In Q2FY20, the real estate developer’s profit before tax (PBT) grew in single digit by 4 per cent to Rs 187 crore over the previous year quarter. EBITDA (earnings before interest, tax, depreciation and amortisation) margin remained unchanged at 23 per cent. Operational revenue increased by 19 per cent to Rs 784 crore on year-on-year (YoY) basis.
The company’s operational cash flows (OCFs) turned negative for the first time in the past five years due to RERA-linked slower pace of collections in residential segment. The management anticipates OCFs to recover in 2HFY20 (October-March).
“Sobha’s net debt levels increased to around Rs 3,000 crore (up around 8 per cent QoQ), with a net debt/equity of 1.29x due to the subdued cash flow generation during the quarter. While liquidity is not a concern, (comfortably serviceable by internal accruals and access to excess of Rs 1,000 crore of credit lines) the company’s ability to aggressively ramp-up execution or new project acquisitions can be hindered,” analysts at SBICAP Securities said in a result update.
The brokerage firm remains constructive on a 2H recovery with a large number of new project launches across product segments/new markets which should help revive cash flow generation in the core residential development business.
Sobha has around 16.2 million sqft of unsold area in the ongoing projects and expects to add 10.5 mn sqft from new projects in the pipeline, over the coming quarters. Whilst Sobha has only 0.22 mn sqft of unsold completed inventory worth Rs 120 crore, analysts at HDFC Securities remain cautious on land bank addition of Rs 180 crore during 1HFY20 (given the company already has a high unsold under construction inventory, 4yrs).
With the past two days' decline, the stock has corrected 32 per cent from its 52-week high level of Rs 588, touched on July 16, 2019 in intra-day trade. In comparison, the S&P BSE Sensex has gained 2.5 per cent during the same period.