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Eminence at discount
Sobha Developers
Initiating Coverage | 4 October 2013
Sector: Real Estate
Investors are advised to refer through disclosures made at the end of the Research Report.
Sandipan Pal ([email protected]); +91 22 3982 5436
Sobha Developers
24 October 2013
Sobha Developers: Eminence at discount
Page No.
Summary ........................................................................................................ 3-4
Core market offers resilience ........................................................................ 5-9
Ability to differentiate .............................................................................. 10-12
Liquidity strong enough to drive growth ................................................ 13-18
Valuation room still ample; Initiating coverage with Buy ...................... 19-22
Company Description ...................................................................................... 23
Financials and valuation ........................................................................... 24-25
Sobha DevelopersCMP: INR292 TP: INR410 BuyBSE SENSEX S&P CNX
19,902 5,910
Bloomberg SOBHA IN
Equity Shares (m) 98.1
M.Cap. (INR b)/(USD b) 28.6/0.5
52-Week Range 472/214
1,6,12 Rel. Perf. (%) 16/-26/-25
Initiating Coverage | 4 October 2013
Sector: Real Estate
3
Stock performance (1 year)
Financial summary (INR b)
Y/E March 2013 2014E 2015E
Net Sales 18.6 21.1 24.0
EBITDA 5.5 6.1 7.0
Adj PAT 2.2 2.5 3.0
EPS (INR) 22.2 25.5 30.6
EPS Gr. (%) 5.5 15.3 19.8
BV/Sh. (INR) 217.9 234.1 255.3
RoE (%) 10.5 11.3 12.5
RoCE (%) 14.5 15.0 16.1
Payout (%) 31.6 31.3 26.2
Valuations
P/E (x) 13.2 11.4 9.5
P/BV (x) 1.3 1.2 1.1
EV/EBITDA (x) 7.6 6.8 6.1
Div. Yield (%) 2.4 2.7 2.7
Eminence at discountStable core market-mix | throwing positive FCFE | fundamentals intact
Sobha Developers' (Sobha) stock price is down 30% from peak of YTD FY14, though the
recent upswing partially offset the steep discount. It offers a preferred play as strong
operations and liquidity aid resilience amid the macro uncertainty.
Our conviction on Sobha emerges from (1) performing market-mix and gain in market
share, (2) healthy core operations, consistent positive FCFE, and earnings visibility, (3)
solid fundamentals — land quality, superior execution, brand and clientele, independent
functioning of board etc and (4) liquidity comfort.
Correction in the stock price, which was led by concerns over future capital allocation in
capex business and land, was overdone. We expect recent recovery to continue further.
Consistent growth in cash flow (24% CAGR in core cash EBITDA over FY13-15E) and
healthy operations should render balance sheet comfort and drive re-rating.
We estimate Sobha's SOTP at INR47b (INR479/share) and initiate coverage with a Buy
rating and target price of INR410 (15% discount to SOTP, implied 8.8x EV/FY15E cash
EBITDA of INR6.1b), rendering 40% upside.
Core markets offer resilience, coupled with market consolidationSouthern markets' (Bangalore in particular) outperformance is likely to aid better
sustainability over the medium term, as the demand-supply dynamics for broader
segment (ticket size between INR5-12.5m) is still favorable. Skepticism over
supply pressure, IT hiring moderation and demand slowdown should be allayed
due to continued strengths in operations of major developers. Key drivers
bolstering operations are (1) steady market share gain by tier I developers and
(2) consistent addition in demand drivers over the past couple of years in the
form of robust commercial leasing. We believe Sobha's operations are a strong
proxy of these trends with (1) land banks situated in attractive and growing micro-
markets and (2) cheap acquisition cost driving MTM gain.
Ability to differentiate, quality and brand aid comfort in operationsSOBHA posted a healthy 22% CAGR in annual pre-sales volume and 25% CAGR in
realizations over FY10-13, propelled by strong core market and gradual
diversifications (Gurgaon and Chennai). Amid the skepticism, momentum
continues in 1HFY14, with 22.8% YoY growth in pre-sales value, with further
diversification into Calicut market. Pipeline launches of 6.8msf in FY14 (0.9msf
launched in 1HFY14), with no major approval risk (plus unoffered inventory of
5msf) render reasonable visibility on attaining INR26-27b of annual presales over
FY14E-15E (v/s INR22.3b in FY13). While uncertain macro-led slowdown remains
the biggest risk, SOBHA's strong execution bandwidth, wide client base and brand
recall should assist to maintain operational strength and consistency.
Liquidity strong enough to drive growth and expansionStrong pre-sales and execution resulted in customer collections growing in
tandem. We estimate the company to generate post tax core operating cash flow
Shareholding pattern %As on Mar-13 Dec-12 Mar-12
Promoter 60.6 60.6 60.6
Dom. Inst 2.8 3.1 2.6
Foreign 33.7 33.4 33.2
Others 2.9 2.8 3.6
4 October 2013
Sobha Developers
44 October 2013
P/B
(x)
RoE (%)
of ~INR13b over FY14E-16E (18% CAGR) and cash EBITDA of INR18.5b (24% CAGR).
Hence, visible liquidity is strong enough to facilitate its entry into select capex cycle,
which has been an untapped asset class for Sobha, and has the ability to unleash
meaningful long term value. On the back of improving liquidity comfort, ICRA
upgraded the long term rating of the company from BBB+ to A- in 2QFY14.
Valuation room still ample; operating consistency renders comfortSobha's stock price is down 30% from the peak of YTD FY14, though the recent upswing
partially offset the steep discount. Correction in stock price, which was led by
concerns over (a) slowdown in Bangalore and (2) future capital allocation in capex
business and land diversification, was overdone. We expect the recent recovery to
continue further. The planned expansion would be largely capital light in nature and
should be addressed comfortably without hurting the balance sheet, unlike FY07-08.
Hence, with ample valuation room still left, the company is a preferred play as its
strong operations and liquidity aid the most resilience amid current macro uncertainty.
It trades at 9.5x FY15E EPS and 1.1x FY15E BV (v/s RoE of 12.5%). We value Sobha's
SOTP at INR47b or INR479/share and initiate coverage with a Buy rating and target
price of INR410 (15% discount to SOTP, implied 8.8x EV/FY15E cash EBITDA of INR6.1b),
rendering 40% upside. Weak macro, economic slowdown and broad-based worsening
of liquidity remain the biggest risks.
Valuations at a steep discount to historical average and attractive compared to peers in the context of operational quality
We value Sobha using the SOTP method at INR479/share
SOTP calculation (INR m) NAV/Share Method of valuation
Real Estate 54,995 561
Ongoing projects 16,218 165 ~16msf of ongoing projects offer ~INR38b of net cash flow
visibility over next 3-4 years
Upcoming projects (next 12 months) 7,767 79 ~9msf of planned launches over next 3-4 quarters
Land bank 31,010 316 ~218msf of balance land bank, with average FSI cost of INR86/sf.
