Sobha: Q1 data below expectations on low demand

Steady volumes in Bengaluru, unlike other markets and premium segment

Sobha’s June quarter operational performance was disappointing, with new sales up five per cent over a year to Rs 504 crore and volumes up 11 per cent to 0.84 million square feet. On a sequential basis, this revenue number was down 20 per cent. Given the company has maintained the FY16 forecast at Rs 2,600 crore (volume guidance four million square feet), the first quarter translates to about 19 per cent of the annual target on value terms.

Most analysts have cut their earnings targets for the current financial year and believe the company will achieve new sales of about Rs 2,400-Rs 2,450 crore, six per cent lower than the forecast.


 

While there was a single residential launch in the quarter in Bengaluru, the city saw a 32 per cent jump in volumes. This was due to the strong response to its aspirational segment project, Dream Acres, which was soft launched in the March quarter. While the new project was launched at Rs 7,750 per square feet, slowdown in the premium segment meant a larger chunk of the Dream Acres was sold at average selling prices of Rs 5,600, leading to a drop in overall realisation to Rs 5,989 per square feet.

Demand has been muted in cities of Thrissur, Cochin, Coimbatore and Kozhikode, with the exception of Chennai, given deferred purchases of non-resident customers who as a segment account for about 23 per cent of sales. Some traction in Bengaluru and muted overall sales has meant the city now accounts for 83 per cent of volumes, the highest in about four years. The reliance on the city is likely to continue, given the slow moving markets such as Gurgaon and other markets coupled with lack of sales in the premium segment. With the launch of large affordable housing projects in Bengaluru and other regions and pickup in volumes across its other locations and projects, the company is hoping to achieve an annual run-rate of about seven million square feet of new sales by FY19.

Despite the June quarter disappointment, most analysts have a ‘Buy’ rating on the company due to an expected revival in the coming quarters, strong launch pipeline, low-cost land bank and attractive valuations.