Broker's Call: Sobha (Buy)

| Updated on January 07, 2020 Published on January 09, 2020

ICICI Securities

CMP: ₹401.6

Target: ₹516

Sobha Ltd is engaged in the construction and development of residential and commercial projects. The company is also engaged in contractual projects. Its residential projects include luxury and super luxury apartments, villas, row houses, plotted development and aspirational homes. Its divisions include Sobha Contracting and Sobha Manufacturing. Sobha Contracting provides end-to-end solutions starting from the conceptualization of a project to its final satisfactory completion.

Sobha’s gross sales volumes in Q3FY20 were steady at 1.06 million sq.ft. and worth ₹730 crore (up 17 per cent y-o-y in volume terms and up 4 per cent y-o-y in value terms) with the Bengaluru market (77 per cent volume share) continuing to be the major contributor. While sales momentum remains robust and Sobha has a healthy pipeline of launches in CY20, the company’s net debt levels have risen by ₹550 crore in H1FY20 to ₹2,980 crore (net D/E of 1.3x). As Sobha targets higher annual volumes of 7-8 million sq.ft. over the medium term, keeping debt levels under control remains crucial.

While we retain our ‘buy’ rating with an unchanged target price of ₹516/share based on 1x NAV, stock performance hereon is contingent on company’s ability to sharply scale up sales volumes in CY20 through new launches.

Published on January 09, 2020
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