Value Bangalore land at the lowest range of MTM value
(INR300/sf) and rest at the cost of acquisition
Contractual Business 4,890 50 Valued at 5x FY15E EV/EBITDA
Gross Asset Value (GAV) 59,885 611 GAV-based on NPV of development potential
Less: Net debt 12,900 132
Net Asset Value (NAV) 46,985 479
Target price 410 15% discount to SOTP
Implied EV @ Target price (INR b) 53.1
Cash EBITDA FY15E (INR b) 6.1
Implied multiple at target price (x) 8.8
Source: Company, MOSL
Sobha Developers
54 October 2013
Core market offers resilience......and benefits of consolidation; Sobha scores on land quality and cost
Sobha's core market aids better sustainability over medium-term, as the demand-supply
equation for biggest customer segment is still favorable.
Even if market stagnates on macro-led slowdown, the rising trend of market consolidation
should propel growth for tier I developers.
Continuing operational strengths of major developers should alley skepticism on over-
supply, IT hiring moderation and slowdown in absorption.
Sobha's operations to be a strong proxy of these trends, with (1) land banks situated in
attractive growth micro-markets, and (2) cheap acquisition cost driving MTM gain.
Market-mix to uphold strengths, led by...The recent outperformance of Southern markets in general and Bangalore in particular
(~80% of Sobha's presales mix) is likely to aid better sustainability over medium-
term, as the demand-supply dynamics for broader segment (ticket size between
INR5m-INR12.5m) is still favorable. Channel checks suggest a favorable demand-supply
gap in the INR5-8m bracket, at par dynamics in INR8m-12.5m and some concerns over
>INR12.5m category. While there has been a visible slowdown in momentum in its
Gurgaon premium project, we expect higher mix of southern diversifications (Kerala
and Tamil Nadu) with additional support from NRI-demand (due to favorable currency
trend) to uphold market-mix strength.
Bangalore market posted healthy pre sales over the past couple Despite slew of launches, Inventory (months) still better placedof years, across income segments compared to other regions
Source: Liases Foras, MOSL
Over the past 2-3 years, it
has been absorbing
8-10msf of commercial
spaces, thereby
necessitating
at least 25,000-30,000
units of housing
demand every year
...Existence of demand drivers and market consolidationSkepticism over (a) supply pressure, (b) IT hiring moderation and (c) demand
slowdown should be partially allayed on the back of continued strengths in operations
delivered by major developers. Key drivers which have bolstering core operations
for tier I developers are:
1) Consistent addition in demand drivers: The Bangalore city rides on end-users
demand, with IT/ITES segment accounting for 40-60% of absorption. Over the
past 2-3 years, it has been consistently absorbing 8-10msf of commercial spaces,
and thereby necessitating at least 25,000-30,000 units of housing demand potential
every year (as typically 50-60% of IT employees are still staying on rent). Despite
Sobha Developers
64 October 2013
Price movement has been controlled and cost driven, barring Superior commercial absorption is a lead indicator for nearsome recent spurt due to rise in mix of premium launches to medium term housing demand (msf)
Launch pipeline and inventory seem to be large against current sales run-rate
Avg annual sales Total launch O/S Inventory Next 12 months
FY12/FY13 (msf) FY12-13 (msf) (msf) launch plan (msf)
Sobha 3.3/3.8 12.8 6.0 6.8
Prestige 4.9/6 16.3 8.5 12.0
Puravankara 2.4/4 8+ 8.6 10-11
Brigade 1.6/1.9 4+ NA 6-7
Source: Company, MOSL
Can supply pressure, moderation in IT hiring camouflage demand drivers?Major developers in Bangalore have witnessed own share of operational success in
recent past. Therefore, the key risks which can disturb the market dynamics are:
a) Aggressive launches, if sustaining longer, could create supply overhang in some
micro locations. Most developers have strategic inventories of 3-4x annual average
pre-sales, which are likely to get released over projects' lifecycle over the next
two to four years, along with ambitious launch plans in FY14. Still we are not
excessively worried on immediate absorption pace, as current supply-demand
equation (especially in INR5-12.5m) is still far from being unfavorable.
b) Lower speculative buying had been one of the key reasons behind controlled
pricing in Bangalore. But a rising participation among private equity players
(contrary to history) could infuse some market inefficiency, going forward.
c) IT/ITES hiring may witness moderation over FY14. Our house view is that past
hiring is sufficient to drive near term growth due to spillover effect of low growth
While we are not
excessively worried
about the immediate
absorption pace, a
bloated supply pressure
can thwart the price
uptrend
Source: Liases Foras, DTZ, MOSL
a 10-15% annual increase, average prices for mid income projects are still within
affordable range (rental yield at ~4%), and thus we expect a meaningful portion
of this potential demand to convert into absorption.
2) Market consolidation: There has been visible trend of rising market consolidation
in southern cities. Entry into reputed brands in under penetrated markets like
Chennai, Kochi etc have led strong growth, while a steady rise in market share in
Bangalore by tier I developers offers healthy cushion to their growth aspiration
even if overall demand growth stagnates.
Sobha Developers
74 October 2013
Sobha's Bangalore land patches are situated in micro-markets with healthy medium term outlook
Source: Company, MOSL
Our channel checks onBangalore marketindicate: Demand to grow in
north Bangalorestretch, which comesalong withinfrastructure-backedcapital appreciationpotential such as theproposed high-speedrail link, Hebbal-Yelahankaexpressway, elevatedexpressway to BIALand the advent ofmonorail etc.
ORR, Whitefield,Sarjapur will remainan active market.There are severalunder-constructionprojects reaching thecompletion stage byCY15-16. While thatincreases thepossibility of a supplyglut 2-3 years downthe line, it shouldalso improveabsorption, givencustomers'preference for ready-to-occupy properties.It is also emerging asthe IT growth corridorand offers bettersocial infrastructure.
67 acre /7.2msf
376 acre /46msf
32 acre /3msf
263 acre /19msf
56 acre /5.2msf
9 acre /1.1msf
in FY13. However past few years' strong commercial leasing performance render
strong enough shield to drive housing demand over medium term.
Despite some early signs of these concerns, the absorption momentum of southern
cities, especially for the tier I developers, are unlikely to be interrupted over next 2-
3 years. Various infrastructure initiatives (metro rail, peripheral ring road, elevated
expressway etc) and upcoming deliveries of some FY10-12 launches are expected to
bolster capital values in select micro markets.
Sobha's Bangalore market mix offers resilience and growth opportunityCompany owns the largest land bank in south (243msf v/s 81msf of Prestige and 113msf
of Puravankara), with ~38% (85msf) in Bangalore. Sobha's Bangalaore land parcels are
more concentrated on south-east, south and north-east quadrants and offer a strong
proxy to the growth corridors and IT/ITES catchments of Bangalore city.
