As per Sobha’s organization update, the corporation has accomplished its very best ever quarterly volumes in Q2FY22 with gross sales bookings of 1.35msf worth Rs 10.3 bn which had been up 51% y-o-y in volume terms and 49% y-o-y in worth terms driven by Bengaluru, Gurugram and Pune markets. While Q1FY22 saw a muted efficiency owing to the second Covid wave, the enhanced Q2FY22 efficiency reflects sturdy demand in South India, driven by hiring in IT/ITeS sector, which was accompanied by salary hikes and low mortgage prices of 6.5-7.%. We count on this momentum to continue into H2 and beyond and we model for 4.8/5.3/5.4msf of sales volumes in FY22/23/24e.
We revise our SOTP based TP to Rs 774/share (earlier Rs 540) as we assign larger worth to the company’s land bank owing to an anticipated upcycle for residential housing in South India in the medium term. However, we downgrade to Hold from ADD post the 55% appreciation in stock cost more than the last 3 months. Key dangers to our contact are a slowdown in residential demand and rise in the company’s debt levels.
Expect enhanced displaying to continue in H2FY22-FY24e: We think that the company’s Q2FY22 sales efficiency is commendable, and count on sales momentum to sustain heading into H2FY22e as properly on the back of new launches. Listed developers like SOBHA have lined up a quantity of launches across Tier-I cities. With developers maintaining pricing discipline with cost hikes of 4-5% on a like-to-like basis in new phases of ongoing projects, we count on single digit cost hikes annually to guard Ebitda margins of South based developers, which variety among 20-25%.