ICICI Direct Upgrades This Real Estate Stock From Hold To Buy For Robust Gains, Target Price Rs 750

ICICI Direct upgrades its rating on Sobha Ltd (Sobha) from hold to buy with a positive outlook. It has suggested buy the stock with a target price of Rs 750 per share. The brokerage sees a potential upside of up to 22% from its current level with the given target price. The company reported a steady operating performance.

Sobha is a leading real estate player with ongoing real estate projects with ~12.3 mn square feet (msf) of unsold saleable area and ongoing contractual projects aggregating to 4.8 msf in various stages of construction. As on Q1FY23, Sobha has delivered ~121+ msf of developable area. Sobha has a real estate presence in 11 cities, viz. Bengaluru, Gurugram, Chennai, Pune, Coimbatore, Thrissur, Kozhikode, Kochi, Trivandrum, Gift City and Mysore.

Stock outlook & Returns

Tuesday, 22 November, the Sobha stock fell 1.34% to close at Rs 614.75 apiece on the NSE. The stock recorded its 52 week high at Rs 1,0443 on 19 January 2022, and the 52-week low at Rs 480.20 on 20 June 2022, respectively. It has a market cap of Rs 5,830.65 crore. 
The shares in a week, moved down by 5.76%, while in a month, it moved down by 3%. In 3 months, the shares moved down by 11.03%. In the past 1 year, the shares have fallen 23.77%. However, in the last three years, it has given a massive 53.67% positive returns. In the past 5 years, it has given 14.81% positive returns. 

Q2FY23 Results

According to ICICI Direct, Sobha reported a steady operating performance with the key highlight being healthy cash flows and debt reduction. 

• Sales booking value at Rs 1164 crore (up ~13% YoY) with volume down 0.9% YoY at 1.34 msf and sustained momentum in Bengaluru.
• On the financial front, reported revenues were down 14.4% YoY at Rs 667.3 crore, owing lower revenue recognition in the real estate segment, which was down 28.5% at Rs 444 crore. PAT was down 70% at Rs 19.2 crore owing to lower revenues and profitability.
• Sobha has managed to reduce its net debt position by Rs 221 crore QoQ to Rs 1888 crore (net D/E: 0.77x), aided by strong operating cash flows.

Brokerage upgrades from hold to buy, Target price Rs 750/share

Sobha's share price has grown at ~4% CAGR over the past five years given the debt and relatively muted sales momentum. The consistency in sales volumes, collections and debt reduction is a positive surprise. "We upgrade from HOLD to BUY rating Target Price and Valuation: We value Sobha at Rs 750/share," the brokerage said.

Key triggers for future price performance

Robust ongoing & completed project with Rs 5864 crore of potential cash flow. Huge captive land bank providing enough ammunition to expand overall residential sales volumes trajectory. Further improvement in leverage.

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.