LaunchedIndraprastha in
4QFY13
LaunchedPalladian in
2QFY14
Sobha Developers
84 October 2013
Bannerghatta and Kanakapura Road have begun to witness the benefits ofmetro connectivity, proximity to established IT corridor, establishment of NICERoad (Bangalore-Mysore infrastructure corridor) and its affordable price points.
Improving connectivity with the developing metro line in West Bangalore(Tumkur Road, Rajaji Nagar etc) is positioning it as the preferred destination fornon-IT/business people, which is also witnessing higher capital appreciationdue to restrained supply.
Sobha scores high on land quality, cost…Sobha has a land bank of 2,558 acres (Sobha's share), with saleable potential of 227msf
(including 9msf of FY14 launches) and acquisition cost of ~INR20b (implying blended
FSI cost of INR86/sf). Almost 90% of its land bank is already paid for. Bangalore projects
account for ~38% of saleable potential (85msf) and ~51% cost of acquisition (FSI cost
of INR120/sf). ~93% of its current land bank is owned, while the balance and the most
recent acquisitions have been done through JDA route, which also has reduced upfront
capital commitment for land purchase.
As per accounting practices, Sobha recognizes advances paid to seller/ intermediary
toward outright purchase of land as (a) "land advances" under loans and advances
during the course of obtaining clear and marketable title, free from all encumbrances
and transfer of legal title to the company, and (b) "inventories" when the title is
transferred. As on Mar-13, it has INR13.8b outstanding as land advances (in loans and
advances) and INR6.7b in inventories. Nonetheless we understand that many of such
loans and advances are due to title being with land holding company on account of
ownerships limitation on land in states like Kerala and Tamil Nadu, and title risk is
negligible in such cases. Land with near term monetization plan (three to four years)
is largely free from any hassle with clear title and no major payment is pending.
…and enjoys meaningful MTM gain...Sobha's low cost land enjoys significant benefit from marked to market (MTM) value
gain over its book value, as realizations for land transaction or development properties
have increased manifold post the acquisition time. Recent land transactions in SBDs
or city outskirts have been commanding a valuation of INR40-300m/acre (INR400-
4,000/sf assuming 1.8x FSI).
Sobha's low cost land
enjoys significant benefit
from marked to market
(MTM) value gain over its
book value, as
realizations for land
transaction or
development properties
have increased manifold
Recent trends in land transactions indicate per acre acquisition cost of >INR50m (>4x) of Sobha'sacquisition cost, implying significant benefit of MTM gain. This also bolsters its strategy of risingproportion of JDA model to keep incremental acqusitions asset-light
Buyers Location Time Size (acre) Value Value / Est. FSI cost
(INR b) acre (INR m) (INR/sf)
Peninsula Land JP Nagar 2011 4 1.23 308 3,918
Net app Whitefield 2010 15 1.2 80 1,019
Matri Kanakapura 2011 28 2.52 90 1,147
TCS Whitefield 2011 35 3.0 86 1,092
RMZ Group ORR 2011 28 1.3 48 605
Brigade and GIC Whitefield 2012 9.5 1.3 132 1,677
Sobha land 884 10.25 12 120
Source: Industry, MOSL
Sobha Developers
94 October 2013
Diversification led to waning volume reliance on Bangalore. ... however Bangalore still accounts for higher share of GAVTrend in presales volume mix (%)... in FY14 launches due to premium offerings
Source: Company, MOSL
Plans to foray into
speculative northern
market drew a lot of
concerns, but
management targets JDA
route and leverage on
lack of execution
prowess among local
developers
...and rising diversificationSobha has expanded its presence outside the core market of Bangalore to southern
cities like Chennai, Cochin, Mysore and Coimbatore followed by the entry into Gurgaon
and Pune (and recently into Calicut). Liquidity stress during the global financial crisis
resulted in halting land acquisitions for three to four years. However, with a strong
operational revival coupled with de-leaving, it resumed to replenish land in existing
markets and plans to enter cities like Hyderabad, Noida and Ghaziabad.
Sobha's incremental land acquisition especially plans to foray into rather speculative
NCR markets and recent slowdown in Gurgaon project has been perceived negatively.
The management has clarified that going ahead, the acquisition would largely be
though joint development model and it would buy land outright only if it has high
conviction on churning the land within 12-18 months. On the other hand, lack of
execution ability among local developers has been the driving force behind Sobha's
plan to foray into the NCR (Noida, Ghaziabad) market. However, land acquisition
would be through JDA in such regions to mitigate approval risk.
Diversification would partially aid comforts against the risk of saturation in Bangalore
market and maintain the sales growth, given ample potential in these emerging cities.
However it may also lead to contraction in operating margins as any new market entry
would necessitate higher other expenses towards brand building, advertisement and
mobilization expenditures during initial days.
Diversification aid
comforts against the risk
of saturation in
Bangalore market
Sobha Developers
104 October 2013
Ability to differentiateRobust operations, superior execution quality and premium brand
Sobha posted a 22% CAGR in annual pre-sales volume and 25% CAGR in realizations over
FY10-13, propelled by strong core market and gradual diversifications.
Amidst sluggish macro, Sobha's strong execution bandwidth, wide client base and brand
should assist maintaining operational strength and consistency.
With required strength in launch pipeline, it renders reasonable visibility on attaining
INR26-27b of annual pre-sales over FY14E-15E (v/s INR22.3b in FY13).
Pre-sales on a solid uptrendSobha posted a healthy uptrend in pre-sales over FY10-13, led by strong launches in
buoyant markets. It launched ~18msf of projects in the past three years, taking its
ongoing projects under development from 6msf in FY11 to 16msf in FY13 (adjusted for
completion). While the robust southern market played a key role for such strong
operations, company has also been proactive to take advantage of this market
dynamics and maintained sales volume market share of 5-7%. It posted ~53% CAGR in
pre-sales value over FY10-13, driven by 22% CAGR in pre-sales volume and 25% CAGR
in realizations (up from INR3,000/sf in FY10 to INR5,900/sf in FY13). While growth in
realization is attributable to the entry into Gurgaon market with super luxury projects,
in its core market (Bangalore), Sobha's projects enjoys 15-20% pricing premium over
blended average.
