Edelweiss recommends 'hold' on Sobha Developers

SOBHA DEVELOPERS

RESEARCH: EDELWEISS

RATING: HOLD

CMP: RS 315

Sobha Developers (Sobha) reported revenues of Rs 410 crore, up 32.3% q-o-q and 182% y-o-y , below the estimate of Rs 530 crore. In terms of FY10 performance, Sobha reported a topline of Rs 1,110 crore, against the estimate of Rs 1,240 crore. The key difference was on account of lower asset monetisation at Rs 180 crore against the estimate of Rs 250 crore. The company reported EBITDA of Rs 100 crore, EBITDA margin of 25% and PAT of Rs 60 crore, for PAT margin of 14%. During the quarter, Sobha sold 353 units for a total area of 0.6 million sq. ft. In FY10, it sold 2.08 million sq. ft. of residential space across 1,076 units. During the quarter, Sobha launched ‘Sobha Dewflower’ at JP Nagar, Bengaluru - a residential unit of 231 units. Edelweiss’ estimates for Sobha is based on valuation of its ongoing and forthcoming projects of 23 million sq. ft. and a land reserve of 133 million sq. ft., valued at Rs 2,940 crore, implying total EV at Rs 4290 crore, and a fair equity value of Rs 3310 crore or 1.2x 2012E P/BV. Sobha’s performance has been largely in line with the estimates and factors in the current recovery in the Bengaluru real estate market. With the sharp run-up in the stock over the recent months, together with absence of near-term triggers, Edelweiss revises their recommendation on the stock to `Hold’ .