Sobha Developers: On track to meet FY14 guidance

The stock is up 9% as the company posted good sales volumes for September quarter

The stock of Sobha Developers jumped nine per cent on Friday, and is still holding on, to Rs 318 levels, after the company announced strong sales volumes for the September quarter. While sales volumes were robust and broadly on expected lines, investors are optimistic about the stock given its strong sales performance in a muted realty market. Investors are rewarding steady performance and a bounce-back can also be attributed to the fact that the stock had corrected steeply in the recent past, says an analyst.

Sobha’s stock fell 47 per cent between May and September, before recovering some of the losses over the last month. Most analysts have a buy on the stock as the company seems set to meet its annual targets, and have target prices in the range of Rs 450-500.

Adhidhev Chattopadhyay of HDFC Securities says with 9-10 million square feet of launches lined up in FY14 vs launches in first half of 1.5 million square feet, Sobha is on track to achieve the FY14 sales guidance of 4.2 million square feet worth Rs 2,600 crore.

  The company's FY13 pre sales bookings were 3.8 million square feet worth Rs 2,210 crore. While ability to meet its sales volume targets would decide how the stock moves in the near term, the medium term trigger according to the research firm is the monetisation of the company’s balance land bank of 2,557 acres.  The company’s senior manager K Bala Murugan says that with new launches in Kochi and Kozhikode as well as additional and ongoing projects at Thrissur and Gurgaon should help it achieve its 4.2 million volume expectation for FY14.

For the September quarter, the company registered sales volumes of one million square feet, up six per cent year-on-year. Sales by value at Rs 632 crore were up 20 per cent year-on-year and five per cent over the June quarter. The company had two launches in the quarter, one each in Bangalore and Kozhikode with a total saleable area of 1.13 million square feet.

Though realisations were up 13 per cent year-on-year at Rs 6,304 per square feet, they were down four per cent on a sequential basis. The company attributes the fall in realisations on a sequential basis to the higher ticket prices and volumes from its Bangalore project Indraprastha in the previous quarter. The ticket sizes for the property were at Rs 10,000 a square feet.

While volume growth was led by Bangalore and Thrissur, the Gurgaon geography continues to disappoint due to the slowdown in that market and the fact that the company is in the implementation or mid-cycle phase.

Given the high cost inventory (5,000 square feet villas with ticket sizes of Rs 5 crore), the company is looking at lower ticket sizes going ahead to boost volumes in this geography. Gurgaon accounted for 13.5 per cent of the company's volumes in FY13, but the slowing sales has meant that it has come down to 3.5 per cent in the first half of FY14. Bangalore continues to dominate the company’s volume performance with 67 per cent of overall pie.