We maintain ‘buy’ rating on Sobha Developers (SDL) with a price target of Rs 605 based on discount to real estate gross asset value (GAV) of 25% given the expected change in sentiment in the real estate market and improving macro environment.
The company reported a consolidated net profit (PAT) of R57 crore (up 14% y-o-y, down 19% q-o-q) which was slightly ahead of expectation on the back of higher contractual revenues. Total revenue at R580 crore (+25% y-o-y, -8% q-o-q) was 9% ahead of expectations as the contractual revenues surprised again with a 103% y-o-y growth even as real estate revenues remained flat y-o-y. Ebitda was lower at 26.3% due to the higher proportion of contractual revenues (40% of revenues versus 35% in Q4FY14) which have lower margins.
Sobha reported pre-sales of R480 crore for Q1FY15, down 20% both y-o-y and q-o-q. This was the third consecutive quarter of y-o-y decline in pre-sales for SDL, a reflection of both a weak property market and SDL’s project mix being skewed towards the higher income projects. The management has maintained FY15 sales volume of 4 million sq ft (+11% y-o-y) valued at R2,700 crore (+15% y-o-y).
After three new launches in March 2014, SDL could not launch any project in Q1FY15. However, since then SDL has launched 2 projects in Q2FY15 till date. SDL has guided for 15 new launches totalling 10.4 million sq ft (SDL share being 6.9 million sq ft) in FY15.