Strong operational performance in the March quarter (Q4) has led to an upward revision of price target by analysts, with the Sobha Developers
stock gaining over eight per cent at the beginning of last week. Despite the tough environment (slowing economy, high interest rates) in which most other realty players are struggling, the company was able to beat its own annual sales guidance for the year.
At Rs 670 crore, the company booked the highest quantum of sales for any quarter, registering a growth of 45 per cent year-on-year and 26 per cent sequentially. The last quarter performance also helped the company beat its annual forecast of Rs 2,000 crore of sales bookings (achieved Rs 2,210 crore) and 3.75 million sq ft of volume (3.76 million sq ft). Puneet Jain and Aditya Soman of Goldman Sachs say the company has beaten their own sales forecast through periodic launches and entry into higher value locations.
The growth in bookings for the financial year, thus, was a combination of volume growth and realisations, both of which grew 14 per cent year-on-year. Helped by rising property prices in Bangalore and better product/ geography mix, realisations moved up to Rs 5,897 per sq ft in FY13 compared to Rs 5,173 per sq ft in FY12. Realisation gains for the quarter were sharper at 17 per cent year-on-year at Rs 6,294 per sq ft. This was aided by a better product mix in favour of high realisation row houses (Aristos) sold in Bangalore and a 29 per cent sequential jump in NCR volumes where average realisation was more than Rs 10,000 per sq ft, says Nirmal Bang's Param Desai. The company believes the increase in average realisation by 14 per cent year-on-year will help protect margins and manage rising input costs on account of inflation.
With the company moving into new locations and successfully launching projects in other areas, the dependence on Bangalore has been decreasing. Says Anand Agarwal of Jefferies India, "The contribution of Bangalore to overall bookings has steadily declined to 63 per cent in FY13 from 76 per cent in FY11 as Gurgaon (14 per cent) and Chennai (nine per cent) have started contributing meaningfully to overall volumes. Sobha's geographic mix is now better balanced with more than a third of its bookings coming from locations other than Bangalore."
The company has coming residential launches of 5.7 million sq ft (Sobha's share) in FY14 with a sales value of Rs 2,700 crore (Sobha's share) and commercial launches of 2.3 million sq ft. Higher realisations and uptick in volumes should ensure revenue growth helping the company maintain margins as well as improve cash flows. Says Aashiesh Agarwaal of Edelweiss Securities, "We expect Sobha to generate net operating cash flows of Rs 1,000 crore over FY14-15 from ongoing projects of 17 million sq ft and new launches of 12 million sq ft." Most analysts have pegged a 12-month price target range of Rs 490-515, which from the current level of Rs 358 indicates an upside of 36 per cent. The stock remains one of the few realty plays, with 80 per cent of Bloomberg analysts recommending a buy.