Sobha's debt set to rise

Sobha Developers, the publicly-held realtor, is expected to post an increase in debt by close to 10 per cent as there has been a sharp spike in construction spends, land acquisitions and a Rs 57 crore dividend payout recently.

This is the second consecutive quarter of FY13 in which the company will report an increase in debt as the company is on a drive to buy out some of the joint development partners in various of projects. During first quarter of this fiscal, debt grew by close to Rs 50 crore as it acquired its partners stake in a project in Kerala. The gearing is now just under 0.6 times at close to Rs 1,200 crore.

Sobha reported strong Q2FY13 sales volumes of 0.95msf (up 13 per cent QoQ, flat YoY) aided by higher volumes in Thrissur and Bangalore, with new project launches seeing good sales, of Rs 527 crore.

“For Q2FY13, we estimate revenue/PAT growth of 5 per cent to 7 per cent QoQ led by first-time revenue recognition for some projects. While operations remained strong, the same is already priced into the stock, and we see limited scope for outperformance from hereon,” Arun Aggarwal, an analyst with Religare Research said.

The company is hoping that there will be new space sales of 3.75 million square feet valued at Rs 2,000 crore for FY 13 and by end of September 2012, it has already registered sales of around 1.78 million square feet at a value of around Rs 1,007 crore. The new sales achieved during H1 of FY13 has witnessed a growth of 11.2 per cent as against the same period last year.

During the first quarter of Fy13, the company reported 21.3 per cent YoY (down 12.7 per cent QoQ) revenue growth. It reported 27.5 per cent operating margin (up 391bps YoY) whereby the margin on monetization of land sales stood at 16 per cent. “Adjusting for this, operating margin was at 30.7 per cent (122bps higher than our estimate), thanks to higher realisation in projects. In 1QFY13, Sobha expensed around 80 per cent of total interest costs as against 65-70 per cent historically, leading to a 126 per cent YoY rise in interest costs. Consequently, Sobha posted Rs 45 crore profit,” said Param Desai, an analyst with Nirmal Bang.