Sobha: Leverage, cash flows in coming quarters to be key triggers for stock

Debt reduction over past two quarters is also positive

Bengaluru-based realty player Sobha’s June quarter operational numbers were weak, dropping 28 and 39 per cent in volume and value terms, respectively, compared with sales in the March quarter. 

Though volumes were weak at 0.65 million square feet, analysts believe it was a reasonable performance given the lockdown in April and May. Volumes in June at 0.30-0.35 million square feet were around 80 per cent of the pre-Covid monthly run rate. 

The Bengaluru market, where enquiries are now back to pre-Covid levels, accounted for about 74 per cent of sales volumes. Its significant presence in the Bengaluru market is a positive as the city has seen lower impact of Covid-19 than other metros, which coupled with increased sales through digital channels has rubbed off on volumes. While sales in Bengaluru and Kochi saw lesser impact, registering a 23-26 per cent increase in volumes on a sequential basis, the impact on the Gurugram market was severe as sales were down 64 per cent over the March quarter.

 

 

After launching projects totaling 1.6 million square feet in financial year 2019-20 (FY20), the company has not launched new projects in the June quarter because of the pandemic. Sobha has a strong launch pipeline of 14.6 million square feet in FY21 and is optimistic that the sales trajectory will improve in the rest of FY21. ICICI Securities has cut its volume forecast for FY21 for Sobha to 2.7 million square feet to reflect the slowdown.

The company’s annual run rate has so far been about 4 million square feet and its sales for FY21 will depend on the impact of the slowdown, especially in the information technology sector.

Though cash flow continued to be under pressure, the company indicated that debt levels had come down on a sequential basis for the second quarter in a row. Efficient cash flow management and lower average cost of borrowing helped reduce its leverage. 

The company’s debt in the March quarter stood at just over Rs 3,000 crore with net debt to equity at 1.2 times. Leverage and cash flows in the coming quarters will be the key trigger for the stock.