Shares of realty player Sobha are catching the attention of brokerage firms as the stock is trading at cheaper valuation and the fundamentals are projecting a bright medium-term future.
Shares of Sobha are now 30 percent below its 52-week high of ₹1,045 that it hit on January 19, 2022, on BSE.
Sobha is one of the top realty players in the country and has a presence primarily in Bangaluru. The company's plans of geographical diversification are expected to augur well for the stock.
Recently, brokerage firm ICICI Securities upgraded the stock to 'buy' from an 'add' after the recent correction in the stock price. The brokerage has a target price of ₹902.
ICICI Securities believes the company’s Q2FY22 and Q3FY22 sales performance is remarkable considering the second Covid wave impact across India. The brokerage firm expects the momentum to sustain heading into Q4FY22E as well on the back of new launches.
"As per the company, it is on track to get approvals for nearly 13msf (million square feet) of planned launches in FY23E of which inventory will be released for sale in phases. Low mortgage rates, stable property prices and robust hiring outlook for IT, ITeS and financial services, especially in South India, are expected to support residential housing demand in FY23-24E as well," ICICI Securities pointed out.
"We model for Sobha to clock 4.8msf of gross sales bookings worth ₹3800 crore in FY22E against the nine-months FY22 sales of 3.56msf worth ₹2760 crore. We expect the company to clock gross sales booking value of ₹4710 crore and ₹4900 crore in FY23E and FY24E, respectively," said the brokerage.
Another brokerage firm Nirmal Bang Securities has maintained a ‘buy" rating on Sobha with a target price of ₹1,227, implying an upside of 65 percent from the stock’s March 21 closing of ₹744.55 on BSE.
Nirmal Bang highlighted that the company's new management expects to continue to reduce the net debt. As per Nirmal Bang, the MD-designate indicated that the residential-focused strategy will continue, but he would look for geographical diversification. Currently, nearly 60-70 percent of the company’s sales are from Bangaluru. Therefore, the company is actively looking at a portfolio outside Bangaluru also.
As per the management, there is no impact of the ongoing regulatory problems of the partner in Gurugram on the property being developed by Sobha. However, as per Nirmal Bang, the new management highlighted that while regulatory authorities had not put any restrictions on the sale of property by Sobha, the same property cannot be registered.
Analysts and brokerages are positive on the realty sector and for many of them, Sobha is among the top picks from the sector.
Residential real estate across India saw sales of 195msf, up 17 percent year-on-year, registering the strongest quarterly sales over the past decade.
"Complementing the strength of the market, aggregate sales from our coverage universe saw a 52 percent year-on-year increase in Q3FY22 with four of eight players recording sales of ₹2000 crore and more. The performance in successive quarters reinforces our conviction in a strong up-cycle coupled with improving market share for organized players," brokerage firm Kotak Securities said.
"We believe Bengaluru-based players are better positioned to capitalize on the growth story in the sector and we continue to like Prestige, Brigade and Sobha," said Kotak.
Even though the market looks concerned about the impact of rising interest rates on demand and margin contraction due to rising input costs, these issues may not play out owing to continued market share gains and rising real estate prices, Kotak pointed out.
According to a MintGenie poll, an average of 14 analysts has a ‘strong buy’ call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.