ICICI Securities bets on this small-cap real estate company and suggests buying for a target price of Rs 808
Stock market outlook
The current share price is Rs 514.20 each. Its 52-week low is Rs 438.05/share and the 52-week high is Rs 781.60/share. It is currently trading at Rs 76.15/share above the 52-week low and Rs 267.4 below the 52-week high, respectively.
Returns on investments
Sobha stock in one week, ending Friday, gave a positive return of 3.89%. While in the last 1 and 3 months, it gave a positive return of 7.81% and 33.93%, respectively. Shares have jumped nearly 21.83% over the past year. While over the past 3 and 5 years, it has given a positive return of 51.89a5 and 84.96%, respectively.
Bengaluru launches deliver strong operational performance
Sobha’s gross sales bookings in the first quarter of FY23 of 1.36 million square feet worth Rs 11.5 billion (Isec estimate Rs 10.5 billion) were stable in terms of in volume and up 3% in value, helped by the company achieving its highest ever gross realization of 8,431 rupees/psf. In Q1FY23, the Bengaluru market was again the main contributor with sales volumes of 1.06 msf and contributed 78% of total volumes. This was due to three new launches in Bengaluru during the quarter, including Sobha Sentosa (0.8 msf in South Bengaluru), Sobha Victoria Park (0.58 msf in North Bengaluru) and Sobha Royal Crest (0. 65 msf in West Bengaluru). Another positive was the company’s consolidated net debt level which further reduced QoQ from Rs 2.3 billion to Rs 21.1 billion, helped by a one-time cash inflow of Rs 1.6 billion from a sale of land made in Q2FY22.
FY23 sales booking guidance revised up after strong first quarter of FY23
For the whole of FY22, the company recorded its best annual sales performance with gross sales bookings of 4.91 million square feet worth Rs 38.7 billion. In May 2022, despite the company having a strong launch pipeline of approximately 13 million square feet, given input cost inflation and expected FY23E mortgage rates, the company had forecast flat gross sales volume of approximately 5.0 million square feet in FY23E (4.9 million square feet in FY22) with gross sales value growing 5-6% to ~ Rs 40 billion (Rs 38.7 billion in FY22). However, given the strong first quarter performance of FY23 and continued demand despite rising mortgage rates, the company has now revised its guidance for FY23 and expects volume growth. 10-15% YoY and 15-20% YoY value growth in FY23. As a result, we have increased our sales booking value estimates for FY23E and 24E by 13% each, to 45.5 billion rupees and 49.0 billion rupees, respectively. The company is confident of an additional 2-3 million square feet of launches in the remainder of FY23
Good start for FY23, buy for target price of Rs 808
Sobha Ltd. (SOBHA) achieved gross sales bookings in Q1FY23 of 1.36 msf worth Rs 11.5 billion against Isec’s estimate of Rs 10.5 billion and is the best quarter of the company’s history in terms of sales bookings. While the company had previously forecast flat gross sales volume of ~5.0 million square feet in FY23E (4.9 million square feet in FY22) citing cost pressures from entry and rising mortgage rates, the strong start to FY23 has led the company to now target 10-15% year-over-year. volume growth and value growth of 15-20% YoY in FY23. As a result, we have increased our sales booking value estimates for FY23E and FY24E by 13% each to Rs 45.5 billion and Rs 49.0 billion respectively against FY22 sales bookings worth Rs 38.7 billion. We maintain our buy rating with a revised target price based on SOTP of Rs 808/share (previously Rs744) due to the project level and balance sheet adjustments. The main risks to our call are a slowdown in residential demand and an increase in corporate debt levels.