Sobha falls 3% on lower Q2 sales; management retains target

Brokerage firm Macquarie is bullish on the company and says the lower sales are due to the lack of any big project launch. It has an "outperform" rating on the stock.At 10:43 hours IST, the scrip of Sobha was quoting at Rs 273.00, down Rs 8.30, or 2.95 percent on the BSE.Below is the verbatim transcript of JC Sharma’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Sonia: I know that the turf had been quite weak, demand has not improved much in many markets but given that you have clocked-in only Rs 1,000 crore of presales in the first half of the year, will it be tough for you to maintain or to meet your FY16 guidance of Rs 2,600 crore?A: As far as the demand part is concerned, you are right. The demand had been sluggish since last few quarters. Last quarter was not an exception. We have given two sets of guidance’s, one on the volume front and one on the value front. As far as on the volume front, we believe that there is still a possibility that the second half should be better than the first half and with the interest rate reduction.The way the market has started behaving bit positively, things should start turning around from now onwards and that may help us in getting the volumes. As far as the value guidance is concerned, we have not been able to pass on any kind of an increase to the customers. So, at the end of the day, the contribution from the Dream Acres and our inability to increase the prices means while on the volume front we are up 6.5 percent half yearly, this year versus the last year and in Bangalore market we are up 22 percent on value terms you have seen slight decline. With the new launches and bit of an improvement this value part also will increase but to what to an extent, it is very difficult to right now predict. Sonia: Are you saying that you might not be able to meet the value guidance of Rs 2,600 crore?Latha: In fact are you lowering it? A: No we have not lowered it. We are cautiously optimistic. There are still six months to go but where we stand today, we need to show the concerns what is there in our industry. Latha: You said that you are probably expecting a demand uptick in the coming months. Is there anything, any tealeaves that you are reading which is indicating that demand might improve? A: Primarily we know that demand is linked to in our case is the price part and the other one in the interest part. On the interest part, though the full benefit is not yet transmitted but 25-30 basis point reduction has started taking place. In case of the existing customers the benefit is even little bit more because it is linked to the base rates. So, there is a benefit which is being passed on to the customers which is a good sign. On the other hand since prices are also quite subdued, I don’t think that demand should remain where it is right now. Sonia: Just to get a sense of what is happening with realisations, they have fallen quite a bit and as you just mentioned yourself, it is difficult for you to pass on the higher prices or make any price increase in your products despite volumes. At about Rs 5,800 a square feet in this quarter how much do you think the realisations will move say for the next couple of quarters? Will it be in this range itself?A: No it should be higher because now from the regions, the sales have also started taking place and we believe that overall our price realisation must be above Rs 6,000 for the year. How much it will be is very difficult to say right now._PAGEBREAK_Sonia: What about the new launches that you have lined up in the second half of the year, I mean if you have to meet even your volume guidance you will need to pump up your new launch pipeline because in this quarter there was no big launch from the company? A: You are right; neither in this quarter nor in the last quarter. Couple of launches we have planned in Bangalore and one or two launches we are seeing in NCR market as well as in Kochi market also. Sonia: By when? A: By the end of this financial year. Not in this month or next month.Latha: City wise which is the big pain point? You are in quite a few southern cities – Thrissur, Pune, Coimbatore and Kochi. Are all these markets equally showing damp demand? A: The NCR market as far as we are concerned, because it used to be our second most important market and we used to clock a topline of about Rs 500 crore for first two to three years. Now, it has come down sharply. We have been banking that this NCR market should start picking up at some point of time.The recent new launches by other developers have met with good response, so, there is an increase in demand and prices are quite reasonable. NCR is one such market we believe; it should be doing well in our view. The Bangalore market continues to hold on. We have seen significant improvement in our Chennai market also. What we have not seen is that kind of an improvement in the Kerala market which hopefully during Christmas and New Year should start picking up. Latha: You aren’t in Hyderabad? A: We aren’t in Hyderabad. Sonia: Just wanted to ask you about the new launch that you have planned in the NCR market. Approximately how big will that be and if you can give us any timeline on when the launch is expected? A: When we interact along with our financial results we will have better clarity about that.Latha: Margins, you don’t want to share anything even directionally?A: Directionally all these things need to have the required approvals in place before we launch it. It should happen.  (Posted by Ritika Dange)