Steady project launches (msf) resulted into... ... consistent market share even in buoyant market (%)
Pre-sales momentum
continues in 1HFY14,with
22.8%YoY growth
in value
Quality brand aids 15-20% pricing premium Sobha's Bangalore Pre-sales posted a strong growth trend (INR b) of 53% CAGR projects (INR/sf) over FY10-13, backed by 22% volume and 25% pricing CAGR
Source: Company, Liases Foras, MOSL
Sobha Developers
114 October 2013
Operational comforts from execution prowess, quality preference…Sobha enjoys a superior brand recall due to its quality of execution, which is a top-
most priority for Bangalore customers. Its execution prowess is evident from delivery
of almost 50msf+ real estate and contractual projects since inception in 1995. Backward
integration model with contract and manufacturing business has induced much needed
certainty over execution time-frame, better sourcing ability and consistency in
delivering superior quality. Company has been the preferred developer/contractor
for Infosys and credited for various marquee office space developments. Pertinently,
it scaled up execution commensurate with monetization as is evident from the 18.7msf
delivery over the initial 12 years till FY07, followed by 35.7msf over FY07-13 (~6msf of
annual average).
Sobha's backward
integration model with
contract and
manufacturing business
renders execution
prowess to its
in-house construction
capability
Posted strong execution track, further scaled up from FY07 Projects under execution scaled-up meaningfully since FY11
Source: Company, MOSL
…and wide clienteleSobha enjoys a strong core customer network in both real estate and contract business.
Its brand and products are well penetrated across all key income segments, which
reduce dependence on any particular customer base. Recent client mix in real estate
business suggests for 35-40% of sales volume catering to IT/ITES professionals, while
balance widely distributed among non-IT and business clienteles. A meaningful 20-
25% has been contributed by NRI customers on a consistent basis over FY11-13. More
than 50% of the customers are self funded, and therefore, volumes are partially
shielded from any big impact of vagaries of interest rate cycle. It bolsters conviction
on a better monetization potential even in a weaker scenario.
Diversified product mix (%) and... ... wide client base (%) offer resilience to demand
Source: Company, MOSL
Delivery trend (msf)
Sobha Developers
124 October 2013
Projects to be launched over FY14
Projects Locations Sobhas share of Indicative realizations
saleable area (msf) (INR/sf)
Indraprastha* Rajajinagar, Bangalore 0.8 12,000
Hosakerehalli Property Mysore Road, Bangalore 1.2 6,000
Lifestyle Legacy* IVC Rd, Bangalore 0.2 3,500
Kanakpura Prop Thalaghattapura 0.7 6,000
Hirandahalli Property Ols Madras Rd 0.4 7,500
Pal ladian* Yamlur, HAL Rd 0.3 8,500
Sholinghanallur Chennai 1.6 6,000
Nadanahalli property Mysore 0.1 1,700
Faroke Property (Aptmt) Calicut 0.5 4,800
Bella Encosta* Calicut 0.4 7,200
Vytilla Prop Cochin 1.0 5,500
Sobha City- Residential Thrissur, Kerala 0.3 5,000
Total 7.6 6,554
Banaglore Total 3.6 7,619
*Already launched
Maintaining current pre-sales run-rate with moderate growthsould not be a daunting task for Sobha Expect a decline in Bangalore volume contribution
Balance in product and market-mix and consolidation to drive pre-salesWe model in for 10% CAGR in pre-sales value over FY13-15E (INR25.8b/27b in FY14E/
15E), led by stable sales volume (4msf) and 7% CAGR in realization. Despite recent
launches being skewed towards city centric premium products, lower realization
growth assumption here on would be due to (1) sluggish contribution from NCR
projects, and (2) foray into new southern cities which may offer competitive pricings
initially. While we anticipate a relatively slower sales velocity for projects above
INR15m ticket size, diversification should offer resilience if the volume sales dip in
Bangalore market. Additionally, we believe in an unfavorable macro, the tier I
developer like Sobha to remain better-off from market consolation.
Our presales-mix assumptions factor in (a) decline in Bangalore volume in FY14-15,
with ontribution tending to 53% (v/s 63% in FY13), and (b) ~50% drop in NCR volume.
Sobha plans to reduce product sizes in International City (Gurgaon) project to boost
volume, which otherwise, has shown drop in recent quarters. However we believe
maintaining its guided presales of INR26-27b would not be a daunting task especially
on the back of a strong launch pipeline of 6.8msf in FY14, and ~25msf planned in FY15-
16, which should offer wide enough base to drive momentum. Only major risks we
perceive are further worsening of broad based economic sentiment and liquidity.
Sobha's entry into Calicut
has met positive
response backed stable
market and growing NRI
demand
Sobha Developers
134 October 2013
Liquidity strong enough to drive growthPositive FCFE visibility; Selective capex a long term positive
We estimate the company to generate post tax core operating cash flow of ~INR13b over
FY14-16E (18% CAGR) and cash EBITDA of INR18.5b (24% CAGR).
Liquidity is strong enough to facilitate its entry into select capex cycle, which has been an
untapped asset class for Sobha, with ability unleash long-term value accretion.
Cash surplus picking up pace to catch up with strong pre-salesHealthy pre-sales and steady execution led to rise in customer collections in tandem
and resulted in positive operating cash flow consistently for the past couple of years.
We estimate it to generate post tax core operating cash flow (OCF) of +INR3.7b/4.3b/
4.7b and cash EBITDA of INR5.4b/6.1b/6.9b in FY14E/15E/16E respectively as against
INR3.1b of OCF and INR4b of cash EBITDA in FY13. Both real estate and contract business
have shown favorable (negative-to-moderately positive) trend in net working capital
movement (ex-cash) and debtors over FY10-13. This coupled with periodic
monetization of non-strategic land parcels (~INR6b over FY10-13) have induced
sufficient liquidity and strength in balance sheet to adopt growth strategy (new
acquisitions) and foray into annuity business.
We expect the company to witness a steady uptrend in OCF hereon, as the current
collection run-rate of ~INR16b is still lagging the pre-sales run-rate (INR22b+) by ~27%
and is likely to catch up as execution progresses and new launches hit the ground. We
estimate 10% CAGR in pre-sales trend over FY13-15 and ~24% CAGR in construction
spending (v/s 20% in FY13) in Sobha's real estate business to drive ~22% annual growth
in customer collections. This coupled with steady contractual business is likely to
post 24% CAGR in core cash EBITDA over FY13-15E.
