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  • Stock recommendation: Sobha — Reduce — Target price Rs 510

    Publish date: August 10, 2018

    Results update: Healthy metrics, reported earnings distorted

    Sobha's witnessed an upswing in sales in the quarter ended June, though its biggest market Bangalore made a lower contribution this time.

    Key highlights

    • The real estate company sold 0.96 million square feet area for Rs 7.6 billion this quarter. Its Bangalore market provided the lion’s share of the sales, but its contribution dropped from 74% in the previous quarter to 64% now.
    • The company has a few project launches in the pipeline. In the quarter ended June, Sobha launched a housing project in Mysore. The company has also announced an investment of Rs 5 billion in Gujarat International Finance Tech-City (Gift City).
    • The share of completed projects increased to 13.17 million square feet. Taking the current quarterly cash flow into account, we feel the cash flow will likely accrue in eight years.
    • The net debt has largely remained unchanged at Rs 22 billion. One of the reasons for this is the company’s decision to increase its land bank. The total value of the land bank is Rs 27 billion.

    Valuation & outlook

    Sobha’s sales volume is likely to increase due to the spate of housing project launches. But the number is hard to quantify until they open up the projects to the public.

    With the stock fairly valued, there are limited upsides, especially because of increased debt accrued from land acquisitions.

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