Sobha nears 3-year low after ICRA revises outlook from stable to negative

Shares of real estate developer Sobha slipped 6 per cent to Rs 319, near a three-year low on the BSE on Monday, after the rating agency ICRA reaffirmed long-term rating and revised outlook from stable to negative.

The revision in outlook on account of the decline in net cash flows from operations from the real estate and contracting divisions of the company during 9MFY2020 (April-December).

The stock was trading lower for the fifth straight day. In the past one month, Sobha has underperformed the market by falling 27 per cent, as compared to 1 per cent decline in the S&P BSE Sensex. The stock was quoting lowest level since March 21, 2017.

“The real estate division reported higher outflows in relation to the collections from customers due to the finishing costs in recently completed projects, higher outflows towards construction of land-owner share of built-up area in a project, and lower-than anticipated collections from certain newly-launched projects,” ICRA said in a rating rationale.

In the contracting segment, the net cash flows were lower due to pending achievement of billing milestones in certain ongoing projects. The reduced net operational cash flow was inadequate to cover the financial charges on external borrowings. The free cash flows have been further impacted by capital expenditure and land payments, resulting in higher than anticipated debt levels, it added. CLICK HERE TO READ FULL REPORT

“October-December quarter (3QFY20) result of Sobha has increased our concerns about the weakening balance sheet amid negative operating cash flows. In 3QFY20, operating cash flow (not including interest and income tax) declined 45 per cent year on year to Rs 59.4 crore,” analysts at Nirmal Bang Equities said in a result update.

The rich valuation amid lack of pricing power and rising costs will exert pressure on the stock price. The key concerns include continuing downtrend in realisations, poor cash flows, rising debt and weakening balance sheet, the brokerage firm said.

At 02:49 pm, Sobha was trading 5.5 per cent lower at Rs 320 on the BSE, against 1.6 per cent decline in the S&P BSE Sensex. The trading volumes on the counter jumped over six-fold with a combined 413,893 shares changing hands on the NSE and BSE till the time of writing of this report.