Sobha Stock Research Report

Launches key for achieving FY25 sales booking guidance…..

Sobha Ltd. (SOBHA) clocked H1FY25 sales bookings of 2.1msf worth INR 30.5bn (32%/4% YoY dip in volume/value terms) in spite of the company launching ~3.5msf of new projects in H1FY25.As of Sep’24, SOBHA has launched five projects across 3.5msf in H1FY25 and maintains its guidance of launching another 5.5msf of projects in H2FY25.
However, this is contingent on timely approvals coming through, which has been an industry issue over the last few months in Bengaluru. Hence, we cut our FY25/ FY26 sales bookings estimates by 7–8% to INR 85bn/INR 88bn, baking in the possibility of launch delays.
Adjusting for the two tranches of rights issue proceeds of ~INR 10bn each (INR 20bn overall) in FY25, we upgrade SOBHA to ADD, from Hold, with a revised TP of INR 1,628 (vs. INR 1,814 ex-rights issue) and cash flow adjustments post the 11% decline in stock price over the last three months.

30–35% FY25 sales booking growth guidance contingent on launch timelines

As per management, at the beginning of FY25, it had plans to launch 9msf of new projects in FY25 with estimated GDV of over INR 90bn – of which ~60% was expected to be in Bengaluru. As of Sep’24, SOBHA has launched five projects across 3.5msf in H1FY25 and maintains its guidance of launching another 5.5msf of projects in H2FY25. However, this is contingent on timely approvals coming through, which has been an industry issue over the last few months in Bengaluru. Hence, we cut our FY25/FY26 sales bookings estimates by 7-8% to INR 85bn/INR 88bn, factoring in any possible delay in launches. As per the company, demand continues to be resilient across segments.

Utilisation of rights issue proceeds key to growth

As of Sep’24, the company has a pipeline of 20.8msf, which is expected to be launched over H2FY25 FY26E. While SOBHA has historically relied largely on existing land parcels to drive growth, with the company having raised ~INR 10bn through a rights issue in H1FY15 and with the second tranche of the rights issue expected sometime in H2FY25, it will likely look to augment its land bank across locations. Net debt stands at INR 2.8bn, as of Sep’24 (INR 11.9bn in Jun’24) owing to rights issue proceeds; the company’s ability to scale up operations further while maintaining optimal debt levels remains key.

Key risks: lower price growth and residential demand slowdown.