Sobha, Equitas SFB: Top stock picks by Kotak Securities; here's why

Shrikant Chouhan, Head of Equity Research at Kotak Securities explains why the brokerage has an 'ADD' rating on Sobha and a 'BUY' rating on Equitas Small Finance Bank.

Stock picks: Investment ideas by Kotak Securities.

Sobha

Reco: ADD  CMP: ₹1,460  Fair Value: ₹1,700  Resistance: ₹1,515/1575  Support: ₹1,425/1370  Sobha is one of India's major real estate developers, distinguished by its backward-integrated business model, which enables the company to execute most construction activities in-house.  The company has built a diversified presence across key residential markets, with Bengaluru as its largest market, while also maintaining a strong footprint in Gurugram/NCR, Pune, Kochi, Chennai, and Hyderabad.  The company delivered a record operational performance in FY26, achieving its highest-ever annual pre-sales of ₹8,140 crore, up 30 per cent YoY. In Q4FY26, pre-sales stood at ₹2,040 crore (+11 per cent YoY), supported by successful launches in Greater Noida, Bengaluru, and Trivandrum.  Momentum accelerated further in Q1FY27, with pre-sales surging to ~₹3,660 crore (+76 per cent YoY, +79 per cent QoQ) and sales volumes rising 62 per cent YoY to 23.4 lakh sq. ft. The strong start to FY27 has enabled Sobha to achieve nearly 35 per cent of its annual pre-sales target.  Management has guided for 30 per cent pre-sales growth in FY27, supported by an H1-heavy launch pipeline of around 1 crore sq. ft., while expecting margin improvement from completed projects beginning H2FY27. Looking ahead, Sobha has a robust pipeline of 13 residential projects spanning 2 crore sq. ft. over the next 4–6 quarters, backed by 218 acres earmarked for upcoming developments and an additional 1,752-acre land bank.  The company also expects ₹9,560 crore of positive cash flows from ongoing and completed projects. At ~7.4x FY27E EV/EBITDA, valuations remain attractive. We maintain an ADD rating with a SoTP-based fair value of ₹1,700. 

Equitas Small finance Bank

Reco: BUY  CMP: ₹77  Fair Value: ₹95  Resistance: ₹80/82  Support: ₹75.5/74  Equitas Small Finance Bank (EQUITASB) is one of India's leading small finance banks, built on a diversified lending franchise spanning small business loans/LAP (~40 per cent of AUM), vehicle finance (~23 per cent), housing finance (~13 per cent), microfinance (~12 per cent), MSE and other segments.  The bank primarily serves informal and semi-formal customer segments, underwritten through proprietary, in-house credit models refined over a decade. Geographically, Tamil Nadu remains the core market (~45 per cent of advances, ~32 per cent of branches as of March 2026), though management continues to diversify outside the state over time.  On the liability side, Equitas has built a multi-channel deposit franchise (mass affluent, HNI, NRI, business banking) and continues to invest in current account mobilization and digital onboarding to improve its CASA mix, which has structurally declined from ~45 per cent to below 25 per cent over the past few years as the bank has leaned more on term deposits.  The key swing factor for the stock has been the microfinance cycle. FY2025-26 was a challenging period, with industry-wide MFI stress and Karnataka's collection-related legislation driving elevated slippages (Equitas' cumulative MFI slippages were middle-of-the-pack versus peers).  This cycle now appears to have largely normalized — collection efficiency has improved to ~99.7 per cent, PAR 1-90 in microfinance has declined sharply, and credit costs in the non-microfinance book remained comfortable throughout (~1.5 per cent in FY2026) even as MFI credit costs peaked. With microfinance now down to ~10-12 per cent of the loan mix and expected to stay there, the bank's exposure to future MFI-type shocks is structurally lower than in the past.  Management has guided to a 5-year outlook (FY2031) of ~21 per cent advances CAGR, steady-state RoA of 1.5 per cent (range 1.0-1.8 per cent across cycles), cost-income ratio below 60 per cent, and credit costs of 1.25-1.50 per cent, alongside a potential universal bank license application.  On valuation, Equitas trades at ~1.2-1.4X forward book, which looks reasonable for a bank re-rating out of an asset-quality trough and into a growth/profitability upcycle, with credible visibility on double-digit RoE expansion over the next two years.  (Disclaimer: This article is by Shrikant Chouhan, Head of Equity Research, Kotak Securities. Views expressed are his own.)