Sobha showing resilience in pandemic; maintain ‘buy’

Tiding over. Sobha reported another resilient quarter with gross sales values increasing 1% yoy to Rs 690 crore along with sales volume of 0.9 mn sq. ft(-14% yoy) in 2QFY21. We highlight this is the second quarter of resilient sales performance amid Covid-19 for Sobha, taking total sales in 1HFY21 to 1.54 mn sq. ft (-26.5% yoy) even as the sector continues to reel under weaker demand. Sobha trades at 0.8X P/B on FY2022E, steep discount to long-term average of 1.3X P/B (1-year forward). Maintain BUY; FV of Rs 400.

We highlight Sobha continues to cope well, reporting 26.5% y-o-y decline in sales volume to 1.54 mn sq. ft in 1HFY21 (2.1 mn sq. ftin 1HFY20), as lockdown was re-imposed in Bengaluru in July 2020. While we concede sales for the quarter could come with limited upfront cash commitment, and may be susceptible to more cancellations, but are still reflective of the strength of a superior brand to be able to garner sales in difficult circumstances.

Dominance of Bengaluru in the overall sales declined in 2QFY21 with only 60% of total sales area being contributed by the city (from 74% earlier in FY2020) on account of prolonged lockdown extensions in the city. Kochi increased its share to 15% of overall sales while Gurgaon had a sales contribution of 9% during the quarter.

Blended realisation for the quarter increased 17.5% yoy to Rs 7,737 per sq. ft (Rs 7,494 per sq. ft in 1QFY21) reflective of change in sales mix across cities. Higher contribution in sales from Gurgaon would likely have aided the improvement in realisations. We highlight that Sobha has launched no new projects in 1HFY21 and continues to rely on its existing ongoing and completed inventory of 8.1 mn sq. ft.