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Sobha rating ‘Buy’: Subdued sales cast a shadow over quarter

JM Financials

Sobha reported contracted sales at Rs 6 bn, 2% decline y-o-y (-3% q-o-q), as sales were muted on delayed launches in Bangalore. Two of three projects launched during the quarter were opened for sale in Dec 18. Bangalore reported decline in volumes (declining sequentially) as new launches had non-material contribution (launched in Dec 18). Gurgaon project reported material decline in sales while Kochi sales improved on good response to Sobha Isle launch. Sobha launched three projects during the quarter (3.0msf) with launch of Sobha Dream Gardens Bangalore affordable housing project.

Key monitorable remains affordable housing launch and commercial segment foray. We believe Sobha will be a beneficiary of improvement in end-user demand, as sector transparency improves. However, execution of land parcels remains critical for significant upside potential. Improvement in demand, commercial segment foray and execution of land parcels (Hoskote 280 acres) remain key monitorables.

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Q3 fresh sales of Rs 6 bn: Sobha reported fresh sales at Rs 6 bn, 2% y-o-y primarily on 3% decline in volume (0.91msf) marginally offset by higher realisation (+1% y-o-y). Q-o-q sales volume (0.96msf) declined by 12% as previous quarters benefitted from higher sales in Bangalore and Gurgaon. Sales witnessed sequential decline in all regions except Kochi.

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Well placed to gain from macro changes; demand key for improvement in land bank valuation: Sobha plans to launch 5.6msf in 1 year which will help it maintain sales momentum. We build in 8/11% volume/value CAGR over FY18-23e. Maintain Buy with a TP of Rs 470.