Trend of change in working capital and debtors suggests forcommensurate cash generation Collections to Pre-sales should catch up over time
Source: Company, MOSL
As a benefit of strong
pre-sales and
commensurate execution
progress, operating cash
flow (OCF) has posted
steady uptrend and aids
further scope for
improvement
Liquidity in comfort zone and expected to continueSobha had witnessed a sharp increase in gearing level over FY06-08 (to DER of 1.75x)
due to its aggressive land banking strategy. It came out of this high stress zone through
multiple strategies viz. financial restructuring (QIP, PE, loan refinancing etc), discipline
in core operations etc, and re-gained balance sheet strength over FY10-11, with net
Sobha Developers
144 October 2013
Sobha should post ~24% CAGR in core cash EBITDA over FY13-15E (INR b)
FY12 FY13 FY14E FY15E FY16E
Collections 18.3 21.2 24.5 28.9 31.6
RE 11.8 16.1 20.0 24.0 26.2
Contract 3.2 4.1 4.4 4.9 5.4
Land sales 3.3 1.0 0.0 0.0 0.0
Rental income 0.0 0.0 0.0 0.1
Construction outflow 10.8 12.4 14.8 17.9 19.3
RE 7.4 8.9 11.0 13.7 14.7
Contract 3.4 3.5 3.8 4.1 4.6
Approvals 0.9 1.3
Overheads 1.0 1.4 3.4 3.4 3.6
Marketing 0.3 0.3
Capex and others 0.1 0.9 1.4 1.8 2.1
Gross Cash flow 5.1 5.0 5.0 5.8 6.6
Tax Paid 0.5 0.9 1.3 1.5 1.9
OCF 4.6 4.1 3.7 4.2 4.7
Core OCF 1.3 3.1 3.7 4.2 4.7
Land payment 0.8 1.9 1.0 1.0 1.0
Stake acqusition 1.0 0.6 0.0 0.0 0.0
Other income 0.1 0.0 0.1 0.1 0.1
Interest 2.2 2.1 1.8 1.8 1.8
FCFE 0.7 -0.5 0.9 1.5 1.9
Dividend 0.6 0.6 0.8 0.9 0.9
Net CF 0.2 -1.0 0.1 0.6 1.0
FCF 2.9 1.6 2.7 3.3 3.7
Core cash EBITDA 1.8 4.0 5.4 6.1 6.9
Source: Company, MOSL
Not overtly disappointed on capital allocation planSobha looks to capitalize on its comfortable liquidity to propel growth strategy by
augmenting land, almost after a hiatus of four years, to expand footprints in (a) new
geographies, (b) aggregating the currently non-contiguous parcels in a few places
like Cochin, Chennai etc and (c) foraying into uncapped asset class. It has invested
~INR4.3b over FY12-13 to acquire new projects and buy out PE or JDA partners' stakes.
Nonetheless, we are not overtly worried on its capital allocation plan. Management
has guided on majority land expansion through JDA route and outright purchase to be
a preferred route only in case of high certainty of churning the project over next 12-
Sobha's real estate
business to witness ~22%
annual growth in
customer collections.
This coupled with steady
contractual business is
likely to post 24% CAGR
in core cash EBITDA over
FY13-15E
debt standing at INR12.9b/0.6x in FY13 (v/s INR19.1b/1.75x in FY09). However with the
company consistently generating operating surplus, its capital allocation plan, hereon,
has again raised a concern, on account of recently adopted strategy to deploy fund in
asset heavy vertical and land buying.
Nonetheless, on the back of INR2-3b of net annual FCFE generation visibility over
FY14E-15E, we expect the gearing level to remain broadly stable assuming a moderate
(INR1.5-2b annually) spending towards strategic land replenishment and capex. We
estimate net debt to remain at INR13-14b over FY14E-16E (management's target range
of 0.5-0.6x), albeit there could be short-term increase in gross debt to maintain working
capital liquidity and upfront spending for new market entry. We foresee no liquidity
stress similar to FY08 given a much superior operational resilience.
On the back of improving
liquidity comfort, ICRA
has upgraded long term
rating of the company
from BBB+ to A- in
2QFY14
Sobha Developers
154 October 2013
Better liquidity triggers project acquisition plans and to set up next growth drivers
Remarks
It plans to launch the project in FY14
Plans to monetize 2.1msf of mixed use
(commercial/ retail/hotel) development under
the annuity model. Estimated project cost of
INR8.75-9b, with tentative ground breaking in
FY14
The purchase consideration was INR550m.
Total investment stood at INR1b (Sobha's
investment of INR550m)
Projects of 1.8msf (Sobha's share of 1.5msf)
under launch radar over next four quarters
MoUs are in progress
Sobha has invested
~INR4.3b over FY12-13 to
acquire new projects and
buy out PE or JDA
partners' stakes
Recent update on acquisitions
MoUs (JDA) for 19-acre land in Chennai
(Sholinghanallur, OMR), with saleable area of
2.1msf (1.4msf of Sobha share)
PPP with Karnataka government (APMC) for 30-
acre land near commercial hub of north
Bangalore (close to Jakkur Flying Club), with
60-year lease. Sobha has to hand over 0.7msf
of construction to the government
Bought back 30% stake of Tree Hill Estates in
Sobha City project (Thrissur)
Purchase of 6-acre high value land in
Bangalore (near old airport) in 50:50 profit
sharing along with institutional partner (Sun
Area)
Entered into 3 JDAs in Calicut and Kochi
Guided for planned entry into other untapped
geographies such as NCR (Noida, Ghaziabad
along with Gurgaon), Hyderabad etc
Induced liquidity through recapitalization, Sobha becomes sustainable in internal accruals
Source: Company, MOSL
Bank loan restructuring,
QIP (INR5.3b, June-09),
Land sales and PE funding
(Pan Atlantic and Purna
Partners) led to dilution
of liquidity risk
Steady pick up in OCF to aid sustained
resilience to liquidity hereon
12.9
18months. While entry plan into speculative NCR markets like Noida, Ghaziabad is
concern, but it is still in evolution phase and plans for only JDA projects to limit
capital allocation initially. A lack of good executors in these markets has been the key
factor behind its decision to evaluation these markets. Otherwise, entry into southern
cities viz. Calicut, Kochi and Hyderabad should be proven to be positive for the
company due to strong untapped opportunities thrown by these markets.
Will the new capex heavy asset class and expansion pose any threat toliquidity and capital efficiency?A significant portion of Sobha's new acquisitions were under joint development (JDA)
route, barring select ones like Sun-Area JV project near old airport road. Over the past
two years, it acquired almost 163 acre land (113 acres in Bangalore) under the JDA
route out of total acquisitions of ~290acre (~200 acre in Bangalore), which implies
~57% of land buying under capital light model with limited upfront capex and back-
Sobha Developers
164 October 2013
Backward integration offers execution prowess, quality and cost assuranceSobha is unique among real estate players due to its backward integrated business
model, with verticals like (1) contractual business and (2) manufacturing. This makes
it present throughout the development value chain. Much of Sobha's (a) competitive
edge in superior quality of construction and (b) timely execution emerges from its in-
house expertise, which helps to maintain quality at every stage of supply chain, from
conceptualization to completion, along with competitive cost.
