Sobha Developers

Company To Gain From Rising Share Of High-Margin Realty Business

 

Bangalore-Based realty player Sobha Developers has gained 9% on the bourses in the past one month on expectations of good results. The stock has staged a better show compared with a 6% decline in the benchmark BSE Sensex. The scrip touched its 52-week high of Rs 319.7 on January 19, 2009.
   Sobha's stock performance has shown a consistent improvement for quite some time. For instance, in the past three months, the stock earned 20% returns, and over a sixmonth period, it returned 22%. On an annual performance basis, the stock outperformed the benchmark indices. 

   The company reported a 68% growth in revenue for the quarter ended December 2009 at Rs 309.3 crore. Land sale of Rs 54 crore is part of the above sales. Going ahead, Sobha Developers expects to generate around Rs 150 crore from land sale. In fiscal 2011, the company further expects to monetise Rs 250 crore worth of land. This will help in the overall debt reduction for the company, which has a debt-to-equity ratio of 0.87. The share of contractual business and the Infosys contract in Sobha's total revenue has come down, thus hinting at the rising share of high-margin realty development business. It has an order book of 5.5 million sq ft, valued at Rs 455 crore and which will be recognised over the next 5-6 quarters. 

   Its net profit shot up five-fold to Rs 40.8 crore during the December quarter. The company expects to maintain this growth momentum. A revival in the realty sector has added to investor confidence, though the trend took more time to become visible in Bangalore than in Mumbai. 

   Sobha is expected to launch value homes with a price tag of up to Rs 40 lakh, which will generate volumes for the company. It has sold six lakh sq ft of space, which has not yet reached the revenue-recognition stage. Out of the total receivables of Rs 2,068 crore, around Rs 934 crore is to be expended on project cost. Thus, it clearly shows visibility of future revenue potential. 

   At an annualised EPS of Rs 13.72 and current market price of Rs 276, it is trading at a price-to-earnings multiple of 20.4 times. This makes it a fairly-priced stock for investors seeking an exposure to the southern parts of the country.