Time to step up
Sobha Developers Limited’s (SDL) FY24 annual report largely reflects operational excellence and market leadership in its home city with a vision of market expansion. Sobha clocked presales of INR 66.4bn in FY24 (+28% YoY growth) and 7% volume growth at 6.1msf. Largely, the market share remained unchanged with Bengaluru contributing ~70% of sales, followed by Kochi and NCR markets. With an ongoing, upcoming and tied-up BD pipeline of 45msf in volume and INR 500bn+ GDV, SDL is well-placed for FY24-30E presales CAGR of 27.6% to INR 280bn+. Moreover, the rights issue of INR 20bn fundraising (INR 10bn has come in 1st tranche) reiterates promoter confidence in the India business (promoter infusion 1 st tranche INR 5bn+) and Indian real estate. It’s time to step up the game now through market expansion. We maintain BUY with a target price of INR 2,639/sh.
▪ Management insights: In FY24, India’s housing demand was robust, making it the strongest year for the sector. Increased government spending, growth in domestic consumption, and infrastructure development positioned India as a global economic leader, with Moody’s raising its GDP forecast to 8.0%. Consistent economic performance was reflected in steady GST collections, with March 2024 recording the second-highest ever. In this favourable environment, SDL achieved its highest-ever annual sales value of INR 66.4bn, new area sales of 6.1msf, and an average price realization of INR 10,922 psf. The company launched six residential projects, adding 7.0msf to its portfolio, and completed sales for key projects. The developer focused on cash flow management, reducing the net debt-to-equity ratio to 0.5x by FY24. Higher cash flow generation will support growth investments, building a strong future pipeline. With advanced operational methods, best practices, technology tools, and a greater digital presence, SDL expects to improve both financially and operationally in the coming years. As recent projects are recognized for revenue, the company anticipates improved profit margins.
▪ Top-notch execution to drive pricing premium for the luxury segment: The developer backs itself on its in-house, backwards-integrated model, ensuring quality and timely delivery. With operations in 11 cities across 6 states, Sobha has built a reputation for delivering international quality homes. The company is present in major Indian cities and is exploring new markets like Noida and Mumbai. Currently, Sobha has ongoing real estate projects totalling 34.3msf of developable area and 24.4msf of saleable built-up area, along with contractual projects totalling 4.1msf in various construction stages.
▪ Valuation supportive, at discount vs. peers, risk-reward favourable: We believe that further rerating will be contingent on presales outperformance, robust cash flow generation, achieving net cash status, and acceleration in new launches from captive and new land capex/tie-ups. The rerating equation sees shrinking headwinds on the denominator and expansion in tailwinds on the numerator, which can lead to a robust rerating.
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