Sobha Developers' inability to generate "enough cash" from its residential development and contractual business is keeping analysts jittery on the stock.
"The second quarter results are above expectations, but free cash generation is lower as per our expectation," Tejas Sheth, analyst with Emkay Global Financial Services, wrote in his note to clients last Friday.
The Bangalore-based real estate developer reported 47% year-on-year rise in consolidated net profit to Rs 50 crore in July-September quarter.
Sobha generated operating cash flow of Rs 54.5 crore excluding land payments. After paying Rs 40.9 crore as interest, the cash available for equity shareholders was at Rs 13.6 crore. The same during the first six months of this financial year was estimated at Rs 58.4 crore.
"This clearly shows that in the first half, the company did not generate enough cash from its residential development and contractual business, which can meet its fixed overheads and interest costs. We expect the same to be positive in the second half with collections from the contract business segment improving. But the aggregate value for 2012-13 is not encouraging," Sheth said.
The brokerage maintains its 'hold' rating on the stock with a target price of Rs 380 per share.
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"Free cash (excluding land payments but post interest outflow) yield for 2012-13 estimated at 3.1% and 3.2% for 2013-14 at current market price caps our valuation estimates," the analyst said.
At 10:46 AM, Sobha shares were traded at Rs 373.80 on the National Stock Exchange, up 2.8% from Friday's close.