We estimate APMC
project to enjoy post tax
IRR and rental yield of
8-14% and 12-14%
respectively, based on
FY18 rentals of INR60-70/
sf/month
APMC project should post 8-14% post tax IRR; Rental yield of 12-14%
APMC project
Cost of construction (INR b) 9.9
Leasable area (2.1msf @ INR4000/sf) 8.5
Transferable area 0.7msf @INR2000/sf 1.4
Project construction duration FY14-17
Prevailing rental in sorrounding (INR/sf/m) 45-55
Assuming annual escalation of (%) 5
Indicative FY18 rentals (INR/sf/m) SENSITIVITY 60 65 70
Annualized rental EBITDA (INR b) 1.2 1.3 1.4
Capitalized value (INR b) 12.2 13.3 14.3
Post-tax IRR (%) 8 11 14
Rental yield (%) 12 13 14
Source: Company, MOSL
ended liability. Therefore, the gearing level is unlikely get disturbed materially owing
to expansion plan.
Sobha is also looking to deploy surplus operating cash to build annuity portfolio,
which has been an untapped asset class for the company so far. So far it has undertaken
2 annuity projects, viz. (1) APMC project at North Bangalore (2.7msf developable and
2.1msf leasable area) and (2) city-centric St.Mark's Road Property (0.1msf leasable
area). We estimate both these projects together would necessitate a capex of INR10-
11b over the next four to five years. However sufficient cash generation visibility
from core operations should be able to address capex need (INR0.75-1b in FY14/15
and INR1.5-2b annually post FY15) comfortably.
We resonate management's outlook over its entry into commercial vertical which has
been untapped so far and can provide with the resilience of an annuity revenue
stream over medium term, especially during the vagaries on economic down-cycle.
Moreover, its entry plan has been selective and limited to a few assets with lower
near-term cash outgo - which renders comfort on unlikely deterioration of balance
sheet health.
Regarding the impact on capital efficiency of its recently-acquired APMC project, it
hinges significantly on how favourably the micro-market matures over next 3-4 years.
Its true potential is yet not entirely know on account of long gestation nature and
nascent market. We estimate the project to enjoy post tax IRR and rental yield of 8-
14% and 12-14% respectively, based on FY18 rentals of INR60-70/sf/month (v/s
prevailing cost of debt of 12.9%). We factor in a NAV contribution of INR5/share (based
on conservative assumption of INR60/sf/month of rentals as on FY18).
Sobha Developers
174 October 2013
Manufacturing segment includes
a. Building material division (50:50)*
b. Glazing and metal division (90:10)*
c. Interior division (85:15)*
d. Mattresses division (100:0)*
Total factory area of 1.5msf
Entire production is mainly used for in-house
requirements (75-80% contractual and balance
real estate)
Contractual business has completed 228 projects
(29.3msf) and has 38 (10.65msf) ongoing projects of
unbilled value of INR5.34b
Dependency on Infosys contract has declined over
time. While 86% of completed projects belong to
Infosys, the percentage figure came down to 76%
for ongoing projects, with other corporate clients
such as Dell, HP, Timken, Taj, Bayer Science, HCL,
Forge, ITC, Biocon, IPE, Bosch, GMR ,Hotel Leela etc
Real estate projects
Sobha addresses the execution of all its real
estate projects across geographies through in-
house expertise
Sobha's integrated business model
Contract business offers stable stream of revenue
*The product wise usage break-up between contract
and real estate business are mentioned in brackets
The contractual business is still 75% dependent on Infosys' projects. Growth in contractual and real
estate business is the key driver for manufacturing segment as it largely caters to in-house
requirements. Both the segments together provide a stable revenue stream of INR3.5-4.5b (posted
~19% revenue CAGR over FY10-13), along with 18-20% blended margin. The businesses have minimal
capital employed, as it gets the mobilization advances and operates at a two-month working capital
days, which seems to be at par for private clients base. The segment has generated gross cash flow
of -INR0.2b and INR0.6b in FY12 and FY13 respectively. We assume a conservative 10% revenue CAGR
and INR0.7-0.8b annual cash EBITDA over FY14E-15 on the back of potential slowdown in expansion
plan of IT/ITES companies.
Sobha Developers
184 October 2013
P&L to catch up on strong operations with ~17.5% PAT CAGR over FY13E-15ERevenue run-rate continues to lag strong pre-sales due to POCM accounting and shift to more conservative recognition policy asper new guideline. Total unrecognized revenue from pre-sales stood at ~INR18b, which is expected to cross the threshold withexecution progress. We estimate Sobha to post 13% revenue CAGR over FY13E-15E
Margins to improve on the back of increasing realizations and greater focus on high value projects
Expect better operating leverage to trigger steadyimprovement in capital efficiencies Cash flow trend (INR b)
Scope of revenue
uptick in high on the
back of strong pre-
sales booked in FY12-
13
Sobha Developers
194 October 2013
Valuation room still ample; Initiating coverage with BuyTP of INR410 (40% upside); Macro and sub-optimal capital allocation key risk
Correction in stock price, which was led by concerns over future capital allocation in capex
business and land diversification, was overdone. We expect recent recovery to continue
further. Its strengths of operations and healthy balance sheet offers comforts to concerns.
We estimate Sobha's SOTP at INR47b (INR479/share): (1) real estate EV at INR55b (INR561/
share), with net debt of INR12.9b (INR132/share), and (2) contractual business at INR4.9b
(INR50/share).
We initiate coverage with a Buy rating and TP of INR410 (15% discount to SOTP, implied
8.8x EV/ FY15E cash EBITDA of INR6.1b).
Comforts emerge from management qualityBesides operational comforts, Sobha has maintained a strong management quality
and governance standard, with an improvement in independent functioning of its
board. Promoters' family representation on the board is only 25%, while independent
directors comprise 50% of the strength. Managerial compensation has historically
moved in line with earnings growth, while payout has improved over time, led by
better cash flow visibility.
Some key trends
To partially capture the
benefit of MTM gain, we
value its Bangalore-based
land bank at FSI cost of
INR300/sf (lower end of
MTM range)
Source: Company, MOSL
Valuing SOTP at INR47bWe value Sobha's real estate business EV at INR55b (INR561/share) by trifurcating its
development potential into (1) ongoing projects (NPV of 16msf at ~INR16.2b), (2)
FY14 launches (NPV of ~9msf of at ~INR7.8b) and (3) balance land bank (INR31b). We
have assumed WACC of 14% and annual escalation in realizations and cost of 5% for its
ongoing and upcoming development potential.
Contractual business is expected to offer a steady cash flow. We assume 10% revenue
CAGR over medium term, against ~19% over FY10-13, along with EBITDA margin of
18%. The business segment is valued at 5x FY15E EBITDA at INR4.9b (INR50/Share).
