Sobha in focus: Real estate developer Sobha continues to exhibit robust growth momentum, driven by a compelling response to its recent project launches. The company's December quarter (Q3FY24) results underscore its resilience and strategic initiatives in capturing market demand effectively, analysts noted. 

The Bengaluru-based company reported its highest-ever quarterly bookings of Rs 1,950 crore in the December quarter, aligning closely with market estimates. This represents a 37 per cent year-on-year (YoY) increase and a 13 per cent quarter-on-quarter (QoQ) growth.

For the first nine months of financial year 2024 (FY24), bookings soared 37 per cent annually to Rs 5,100 crore. The surge in bookings was fuelled by the launch of 3.8 million square feet (msf) across two projects, contributing to a total volume of 1.7 msf for the quarter and 4.2 msf for the nine-month period, brokerage firm Motilal Oswal said. 

Notably, Sobha achieved highest-ever sales of Rs 1,500 crore in Bengaluru, which constituted 77 per cent of total sales.

While revenue witnessed a 21 per cent year-on-year decline to Rs 680 crore, attributed to the real estate segment's 23 per cent decrease, the company sustained its earnings before interest, taxes, depreciation, and amortisation (EBITDA) at Rs 70 lakh, albeit with a 17 per cent year-on-year decline. 

Notably, the earnings before interest, taxes (EBIT) margin for the real estate vertical improved sequentially to 20 per cent, underscoring operational efficiency despite market challenges, the brokerage firm highlighted.

The real estate firm’s management remains optimistic about future prospects, aiming to launch 3 msf in the fourth quarter of FY24, with plans to launch 17 msf by the end of financial year 2025 (FY25).

Moreover, the company is strategically focused on expanding its footprint beyond Bengaluru, targeting growth in the NCR, Pune, and Hyderabad regions.

To support its expansion plans, Sobha initiated a rights issue, with promoter participation indicating confidence in the company's trajectory. The proceeds from the rights issue will be instrumental in augmenting presence in key markets and leveraging growth opportunities.

However, management anticipates increased construction outflows in the near term, potentially impacting net free cash flow generation. Despite this, the company's commitment to unlocking its land reserves and exploring growth avenues bodes well for future performance.

Sobha's current market price reflects a 25-40 per cent discount to its comparable peers, trading at 6.5 times financial year 2025 enterprise value/earnings before interest, taxes, depreciation, and amortisation (FY25E EV/EBITDA).

Considering the company's vast land reserves and anticipated profitability improvements, Motilal Oswal analysts maintain a bullish outlook, reiterating a ‘buy’ rating with a target price of Rs 1,700, implying a 19 per cent upside potential.

Meanwhile, Sobha's strategic initiatives, robust bookings, and expansion plans position it favourably for sustained growth in the dynamic real estate landscape.

The shares of Sobha settled 1.08 per cent lower at Rs1,414.30 per share on Friday, February 9, 2024 on Bombay Stock Exchange (BSE).