Sobha Ltd (SOBDEV) 327

Transcription

1 Result Update Rating matrix Rating : Hold Target : 322 Target Period : 12 months Potential Upside : -2% What s Changed? Target Changed from 358 to 322 EPS FY16E Changed from 24.9 to 17.6 EPS FY17E Changed from 29.9 to 23.2 Rating Unchanged Quarterly Performance Q2FY16 Q2FY15 YoY (%) Q1FY16 QoQ (%) Revenue EBITDA EBITDA (%) bps bps PAT Key Financials ( Crore) FY14 FY15 FY16E FY17E Net Sales 2, , , ,360.9 EBITDA Net Profit EPS ( ) Valuation summary (x) FY14 FY15 FY16E FY17E P/E Target P/E EV / EBITDA P/BV RoNW (%) RoCE (%) Stock data Particular Amount ( crore) Market Capitalization 3,205.2 Total Debt 2,281.6 Cash and Investments EV 5, week H/L ( ) 536 / 244 Equity capital 98.1 Face value ( ) 10.0 Price performance (%) Return % 1M 3M 6M 12M Sobha Developers (7.6) (8.9) (20.2) (18.4) Oberoi Realty (9.5) (12.3) (5.4) 4.1 Mahindra Lifespace 3.2 (3.1) (7.1) (19.7) Research Analyst Deepak Purswani, CFA deepak,purswani@icicisecurities.com November 16, 2015 Sobha Ltd (SOBDEV) 327 Launching one of biggest projects in NCR Sobha s topline de-grew 32.7% YoY to crore and was below our estimate of crore. It can be attributed to a 40.0% YoY decline real estate projects revenue to crore and a 15.4% YoY decline in the revenues from contractual and manufacturing division to crore The EBITDA margin at 25.6% and was below of our expectation of 27.0% Sobha's Q2FY16 sales volume were flattish at 0.85 million square feet (msf) with a sales value of crore The net debt to equity increased to 0.83x vs. 0.7x in Q2FY15. The increase was primarily on account of pursuance of slower sales collection, new investment opportunities and capex Sales volume flattish; guidance appears to be uphill task Historically, Sobha s overall sales volumes grew robustly at 14.6% CAGR to 3.6 msf in FY However, sales volumes declined 8.5% YoY to 3.3 msf in FY15 valued at 2,095 crore due to the large ticket size of unsold inventory. In Q2 FY16, Sobha s sales volume were almost flattish at 0.85 mn sq ft taking the total at 1.7 mn sq ft. While, the management is cautiously optimistic and has kept its finger cross in achieving its guidance of 4.0 mn sq ft; it appears to be uphill task as it implies sales volume of mn sq ft for next two quarters, which is not achieved historically. On the positive side, the company is looking to launch its largest ever project in Gurgaon region aggregating 3.2 mn sq ft (Sobha s share 1.9 mn sq ft) in JD model under the group housing scheme. This coupled with Sobha Dream Acres would keep Sobha s sales volume better in H2 FY16. We have considered the sales volume of 3.6 mn sq ft in FY16E. Visibility remains low in Contractual division One of the key differentiators for Sobha is the unique backward integration model through construction (in-house & external), design and engineering division. During FY11-15, this division has grown at a CAGR of 25.8% to crore. But, in Q2FY16, the revenues from contractual business declined 15.4% YoY to crore. The visibility from this division also remains very low, going ahead, considering its order book of 740 crore, implying an orderbook to construction bill ratio of 1.2x on a TTM basis. Hence, we anticipate this division revenues to decline at a CAGR of 15.4% at crore during FY15-FY17 FCFF showed improvement sequentially; land payment to hurt FCFF Sobha s cash collection from real estate division improved 19.2% YoY to crore in Q2 FY16, which led to sharp improvement in FCFF (- 69 crore in Q2 FY16 v/s crore in Q1FY16). However, we believe Sobha s FCFF could come under pressure due to land payment, going ahead. Re-rating hinges on positive FCF generation; maintain HOLD Currently, the stock is trading at attractive valuation of 1.2x FY17E P/BV and 0.6x its NAV (after adjusting the construction business valuation). We believe Sobha s re-rating hinges on management efforts to quickly turn its FCF positive through better sales collection & sales volume. We maintain our HOLD rating on stock with a revised target price of 289(RE business - 309/share at 0.6x its NAV and construction business - 33/share). ICICI Securities Ltd Retail Equity Research

