ICICI Direct recommended hold rating on Sobha with a target price of Rs 570 in its research report dated August 10, 2018.
ICICI Direct's research report on Sobha
Sobha's topline grew 18.6% YoY to Rs 800.5 crore (our estimate: Rs 775.5 crore) led by 37.3% YoY growth in revenues from contractual division to Rs 238.1 crore (our estimate: Rs 231.2 crore). Further, its real estate revenues grew 11.3% YoY to Rs 562.4 crore (our estimate: Rs 544.3 crore) EBITDA margin expanded 100 bps YoY to 20.8% (our estimate: 18%) PAT grew robustly by 46.3% YoY to Rs 69.8 crore (our estimate: Rs 55.8 crore) led by strong topline growth & EBITDA margin expansion According to Ind-As-115, YoY numbers are not comparable. Revenues were at Rs 597.7 crore, EBITDA margin was at 21.9% while PAT was at Rs 52.6 crore. Also, the company had to reverse revenues worth Rs 3270 crore and PAT worth Rs 760 crore from its FY19 opening networth. Hence D/E optically looks higher at 1.1x.
Sobha’s sales volumes continue to improve with the company posting volume growth of 17.8% YoY to 0.96 msf in Q1FY19. Furthermore, with demand scenario improving and slew of new launches lined up, the company expects the sales momentum to improve further. However, with the company aiming to clock annual sales volume run-rate of 6-7 msf at the earliest, it would have to make strong launches and spends on land acquisition also in newer geographies like Ahmedabad, Trivandrum and Hyderabad, which needs to be watched closely. Hence, we do not foresee any meaningful debt reduction in near future. Hence, we maintain our HOLD recommendation on the stock with a revised SOTP based target price of Rs 570/share.
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