Morgan Stanley remains ‘overweight’ on Sobha Developers Ltd share price due to the ongoing operational scale-up, market diversification, end-to-end capability and attractive valuation (43% discount to F14e NAV). We have no price target for the stock.
For Q3 FY14, Sobha Developers reported new sales of 0.74 msf (lowest in last nine quarters, down 26% q-o-q and 18% y-o-y) valued at Rs 500 crore (lowest in last five quarters, down 21% q-o-q and 6% y-o-y). Cumulative sales for nine months of FY14 stood at Rs 1,740 crore/2.7 msf against management guidance of Rs 2600 crore/4.2 msf for FY14. Average price realisation for the quarter was up 8% q-o-q and 15% y-o-y to Rs 6,786 psf (highest in its history). Sobha Developers launched two new projects during the quarter ? Elan in Coimbatore (0.32 msf) and Sobha Estate in Mysore (0.14 msf) ? totalling 0.46 msf.
Sobha Developers has expressed caution on achieving its new sales guidance of Rs 2,600 crore. It has touched new gross sales of Rs 1,740 crore in nine months of FY14 and would need to sell Rs 860 crore of stock in Q4 of the current financial year to achieve FY14 guidance. This appears difficult, considering the highest quarterly sales achieved to date is Rs 670 crore. New launches were the key to achieve new sales guidance, and the company appears to be lagging ? launched 0.46 msf in Q3 FY14 against ~12 msf planned over next Q4. Its plans for entering Kochi market (~1.1 msf) during Q3FY14 did not materialise, either.
