Land bank monetisation, demand uptick key triggers for Sobha Developers

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Even as the realty sector is struggling to improve its volumes, Bengaluru-based developer Sobha has been able to post record sales in the March quarter. The firm achieved highest ever new sales of over a million square feet for the second consecutive quarter enabling it to reach four million square feet in FY19. 

Three quarters of the volumes were accounted for by the Bengaluru market. New launches and improving demand in key pockets helped the company achieve the sales growth. Volume growth at a time of slowing overall sales should help the company gain share. “Considering that liquidity issues have made overall conditions weak for the industry, record high sales for Sobha and good new launches position it well to gain market share going forward,” says Abhinav Sinha of CLSA. Given the gross sales value of Rs 3,122 crore, the company is expected to be the third largest listed developer by residential sales in FY19. 

Going ahead, the company has indicated that growth momentum of the March quarter and FY19 will continue on to FY20. It has lined up launches amounting to 7-8 million square feet over the next one year and this should ensure robust pace of growth. Analysts at Elara Capital believe that the company will have to scale up its launches in non-Bengaluru markets if it has to maintain sales of Rs 600-Rs 650 crore per quarter going ahead.

While the recent performance has been good and the company was able to post a 5 per cent improvement in realisation in the March quarter, uptick in demand is critical for pricing improvement especially in markets such as Gurgaon. In addition to this, a key trigger for the stock would be the execution of land parcels such as the one in Hoskote, Karnataka. Other monitorables, according to Abhishek Anand of JM Financial are the company’s commercial segment foray and improvement in demand. The stock is currently trading below its one-year forward average price-to-earnings multiples and could fetch good returns in the medium term. 

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