ICICI Securities Bets On This Small Cap Real Estate Company, Suggests buy For Target Price Of Rs 808

Stock Outlook

The current share price is Rs 514.20 apiece. Its 52-week low is Rs 438.05/share and the 52 week high is Rs 781.60/share. It is currently trading at Rs 76.15/share above the 52-week low and Rs 267.4 below the 52 week high level, respectively.

Returns on Investments

Sobha share in a week, ending Friday, gave a positive return of 3.89%. Whereas, in past 1 and 3 months, it gave positive return of 7.81% and 33.93%, respectively. The stocks surged nearly 21.83% in the past 1 year. Whereas, in the past 3 and 5 years, it gave a positive return of 51.89a5 and 84.96%, respectively.

Bengaluru launches enable strong operational performance

Sobha's Q1FY23 gross sales bookings of 1.36msf worth Rs11.5bn (Isec estimate of Rs10.5bn) was flat QoQ in volume terms and up 3% in value terms aided by the company achieving its highest ever gross realisation of Rs8,431/psf. In Q1FY23, the Bengaluru market was again the key contributor with sales volumes of 1.06msf and contributed 78% of the total volumes. This was owing to three new launches in Bengaluru during the quarter including Sobha Sentosa (0.8msf in South Bengaluru), Sobha Victoria Park (0.58msf in North Bengaluru) and Sobha Royal Crest (0.65msf in West Bengaluru). Another positive was the company's consolidated net debt levels reducing further QoQ by Rs2.3bn to Rs21.1bn aided by one-time cash inflow of Rs1.6bn from a land sale done in Q2FY22.

FY23E sales bookings guidance revised upwards on back of strong Q1FY23

For FY22 overall, the company had clocked its best ever annual sales performance with gross sales bookings of 4.91msf worth Rs38.7bn. In May'22, in spite of the company having a strong launch pipeline of ~13msf, given the cost input inflation and mortgage rates expected in FY23E, the company had guided for flattish gross sales volume of ~5.0msf in FY23E (4.9msf in FY22) with gross sale value growing 5-6% to ~Rs40bn (Rs38.7bn in FY22). However, given the strong Q1FY23 performance and demand sustaining even with the rise in mortgage rates, the company has now revised its FY23 guidance and expects 10-15% YoY volume growth and 15-20% YoY value growth in FY23. Hence, we have raised our FY23E and FY24E sales booking value estimates by 13% each to Rs45.5bn and Rs49.0bn, respectively. The company is confident of an additional 2-3msf of launches in the remainder of FY23

Strong start to FY23 , buy for a target price of Rs 808

Sobha Ltd. (SOBHA) achieved Q1FY23 gross sales bookings of 1.36msf worth Rs 11.5bn vs. Isec estimate of Rs10.5bn and is the best ever quarter for the company in terms of sales bookings. While the company had earlier guided for flattish gross sales volume of ~5.0msf in FY23E (4.9msf in FY22) citing cost input pressures and rising mortgage rates, the strong start to FY23 has led to the company now guiding for 10-15% YoY volume growth and 15-20% YoY value growth in FY23. Hence, we have raised our FY23E and FY24E sales booking value estimates by 13% each to Rs 45.5bn and Rs 49.0bn, respectively vs. FY22 sales bookings worth Rs 38.7bn. We maintain our BUY rating with a revised SOTP based Target Price of Rs 808/share (earlier Rs744) owing to project level and balance sheet adjustments. Key risks to our call are a slowdown in residential demand and a rise in the company's debt levels.