Sobha: Steady show in December quarter

Steady sales in its core Bengaluru market helped Sobha overcome weakness in other markets in the December quarter. New sales, at 0.8 million sq ft, were up 22 per cent over the year-ago period. In terms of value, sales grew 12 per cent to Rs 478 crore. Bengaluru continues to be the key contributor, accounting for three-quarters of sales. As in the recent quarters, the Dream Acres project accounted for about half of Bengaluru sales.

While strong sales in Bengaluru and the launch of its Gurgaon project, should help put up a good March quarter show, the company is expected to fall short of its FY16 forecast. For the nine months ended December, the company sold about 2.5 mn sq ft, fetching Rs 1,500 crore. The year’s volume target was four mn sq ft and revenue target Rs 2,600 crore. If unable to meet its FY16 forecast, it will be the third year of doing so.

In the December quarter results, with sales value low, collections are also expected to trend down. However, according to Kotak Institutional Equities, as has been the case in the first half of FY16, cost control could result in Sobha generating positive cash from operations. Debt will then be under control unless the company invests in land or looks at other capital expenditure.

The company launched its first commercial project in Thrissur, the Sobha City Mall, with a total saleable area of 0.32 mn sq ft. Of this 0.06 mn sq ft is sold and of the rest 78 per cent is leased and should help start a new stream of cash. The key triggers in the March quarter on the launch side will be a 0.5 mn sq ft project in Yelahanka, Bengaluru, and the group housing project in Gurgaon, believe analysts at Axis Capital.

While the stable show in the December quarter helped the stock start the day on a positive note in a weak and volatile market, it ended nearly one per cent down at close. While valuations are attractive, investors should await a pick-up in both the Bengaluru and the pace and success of new launches before taking exposure to the stock.

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