2 Variance analysis crore Q2FY16 Q2FY16E Q2FY15 YoY (Chg %) Q1FY16 QoQ (Chg %) Comments Income from Operation Topline decline can be attributed to a 40.0% YoY decline real estate projects revenue to crore and a 15.4% YoY decline in the Other Income revenues from contractual and manufacturing division to crore Inc/dec in stock in trade/wip Land Cost Material & construction cost Employee cost Other expenditure EBITDA EBITDA Margin (%) bps bps Depreciation Interest PBT Taxes PAT PAT declined 32.6% YoY to 40.1 crore, which was lower than our estimate of 69.9 crore on account of the topline miss Key Metrics Sales Volume (msf) Realisation ( ) 5,821 6,400 6, , [[ Change in estimates FY16E FY17E ( Crore) Old New % Change Old New % Change Comments Revenue 2, , , , EBITDA EBITDA Margin (%) bps bps PAT EPS ( ) We have downgraded our estimates mainly due to a sharp decline in construction division revenues [ Assumptions Current Earlier Volume sold in msf FY16E FY17E Total We believe Sobha will find it difficult to achieve 4.0 msf sales volume guidance given the challenging macro enviroment ICICI Securities Ltd Retail Equity Research Page 2

3 Company Analysis Bangalore remains resilient; Chennai sees revival; other markets face heat... Exhibit 1: Quarterly sales trend Particulars Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 YoY QoQ Bengaluru Sales Volume (Sq ft) 503, , , , , , , , % -13.5% Average Realization ( /sq ft) 7,339 6,774 6,506 7,247 6,549 6,192 6,031 6, % 0.9% Sale Value ( crore) % -12.7% Thrissur Sales Volume (Sq ft) 49,064 58,458 43,867 49,126 12,765 16,090 3,218 19, % 514.0% Average Realization ( /sq ft) 5,638 5,801 5,944 6,054 4,795 6,039 6,315 7, % 21.6% Sale Value ( crore) % 646.8% Coimbatore Sales Volume (Sq ft) 17,124 40,171 14,465 22,444 5,904 9,817 2,609 10, % 308.5% Average Realization ( /sq ft) 5,459 5,628 4,992 5,428 7,255 6,450 4,900 4, % -11.9% Sale Value ( crore) % 259.9% Pune Sales Volume (Sq ft) 24,433 23,395 35,695 24,207 23,588 24,809 21,905 17, % -20.7% Average Realization ( /sq ft) 5,570 5,492 6,036 6,320 9,984 9,381 8,872 7, % -13.9% Sale Value ( crore) % -31.7% Mysore Sales Volume (Sq ft) 26,538 19,547 21,864 24,926 24,650 16,334 8,711 6, % -30.0% Average Realization ( /sq ft) 2,307 1,815 2,119 2,206 2,134 2,202 2,419 2, % -6.7% Sale Value ( crore) % -34.7% NCR Sales Volume (Sq ft) 23,522 38,114 30,207 14,435 9,464 26,435 7,107 11, % 68.0% Average Realization ( /sq ft) 11,076 11,368 10,450 11,230 11,853 11,386 11,576 11, % -0.5% Sale Value ( crore) % 67.2% Chennai Sales Volume (Sq ft) 53,523 62,195 32,708 52,015 27,124 86,118 66, , % 75.1% Average Realization ( /sq ft) 5,464 5,519 5,470 2,909 4,194 3,207 4,490 3, % -26.2% Sale Value ( crore) % 29.2% Calicut Sales Volume (Sq ft) 42,293 32,193 26,120 33,947 14,781 12,529 25,669 36, % 43.7% Average Realization ( /sq ft) 4,869 4,749 5,048 5,798 5,268 5,522 5,641 5, % -3.3% Sale Value ( crore) % 39.0% Cochin Sales Volume (Sq ft) - 16,252 22,293 51,397 17,807 9,580 5,539 25, % 366.0% Average Realization ( /sq ft) - 7,275 7,556 7,462 7,499 7,368 7,416 7, % 3.1% Sale Value ( crore) % 380.4% Total Sales Volume (Sq ft) 740, , , , ,452 1,028, , , % 1.1% Average Realization ( /sq ft) 6,786 6,568 6,389 6,703 6,456 6,092 5,988 5, % -2.8% Sale Value ( crore) % -1.8% ICICI Securities Ltd Retail Equity Research Page 3

