk, leading to increased time in monetizing the land and inventories. Despite that, given the significant correction in the price and the strong pipeline, we revise our rating on the stock to BUY with a target price of Rs. 1,447, based on NAV per share.

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