Buy Sobha; target of Rs 560: Motilal Oswal

Motilal Oswal's report on Sobha

"Sobha (SOBHA) reported 2QFY15 revenue at INR6.7b (+24% YoY) v/s estimate of INR5.6b. Beat in revenue was attributable to incremental contribution of INR1.2b from two projects which reached recognition threshold in 2Q. EBITDA margin, albeit sub-normal against historical average, improved 1pp QoQ to 27.6%, led by lower mix of contract business. EBITDA grew 30% YoY to INR1.85b (v/s est. of INR1.5b), while PAT stood at INR773m (v/s est. of INR541m) led by a lower tax rate."

"Recent run-up in the stock price has partially bridged the gap of valuation discount. We expect a gradual return to operational stability over 2HFY15. The stock trades at 8.7x FY16E EV/ cash EBITDA, 1.7x FY16E P/B, 14.9x FY16E EPS. Maintain Buy with a target price of INR560 (10x FY16E cash EBITDA)", says Motilal Oswal research report.

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