Hold Sobha Developers; target of Rs 467: ICICIdirect

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26 Aug, 2025 12:21

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ICICIdirect.com`s research report on Sobha Developers“Sobha Developers, topline at Rs 575.9 crore (grew 24.9% YoY) was higher than our estimate of Rs 519.6 crore mainly on the back of superior contractual revenues, which grew ~104% YoY to Rs 231.7 crore. In terms of segmental contribution, real estate contributed ~60% while contractual & manufacturing work formed ~40% of revenues (vs. 75% and 25%, respectively, in Q1FY14). However, the EBITDA margin at 26.3% was lower than our estimate of 27.2% due to higher share of contracting and manufacturing revenues, which have lower margins. The net profit at Rs 57.0 crore (grew 13.8% YoY) was ahead of our estimate of Rs 53.3 crore given the superior revenues. However, sales volumes declined 18% YoY to 0.75 msf while sales value declined 20% YoY to Rs 482.2 crore. The major decline came in Chennai where volumes dipped ~67.3% YoY. For Bengaluru & NCR markets, sales volumes declined 12.5% & 16.7% YoY, respectively.” “In Q1FY15, Sobha’s real estate collection de-grew 6.2% YoY to 461.8 crore. Also, due to the recent land acquisition in Kochi, Pune and Bangalore, it had a capital outflow of Rs 285.5 crore. Consequently, it reported a net cash outflow of Rs 292.8 crore in Q1FY15. Going ahead, with the recent land acquisitions and capex related to commercial properties, we expect the FCF to remain under pressure in FY15E. However, we expect it to improve gradually in FY16 on the back of higher collection from expected increase in sales booking. Currently, the stock is trading at 1.7x FY15 P/BV and 0.9x its NAV (after adjusting the construction business valuation). We believe Sobha’s rerating hinges on management efforts to quickly launch lower ticket size project and support its sales volume growth. We maintain our HOLD rating on the stock with a target price of Rs 467 (RE business - Rs 408/share at 0.7x its NAV and construction business - Rs 57/share),” says ICICIdirect.com research report. 

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