Targeting sustainable growth with healthy cash flows and profitability
After underperforming its listed peers on pre-sales growth over FY21-23, we believe SOBHA is set to outperform in terms of growth given its focus on unlocking its vast land reserve and exploring external growth opportunities through its healthy balance sheet. The outperformance is also expected to be driven by improvements in profitability. Further, visibility in the monetization of some of its large land parcels in Bengaluru will lead to a re-rating in its implied land valuation. SOBHA is our top idea for CY24 with a revised TP to INR1,400, 25% upside potential.
Key risks to our target price include (a) slowdown in residential absorption, (b) delay in monetization of large land parcels, and (c) inability to sign BD deals.
Valuation and view
We factor in higher launches over FY24-26E and hence revise our pre-sales estimates by 4%/12% for FY24/FY25. We also introduce FY26 estimates.
We believe that as the company unlocks its vast land reserves and explores growth opportunities beyond its existing land bank, it will provide further growth visibility. Project launches on its large land parcels in Bengaluru and Tamil Nadu will drive re-rating for its existing land valuation.
Its focus on sustainable growth (revenue growth, healthy profitability, and steady cash flows) will put the company on a long-term growth path.
At CMP, SOBHA’s ~200msf land is valued at INR38b vs. our arrived value of INR60b assuming 25-75 years of monetization. The company trades at 6.5x FY25E EV/EBITDA (implied based on FY25E pre-sales), which is 25-40% discount to its comparable midcap/smallcap peers (PEPL, BRGD, MLDL, Sunteck).
We revise our TP to INR1,400, implying 25% upside potential, and we rate SOBHA as our top idea for CY24.
Click here to download research report on Shobha by Motilal Oswal
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