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The stock price of Sobha was up about 4 per cent to close at ₹396 on Thursday on the back of news of pick up in its new sales volumes.
The company clocked 8.2 lakh square feet (sq ft) of new sales volumes in Q1 FY18; it was up 12.7 per cent sequentially and about 1 per cent on y-o-y basis. During the quarter, there was a sharp pick up in the residential markets of Gurugram, Cochin and Coimbatore.
About 1.2 lakh sq ft of new sales were reported in Gurugram during the June quarter of 2017-18 — up 97 per cent y-o-y. In Cochin, sales was up 668 per cent y-o-y to 28,430 sq ft. In contrast, new sales volumes were down in Bengaluru, Chennai and Mysore.
Price realisation was down (albeit marginally) about 1 per cent on sequential basis, while it was up 19 per cent on y-o-y basis. Average price realisation (Sobha’s share) was at ₹6,903 a sq ft during the June quarter of 2017-18 as against ₹5,806 a year ago.
Bengaluru marks a pauseIts luxury flats at Babupur, Gurugram and Marina One (Cochin) could have seen some sales traction. The company reported sales of ₹623 crore in Q1 FY18; up 20 per cent y-o-y and up 12 per cent on sequential basis.
Bengaluru is its key market, comprising 75 per cent of overall sales volume in 2016-17. During the June quarter, Bengaluru sales were down 2 per cent y-o-y, though on sequential basis it was up 17 per cent. Slowdown in IT recruitment is looming large over the city and about 45 per cent of its overall customers are from the IT/ITeS industry.
High inventory too, is a drag. It has 62 lakh sq ft of unsold stock in the cities of Bengaluru (26 lakh), Cochin (13 lakh) and Gurugram (9 lakh). Out of that, about 38 per cent is in the high-end luxury segment of ₹2 crore and above.
Fully pricedThe share price is up 23 per cent in the last one year as the market gave a thumbs up to the stock with the expectation that RERA will lead to consolidation in the sector — benefiting them.
While the company put up an above-average performance in FY17 — sales and net profit were up 15 per cent and 16 per cent respectively, RERA and GST are forthcoming challenges.
It needs to be seen how residential demand pans out under the new regime. Moreover, current valuations are on the higher side; its price-to-earning ratio is at 24 compared with the three-year average of 18.
Investors are better off sitting on the fence, waiting for more clarity on trends in its key markets — Bengaluru, NCR and Cochin.
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