Buy Sobha; target of Rs 641: HDFC Securities

HDFC Securities' research report on Sobha

Sobha Developers’ (SDL) 4QFY18 net profit came in at Rs 0.7bn vs. our estimate of Rs 0.4bn. SDL recorded a healthy 1.02mn sqft of pre-sales for 4QFY18. Pre-sales value (SDL’s share) was Rs 6.6bn, which is 30% higher YoY.  SDL sold 3.63mn sqft in FY18 (+21% YoY), beat vs our estimate of 3.40mn sqft. Cost of funds reduced to 9.39% vs 10.42% YoY. Net D/E reduced from 0.86x to 0.79x QoQ. Net debt stood at Rs 22bn (vs Rs 23.3bn in 3QFY18). Improvement was also led by Rs 9.1bn of collections vs 6.7bn QoQ. SDL is sitting on 14.8mn sq ft of unsold inventory and has 6-8 new launches in the pipeline across existing locations with 3-4 projects in advanced stages of hitting the market.

Outlook

Management has guided for 3-4mn sqft of new area releases in FY19E. Bengaluru realty market is stable, SDL has gained market share in absence of significant competitive launches. Maintain BUY with an increased NAV of Rs 641/share.