Broker’s call: Sobha (Buy)

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Target: ₹1,400

CMP: ₹1,297.50

After underperforming its listed peers on pre-sales growth over FY21-23, we believe Sobha is set to outperform in terms of growth given its focus on unlocking its vast land reserve and exploring external growth opportunities through its healthy balance sheet.

The outperformance is also expected to be driven by improvements in profitability. Further, visibility in the monetisation of some of its large land parcels in Bengaluru will lead to a re-rating in its implied land valuation.

We factor in higher launches over FY24-26E and hence revise our pre-sales estimates by 4/12 per cent for FY24/FY25. We also introduce FY26 estimates.

We believe that as the company unlocks its vast land reserves and explores growth opportunities beyond its existing land bank, it will provide further growth visibility. Project launches on its large land parcels in Bengaluru and Tamil Nadu will drive re-rating for its existing land valuation.

Its focus on sustainable growth (revenue growth, healthy profitability, and steady cash flows) will put the company on a long-term growth path.

Key risks include slowdown in residential absorption, delay in monetisation of large land parcels, and inability to sign BD deals.