Sobha disappoints in FY25; outlook depends on growth in new markets
Summary
- Muted pre-sales and delayed approvals for new projects have played spoilsport for Sobha in FY25. But expansion to new geographies and improving average realisations give comfort for FY26 growth
Muted pre-sales and delayed approvals for new projects which tend to hurt cash flow generation, have played spoilsport for Sobha for a large part of FY25. Consequently, Sobha’s shares are down 28% in the past one year versus the 18% drop in the Nifty Realty index.
Yes, interest rate cuts by the RBI are sentimentally positive for the sector. But a meaningful re-rating for Sobha stock depends on traction in newly launched projects such as Sobha Town Park, easing of approval challenges and performance in newly entered markets. Sobha Town Park is a large project comprising a saleable area of 3.67 million square feet (msf) with gross development value or revenue potential of Rs3,500 crore, but only one phase was released in Q4. Sobha Madison Heights was another project launched in Q4 in Bengaluru.
Sobha launched eight projects spanning around 8.8msf across four cities in FY25. Remember, at the end of Q3, the management said that it has a robust launch pipeline of 22.4 msf projects, which it expects to launch over the next six to eight quarters.
Also Read: Risk to Sobha’s ambitious FY25 pre-sales guidance looms large
Right steps
To mitigate the risk of geographical concentration, Sobha has been expanding into other regions, such as Gurgaon and Pune. In Q3, Sobha announced that it was entering the Mumbai Metropolitan Region (MMR). While these are steps in the right direction, a large part of total pre-sales in FY25 still came from Bengaluru, with a contribution of 58%.
For now, some other factors give comfort, such as improving average realisation at ₹13,412 per sq ft in FY25, up around 23% year-on-year, the highest ever. Further, Sobha is ramping-up its business development plans and the latest right issue could help get a better grip on debt. Pre-sales guidance for FY26 and any revision to the launch pipeline are important cues ahead.
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