Buy Sobha; target of Rs 935: HDFC Securities

HDFC Securities' research report on Sobha

Sobha’s (SDL) reported annual presales of 5.7msf, the highest-ever in both value and volume terms, valued at INR 52bn (+34% YoY). This was on the back of the robust launch of 4msf. For FY24, SDL expects to clock presales growth of 15-20% on the back of a minimum of 7msf of launches (launches will start from Q2FY24). Of which, 5/1/1msf is planned for Bengaluru/NCR/other markets. EBITDA margin continues to be a pain point with FY23 EBITDA margin at 11.2%(-456bps YoY). This was on account of high-cost legacy contractual projects and historical presales with higher raw material costs getting recognised now. SDL expects a turnaround in EBITDA margin from Q3FY24. Hosur land monetisation will start in FY24 with a plan to launch plotted development project. On the other hand, for the 200-acre Hoskote land monetisation, the launch plan for the first few phases will be crystalised by FY24-end. In terms of business development (BD), SDL expects to spend INR 2-3bn in FY24, primarily going for a JD/JVA route, which would be funded by robust internal accruals. Real estate collection was the highest ever at INR 43bn (+36% YoY) on the back of robust presales and delivery. This resulted in the reduction of net debt to INR 16.4bn (a reduction of INR 5bn from FY22).

Outlook

However, for FY24, SDL plans to utilise its robust cash flow more towards growth than net debt reduction. On account of the near-term pressure on margins, we cut our estimates, but maintain BUY with an unchanged TP of INR 935.

For all recommendations report, click here