Hold Sobha Developers; target of Rs 380: Religare Capital

Religare Capital`s research report on Sobha DevelopersQ2FY15 volumes improve sequentially, but big push NEEDED: Sobha reported Q2FY15 sales of 0.83msf (-17% YoY, +10% QoQ) at an ASP of Rs 6703psf (+7% YoY, +5% QoQ). A QoQ improvement in volumes was led by new launches of 1.6msf in Bengaluru, Chennai and Thrissur. The company has been able to maintain its volume momentum backed by new launches, while sales from under-construction projects would be the key for growth in volumes/cash flows. 40% of FY15 target met: During H1FY15, Sobha has pre-sold properties worth 1.6msf/Rs 10.4bn, thus reaching 40%/39% of its FY15 target of 4msf/Rs 27bn. Management remains positive on achieving its FY15 sales guidance on expectations of a volume pick-up and select launches. In our view, the risk of a miss is higher unless mid-income projects are launched in FY15. Q2FY15 preview: We estimate Q2FY15 revenue/PAT at Rs 6.0bn/Rs 0.61bn and debt levels to rise by Rs 0.5bn QoQ led by dividend payouts. Key things to watch for in the results would be: (a) cash flows generated during the quarter, (b) capex spends and (c) management commentary on the current state of markets. Maintain HOLD: Sobha’s growth is contingent upon the behavior of new markets and performance of the premium residential segment in Bengaluru. Further, we see inventory management as a key challenge. Maintain HOLD. "Sobha reported Q2FY15 sales of 0.83msf/Rs6bn, thus meeting 39%/40% of its FY15 guidance in H1FY15. Volumes were up 10% QoQ led by launches of 1.6msf in Bengaluru and south India. Management expects a volume pick-up in H2FY15 aided by improving market conditions and a few big-ticket launches, and has thus maintained its FY15 volume guidance (equivalent to 50% growth in H2 vs. H1). We however believe this is difficult to achieve unless mid-income projects are launched (latest by FY16) and the luxury residential market of ready properties picks up. HOLD,” says Religare Capital research report. 

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