Any positive news on outlook for the real estate market and the firm may lift investor confidence. Photo: Mint
If one were to go by Sobha Ltd’s sales performance for the September quarter, the residential market is obviously dull. The firm sold 0.85 million sq. ft, just a tad higher than a year ago when it sold 0.83 million sq.ft.
It was surprising given that the Bengaluru market, which is better off compared with some metros like Delhi and Mumbai, accounts for a little over two-thirds of the company’s sales volumes. Ironically, Sobha’s Bengaluru sales during the quarter dragged overall sales. But the normally slow-moving Chennai region showed traction.
Will Sobha be able to meet its guidance for the year to March? At the end of six months, the firm has clocked about 42% of its projected sales for the full year. It means the next two quarters would be a tightrope walk for a clean finish.
Meanwhile, Sobha’s stock fell nearly 50% from its peak and around 33% in the past three months. The firm was largely into premium residential property, a segment that saw rising inventory. The Street perceived news about the delay in approvals for its projects in the national capital region and Kochi negatively. Besides, quarterly sales have been range-bound for a few quarters, implying some inventory pile-up.
However, the realty firm had enjoyed rich valuations in the past due to its strong brand equity and land bank. With the firm treading into the mid-income housing segment, competition would be higher. Besides, with new launches yet to hit the market, the reliance on Bengaluru property is high.
Although one does not have to worry about operating profitability, Arun Aggarwal, analyst at Religare Capital Markets, says one must watch out for a rise in debt, capex spending and cash flows in the results for the September quarter. The subdued sales are a precursor to a contraction in revenue and profit even from the June quarter. If at all, the correction in stock price appears to have priced in the negatives. Hence, any positive news on outlook for the real estate market and the firm may lift investor confidence.