Sobha Ltd shares gain 5% after Company issues operational update for Q1FY21

Shares of real estate developer, Sobha Ltd, climbed 5 per cent to Rs 233.75 on the NSE on Monday after the company issued an operational update for the first quarter of the financial year 2020-21. 

It said that despite two months of lockdown, disrupted demand outlook, complete washout of economic activities in the real estate sector, Sobha managed to clock 70 per cent of sales volume during Q1 2021 as compared to Q4 2020. "We were able to achieve this through online technological tools, our self-reliant business model, customer trust on Sobha brand, and unmatched delivery track record," " the company said in its press release. READ MORE

The company said the demand has remained consistent in all the cities where it operates in spite of uncertainties of the Covid-19 pandemic and it continues to enjoy sufficient liquidity from banks / financial institutions to meet its obligations. 

Sobha also informed that it posted its highest-ever income, sales volume, and collections during the financial year 2019-20 (FY20) despite challenges thrown by the Covid-19 pandemic during the last fortnight of the fourth quarter. 

At 09:28 am, the stock was trading 4.3 per cent higher at Rs 232 as compared to around 1 per cent rise in the benchmark Nifty50 at 10,704 levels. 

Other realty stocks, too, were trading in the positive territory. For instance, Indiabulls Real Estate was up 5 per cent while Oberoi Realty was trading 3 per cent higher. DLF gained 1.85 per cent and Brigade Enterprises was up 1.8 per cent. The Nifty Realty index was trading nearly 1.6 per cent higher at 206.30 levels. 

ICICI Securities, in a report dated July 4, notes that Sobha’s Q1FY21 gross sales volumes of 0.65msf worth Rs 490 crore were down 39 per cent YoY and 28 per cent QoQ in volume terms. "Although headline numbers appear weak, we believe that the numbers are encouraging considering the Covid-19 induced complete lockdown in April and May 2020 across India," it said. 

The exit run-rate for monthly sales volumes in June 2020 would be 0.30-0.35msf which is almost 80-90 per cent of the pre-Covid monthly run rate. Sobha’s net debt also reduced marginally in Q1FY21 for the second consecutive quarter, the brokerage notes. "We have built-in FY21/22E volumes of 2.7msf and 3.6msf respectively, vs. annual run rate of 4msf to reflect the slowdown. We retain our BUY rating with a  sum-of-the-parts valuation (SOTP)-based target price of Rs 261/share," it said.  

The brokerage, however, wrote that the ability to keep debt levels in check remains the key monitorable.

For the quarter ended March 2020, the company's net profit fell to Rs 50.7 crore from Rs 113.3 crore in the year-ago period. Total income for the March quarter dipped to Rs 927.6 crore from Rs 1,421.6 crore in the corresponding period of the previous year. READ MORE

Analysts at Edelweiss Securities note that the Real Estate (Regulation and Development) Act (RERA)-driven consolidation is throwing up growth opportunities for organised players such as Sobha. "While Covid-19 will mar the near-term performance of realty players, we believe Sobha’s focus on cash flows should hold it in good stead. Cash flow improvement is a key stock catalyst, in our view," the brokerage said in result review note issued on June 29. It has maintained a ‘BUY/SP’ rating on the stock with a revised target price of Rs 291.

HDFC Securities, too, maintains a "BUY" rating on the stock with a reduced target price to Rs 348/sh (vs Rs 377/sh earlier) to account for higher debt," the brokerage said.