4 Sobha s Q2FY16 sales volume remained flattish at 0.85 msf with sales value of crore. Sobha Dream Acres (affordable homes) contributed significantly to the company s operational performance during Q2FY16. Hence, where demand for residential segment was muted in almost all markets across the country, Bangalore and Chennai markets continued to display resilience and stability. We would like to highlight that the average realization saw a dip compared to last quarter on account of Sobha s product portfolio comprising of compact luxury segment Sobha Dream Acres. Sobha s average realization for Q2FY16 stands at 5821 vs in Q1FY16. New launch pipeline of ~10.0 msf in next four quarters In FY15, it launched 8 projects totalling 10.7 msf of saleable area. In H1FY16, Sobha launched Sobha Clovelly and Sobha Retreat in Bangalore with a total saleable area of 0.34 msf. Going ahead, it is looking to launch ~15.3 msf (its share 10.0 msf) in the coming quarters. Furthermore, Sobha Dream Acres project which was launched in the last fiscal has been well received in the market. With Sobha s launch of Sobha Dream Series and many other new projects in coming quarters and it s efforts to rejig its project specifications into smaller units, going ahead, to keep the ticket size at much affordable levels, the management expects substantial improvement in new sales in coming quarters. [ Exhibit 2: Launch pipeline for next four quarters Project Location Type SITE Area (in Acres) ~Total SBA (msf) Sobha share of SBA (msf) Bengaluru APMC Project Jakkur, Bellary Road Commercial Yelahanka Property Kogilu Cross Apartments Kanakapura Road Property Near Forest View, Hosahalli Apartments Gopalapura Property Near Sobha Indraprastha Apartments Sarjapur Road Property Hoddasiddhapura Apts+Row Houses Sub-total Chennai Sholinghanallur Property Sholinghanallur, OMR Apartments Cochin Marine Drive Property Marine Drive Apartments Coimbatore Harishree Gardens-7,8,9 Veerakeralam Row Houses / Villas Mysore Jettihundi Property Jettihundi Plotted Development Gurgaon Group Housing Babupur Sector 109 Apartments Total ICICI Securities Ltd Retail Equity Research Page 4

5 Increased in net debt remains a concern In Q2FY16, Sobha s debt to equity increased to 0.83x as compared to 0.70x in Q2FY15. The increase in the debt is primarily on account of slowing sales collection and pursuing new investment opportunities and capex. Going ahead, we expect it to remain at 0.8x till FY17E given the land acquisitions and capex related to APMC project. Exhibit 3: Quarterly net debt equity trend Exhibit 4: Yearly net debt to equity trend ( crore) Q3FY Q4FY Q1FY Q2FY Q3FY Q4FY Q1FY Q2FY (x) ( crore) 2, , , , , , , , ,158.8 Net debt Net debt to equity (x) Source: Company, ICICIdirect.com, Research Source: Company, ICICIdirect.com, Research Exhibit 5: Quarterly Cash flow crore Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Operational cash inflows Real Estate Contractual Total Operational cash inflow Operational cash outflows Real Estate project expenses Contracts project expenses Statutory Dues & Other Taxes Corpus Repayment Central Over Heads (COH) Advertising & Marketing expenses Total Operational cash outflow Net Operational Cash flow Monetization of land / Development Rights Net Operational Cash Flow including Monetization of land Financial Outflows Interest Paid (Net of interest received) Income Taxes Deposit Total Financial Outflows Net Positive Cash flow (Excl. income from land monetization) Capital Outflows Land Payments Investment in Subsidiaries Dividend including tax Capex General Capex Commercial Real Estate Total capital outflow Net cash inflow Big launches in NCR, Chennai vital to volume uptick ICICI Securities Ltd Retail Equity Research Page 5

6 After considering moderate sales volume in the last few quarters, we have built in sales volume of 3.8 msf in FY16E against management guidance of 4.0 msf in FY16E and 4.3 msf in FY17E on the back of launch of Sobha Dream Series and expected launches in coming quarters., its ability to achieve its guidance hinges on quick launch & sales of large projects in Bangalore, Chennai, NCR & Cochin. Exhibit 6: We build in moderate sales volume, going ahead (mn sq feet) Revenues to grow 23.2% YoY in FY17E We expect Sobha s topline to grow at 23.2% YoY FY17E led by 28.2% YoY growth in real estate revenues on account of new projects reaching threshold. Exhibit 7: Revenues Trend 2, , , , ,103.3 ( crore) 2, , , , ,500.0 Exhibit 8: Real estate revenue trend Exhibit 9: Construction revenues to decline ( crore) 1, , , , , , , ,791.4 ( crore) Source: Company, ICICIdirect.com, Research Source: Company, ICICIdirect.com, Research ICICI Securities Ltd Retail Equity Research Page 6