To value its balance land bank of 217msf, where the company is yet to provide visibility
in development plan, we have adopted a mix of book value and marked-to-market
(MTM) gain approach. Blended BV of Sobha's Bangalore FSI stood at INR120/sf, against
current MTM land transaction value in Bangalore market prevailing at INR300-2,000/
sf. To partially capture the benefit of MTM gain, we value its Bangalore-based land
Sobha Developers
204 October 2013
Sobha trades at attractive cash EBITDA multiple (x) compared to peers
Cash flow (INR b) Cash EBITDA Core FCFE EV/Cash EBITDA (x)
FY13 FY14E FY15E FY13 FY14E FY15E FY14E FY15E
DLF 24.8 24.8 32.5 -17.4 -10.2 1.2 19.2 14.6
UT 9.5 9.2 10.6 -6.3 -1.5 -1.6 10.9 9.4
IBREL 14.7 15.8 15.1 8.8 11.5 10.6 3.2 3.3
ORL 1.7 4.1 5.6 -1.4 -0.8 1.6 11.0 8.2
PEPL 2.7 5.8 7.7 -3.8 -2.0 -0.4 10.4 7.9
Sobha 4.0 5.4 6.1 0.1 0.9 1.5 7.7 6.8
PHNX 3.0 5.1 6.0 -0.4 1.9 2.4 10.2 8.5
JPIN 9.1 6.3 7.6 -2.5 -5.1 -4.8 15.3 12.6
Source: Company, MOSL
bank at FSI cost of INR300/sf (lower end of MTM range). While a similar gain has also
happened in non-Bangalore markets (where its blended cost of FSI is INR66/sf), we
have valued those land at book value.
Correction overdone, initiate coverage with Buy ratingBased on our SOTP valuation, we set a 1-year forward price target at INR410/share
(15% discount to SOTP of INR47b or INR479/share), which also implies target EV of
8.8x FY15E core cash EBITDA of INR6.1b. Discount of 15% applied to SOTP is based on
relative risk perception approach among our MOSL coverage universe.
Sobha's stock price is down 30% from peak of YTD FY14, even after recent upswing
partially offsetting the steep discount. Barring macro, key concerns have been on (1)
potential slowdown in Banaglore, (2) strategy of diversification into capex product,
newer markets, and (3) possible liquidity stress due to land aggregation like FY08.
However as discussed in earlier section, we consider the concerns and correction
were overdone, and hence ecent recovery is likely to continue further. The stock
offers a preferred play, as amidst current macro uncertainty, the companies with
strong operations and liquidity aid most resilience. Ittrades at 9.5x FY15E EPS and 1.1x
FY15E BV (v/s RoE of 12.5%), which is favorable v/s its historical level and valuation of
key peers, especially when seen in the context of robust operations and Balance
sheet. We initiate coverage with a Buy rating and 40% upside potential.
We value Sobha using the SOTP method at INR479/share
SOTP calculation (INR m) NAV/Share Method of valuation
Real Estate 54,995 561
Ongoing projects 16,218 165 ~16msf of ongoing projects offer ~INR38b of net cash flow
visibility over next 3-4 years
Upcoming projects (next 12 months) 7,767 79 ~9msf of planned launches over next 3-4 quarters
Land bank 31,010 316 ~218msf of balance land bank, with average FSI cost of INR86/sf.
Value Bangalore land at the lowest range of MTM value
(INR300/sf) and rest at the cost of acquisition
Contractual Business 4,890 50 Valued at 5x FY15E EV/EBITDA
Gross Asset Value (GAV) 59,885 611 GAV-based on NPV of development potential
Less: Net debt 12,900 132
Net Asset Value (NAV) 46,985 479
Target price 410 15% discount to SOTP
Implied EV @ Target price (INR b) 53.1
Cash EBITDA FY15E (INR b) 6.1
Implied multiple at target price (x) 8.8
Source: Company, MOSL
Sobha Developers
214 October 2013
Source: Company, MOSL
Valuations at discount to historical average
Location-wise GAV break-up for ongoing and upcoming projects (%)
Source: Company, MOSL
P/B
(x)
RoE (%)
Sobha Developers
224 October 2013
Concerns: Unfavorable macro outlook and reinvestment are key risksBangalore market saturation…: Sustenance of Sobha's strong operating performance
hinges on stability of Bangalore market which accounts for 60% of its pre-sales and
43%/71% of the GAV of ongoing/upcoming projects. Also, the demand in Bangalore
market depends overtly on the prospect of IT/ITES segment, hiring strengths and
controlled pricing so far. Over the past two years, the volume story is sailing smoothly
in Bangalore and has been a key success factor for Sobha. Going forward, if this market
catches some inefficiency and shows any sign of saturation due to (a) steady rise in
pricing and decline in affordability, (2) oversupply pressure and (3) possible torpidity
in IT/ITES hiring, then the growth story could be negatively impacted.
…and delayed monetization in new cities: Sobha's rising dependence on on other
southern cities calls for a brighter outlook on these markets for sustenance of sales
momentum. While the macro opportunity of these tier II markets remains encouraging,
the key risks for here are delay in approvals, brand establishment in newer markets
and immediate demand potential. Any headwind or operational delay could hinder
its ability to replicate the success of Bangalore market.
Reinvestment risk due to sub-optimal capital allocation in land, capex: Steady positive
OCF generation has encouraged the company to aggregate new land and to diversify
into annuity segment, which requires higher upfront capex and back-ended
monetization. Land cost has spiralled multi-fold over the past four to five years and
thus new acquisitions might come at a reasonable cost. Any debt-backed high cost
acquisitions or sub-optimal capital allocation in capex projects could be a key risk for
future capital efficiency.
Macro pressure hurts broader sentiment: Prevailing unfavorable macro outlook
remains the biggest risk for an otherwise operationally strong company. Despite south
being the best performing geography and Sobha being amongst operationally
outperforming companies, any broad based worsening of liquidity, rise in home loan
rates, and demand slowdown may impact the planned monetization and expected
cash flow trend adversely.
Inefficiency in Bangalore
market and suboptimal
capital allocation would
be the key risk
Sobha Developers
234 October 2013
Company descriptionSobha Developers (Sobha) was incorporated in 1995 and is a leading real estate player
in Southern India (total saleable area of 243msf) with a strong presence in Bangalore,
Pune, Chennai, Kochi, Gurgaon etc. The company has a uniquely backward integrated
business model through presence in contractual and manufacturing segment. The
company manages the whole business value chain in house from project
conceptualization to execution. It enjoys a strong brand due to its quality of execution
and enviable delivery track record. It has been a preferred partner for Infosys in many
of its marquee assets development such as convention centers, software development
blocks, multiplex theatres, hostel facilities, guest houses etc. Other clients of repute
includes Dell, HP, Timken, Taj, HCL, ITC , Biocon, Hotel Leela Ventures to name a few.
Since inception, Sobha has executed over 307 projects, comprising a total development
area of 54.5msf.
The leaders and backgroundMr. P.N.C. Menon, Chairman Emeritus
Mr. P.N.C. Menon, 64, is the founder Chairman of the company. He established Sobha
in 1995 and under his stewardship the company emerged as a reputed brand in
construction and real estate, and acquired a pan-India presence. He was conferred
with the prestigious 'Pravasi Bharatiya Samman Puraskar' by the President of India,
Ms. Prathiba Patil, in 2009.
