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Sobha Developers (SOBHA) - Annual Report Analysis - Dated - June 27, 2013




Axis Capital Limited


27 Jun 2013





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Sobha Developers Ltd (Sobha) continued to generate strong cash flows from operations (~Rs 5 bn vs Rs 4.8 bn in FY12). However, interest costs (Rs 2 bn), dividend payouts (Rs 0.6 bn), purchase of land (~Rs 2.4 bn) and capex (~Rs 0.9 bn) resulted in an increase in debt by ~Rs 1 bn. Earnings outlook remains strong with unbilled revenue of ~Rs 18 bn from realty (~Rs 6.6 bn is likely to be recognized in FY14) and Rs 5.3 bn from ongoing contractual projects. We maintain BUY rating with TP of Rs 435, implying upside of 22% from CMP of Rs 355. Key takeaways: Balance sheet  Record collections (~Rs 21 bn) were reflected in customer advances increasing to Rs 5.7 bn (vs. Rs 2.6 bn in FY12) on account of collections from newly launched projects yet to cross the revenue recognition threshold  Inventory increased to Rs 19 bn (~14% YoY) largely on account of higher expenditure on construction (project expenses were up 20% YoY) Profit and loss account  Sobha achieved its best year yet in terms of new sales (3.76 msf totaling ~Rs 22 bn in value); collections (~Rs 21 bn)  The company also registered record Revenue and PAT of ~Rs 18.6 bn and Rs 2.2 bn, respectively, despite being impacted by new revenue recognition policy  Interest cost expensed was higher as the company adopted a more conservative policy of accounting Cash flow  Visibility remains high driven by (1) ~Rs 38 bn from ongoing projects and (2) ~9 msf of planned new launches in FY14  However, continued cash outflow towards land and capex (~Rs 750 mn per annum) will impact Sobha’s free cash flows Regards, Chirag Negandhi (ED & Deputy Head of Research) Institutional Equity Research Axis Capital Ltd. Tel.: + 91 22 43251106 Nitin Idnani (Executive Director – Realty and Infrastructure) Institutional Equity Research Axis Capital Ltd Tel.: + 91 22 4325 1149 Kunal Lakhan (Asst VP – Realty) Institutional Equity Research Axis Capital Ltd. Tel.: + 91 22 43251138

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