Mr. Ravi Menon, Chairman
Mr. Ravi Menon, 31, is Sobha's Chairman. He holds a Bachelor of Science degree in
Civil Engineering from Purdue University, US. He primarily focuses on the company's
overall product delivery function and supervises various departments such as sales &
marketing, estimation, cost audit, value engineering, landscaping, human resources,
purchase, and architects.
Mr. J.C. Sharma, Vice Chairman & Managing Director
Mr. J.C. Sharma, 54, is the Vice-Chairman and Managing Director of the company. He
holds a Bachelor of Commerce (Honours) degree from St. Xavier's College, Kolkata.
He is a qualified Chartered Accountant and Company Secretary with over 28 years of
experience in diversified industries. Mr. J.C. Sharma is entrusted with the responsibility
of managing the overall affairs of the company and is instrumental in spearheading
the company's growth mantle.
Mr. P. Ramakrishnan, Deputy Managing Director
Mr. P. Ramakrishnan, 49, is the Deputy Managing Director of the company. He holds a
Bachelor's Degree in Technology (Electrical and Electronics Engineering) from
Bharathiyar University and a Master's Degree in Business Administration from Madurai
Kamaraj University. Mr. P. Ramakrishnan supervises Sobha's operations in Thrissur
(Kerala) and is responsible for overseeing the company's contractual projects and
manufacturing facilities
Sobha Developers
244 October 2013
Financials and Valuation
Income Statement (INR Million)
Y/E March 2011 2012 2013 2014E 2015E
Net Sales 13,945 14,079 18,645 21,105 23,981
Change (%) 23.4 1.0 32.4 13.2 13.6
Construction expenses 9,558 10,849 12,359
Office and site establishment exps 1,532 1,694 1,969 2,322 2,638
EBITDA 3,600 4,665 5,483 6,127 6,978
% of Net Sales 25.8 33.1 29.4 29.0 29.1
Depreciation 278 388 594 679 761
Interest 860 1,165 1,705 1,723 1,735
Other Income 51 65 55 66 60
PBT 2,514 3,177 3,239 3,791 4,543
Tax 669 1,076 1,068 1,289 1,544
Rate (%) 26.6 33.9 33.0 34.0 34.0
Reported PAT 1,813 2,060 2,172 2,503 2,999
Adjusted PAT 1,813 2,060 2,172 2,503 2,999
Change (%) 35.1 13.6 5.5 15.3 19.8
Balance Sheet (INR Million)
Y/E March 2011 2012 2013 2014E 2015E
Share Capital 981 981 981 981 981
Reserves 17,527 19,017 20,386 21,972 24,053
Net Worth 18,508 19,998 21,367 22,952 25,034
Loans 12,416 12,031 13,536 14,036 14,286
Deffered Tax Liability -74 330 638 638 638
Capital Employed 31,174 32,714 35,643 37,727 40,058
Gross Fixed Assets 3,164 5,018 5,418 6,168 6,918
Less: Depreciation 1,791 2,179 2,773 3,451 4,212
Net Fixed Assets 1,373 2,840 3,122 2,717 2,706
Capital WIP 647 13 13 627 1,712
Investments 37 0 2 2 2
Curr. Assets 36,816 39,519 45,295 49,936 54,477
Inventory 10,685 16,759 19,018 23,215 25,420
Debtors 4,310 3,904 6,935 5,698 4,317
Cash & Bank Balance 230 587 670 973 519
Loans & Advances 21,592 18,268 18,672 20,050 24,221
Other Current Assets
Current Liab. & Prov. 7,699 9,658 12,955 15,721 19,005
Creditors 6,757 8,272 11,518 14,140 17,266
Other Liabilities 4,715 5,712 5,818 6,754 7,194
Provisions 942 1,386 1,437 1,581 1,739
Net Current Assets 29,118 29,861 32,340 34,215 35,471
Application of Funds 31,174 32,714 35,643 37,727 40,058
E: MOSt Estimates; * Nine months ended Dec 2004, #Fifteen months ended Mar 2006
Sobha Developers
254 October 2013
Financials and Valuation
Ratios (INR Million)
Y/E March 2011 2012 2013 2014E 2015E
Basic (INR)
Adjusted EPS 18.5 21.0 22.2 25.5 30.6
Growth (%) 35.1 13.6 5.5 15.3 19.8
Cash EPS 52.4 64.6 72.0 81.1 94.0
Book Value 188.7 203.9 217.9 234.1 255.3
DPS 3.0 5.0 7.0 8.0 8.0
Payout (incl. Div. Tax.) 16.2 23.8 31.6 31.3 26.2
Valuation (x)
P/E 13.9 13.2 11.4 9.5
Cash P/E 4.5 4.1 3.6 3.1
EV/EBITDA 8.6 7.6 6.8 6.1
EV/Sales 2.8 2.2 2.0 1.8
Price/Book Value 1.4 1.3 1.2 1.1
Dividend Yield (%) 1.7 2.4 2.7 2.7
Profitability Ratios (%)
RoE 10.2 10.7 10.5 11.3 12.5
RoCE 10.7 13.6 14.5 15.0 16.1
Turnover Ratios
Debtors (Days) 65 65 65 65 65
Creditors. (Days) 70 70 70 70 70
Leverage Ratio (x)
Debt/Equity (x) 0.7 0.6 0.6 0.6 0.6
Cash Flow Statement (INR Million)
Y/E March 2011 2012 2013 2014E 2015E
PBT before Extraordinary Items 2,514 3,177 3,239 3,791 4,543
Add : Depreciation 278 388 594 679 761
Interest 860 1,165 1,705 1,723 1,735
Less : Direct Taxes Paid 669 1,076 1,068 1,289 1,544
(Inc)/Dec in WC 217 -387 -2,396 -1,572 -1,710
CF from Operations 3,200 3,267 2,074 3,332 3,784
(Inc)/Dec in FA -236 -1,221 -877 -887 -1,835
(Pur)/Sale of Investments -10 37 -2 0 0
CF from Investments -246 -1,184 -878 -887 -1,835
(Inc)/Dec in Networth -21 407 308 0 0
(Inc)/Dec in Debt -2,324 -385 1,505 500 250
Less : Interest Paid 860 1,165 1,705 1,723 1,735
Dividend Paid 344 574 803 918 918
CF from Fin. Activity -3,549 -1,717 -695 -2,141 -2,403
Inc/Dec of Cash -596 356 83 303 -454
Add: Beginning Balance 826 230 587 670 973
Closing Balance 230 586 669 973 519
E: MOSt Estimates
Motilal Oswal Securities LtdMotilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: [email protected]
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