7 EBITDA margin to remain at 26-27% during FY15-17E We expect Sobha to post an EBITDA margin of ~26-27% during FY15-17E. The decline in the topline would imply that EBITDA over FY15-17E would be flattish Exhibit 10: EBITDA margin to remain at ~26-27% ( crore) (%) EBITDA EBITDA Margin Net profit to grow at 31.6% YoY in FY17E We anticipate Sobha s bottomline to decline in FY16E due to a de-growth in topline. However, PAT will grow 31.6% YoY in FY17E on the back of stable margins and 23.2% YoY growth in topline in FY17E. Exhibit 11: PAT trend ( crore) (%) PAT PAT Margin Return ratio to inch up over FY15-17E Due to decline in topline & PAT, Sobha s return ratios will see a dip. We expect RoE and RoCE of 10.6% and 14.0%, respectively in FY17E. Exhibit 12: Return ratio to bounce back (%) RoE RoCE ICICI Securities Ltd Retail Equity Research Page 7

8 Conference Call Highlights: Company s net debt stands at 2097 crore with a net debt to equity of 0.83x in Q2FY16. The current cost of debt has come down to 12.14% per annum vs. 12.5% in Q2FY16 During Q1FY16, company has delivered 2 real estate projects and 4 contractual projects totally measuring 2.91 msf The management expects Sobha Dream Acres, Sobha Clovely and Sobha Elan to hit revenue recognition in H2FY16 The company plans to launch its NCR project comprising of villas and row houses this month. The Company has entered into a joint development agreement with the existing JD partners of project for development of acres in NCR with a total saleable area of 3.21 msf (Sobha s share of 1.93 msf) on a revenue sharing basis under the group housing schemes. For the Cochin project, all the approvals have been taken and the company might launch it in Q3FY16. Furthermore, company is also looking to launch one small project each in Bangalore and Mysore market In order to retire its high cost debt, the company issued NCD s to the extent of 400 crore. Furthermore, the company s repayment commitment during the next two quarters will be ~ 277 crore ICICI Securities Ltd Retail Equity Research Page 8

9 We have valued Sobha using the SoTP valuation methodology and valued the stock at 322/share (real estate business at 289.2/share and construction business at 32.5/share) Outlook and Valuation Currently, the stock is trading at attractive valuation of 1.2x FY17E P/BV and 0.6x its NAV (after adjusting the construction business valuation). We believe Sobha s re-rating hinges on management efforts to quickly turn its FCF positive through better sales collection & sales volume. We maintain our HOLD rating on stock with a revised target price of 289(RE business - 309/share at 0.6x its NAV and construction business - 33/share).. Exhibit 13: SoTP valuation NAV Fair value Mn sq ft crore /share NAV multiple (x) crore /share Completed projects (A) Ongoing & Proposed projects (B) Bangalore NCR Thrissur & Calicut Pune Chennai Mysore Coimbatore Ongoing & Proposed projects (B) Other Land Bank (C) Real Estate Business value (A+B+C) Less: Net debt Land cost outstanding Real Estate equity value Construction Business 4x FY17E EV/EBITDA Total SoTP Valuation Exhibit 14: Valuation Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE ( cr) (%) ( ) (%) (x) (x) (%) (%) FY14 2, FY15 2, FY16E 1, FY17E 2, ICICI Securities Ltd Retail Equity Research Page 9

10 [ Company snapshot Target Price Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Source: Bloomberg, Company, ICICIdirect.com Research Key events Date Event Jul-11 Purchase of entire equity interest in SPV in Pune from Pan Atlantic Investments Ltd Q2FY12 Forays into Gurgaon market with launch of International City FY12 The year sees the stock price coming under pressure mostly as cash flow generation remains muted Nov-12 Sobha Developers partners with SUN-AREA property partners committing equity commitment of 50 crore in the project FY13 Strong volumes kept the stock price performance buoyant as the Bengaluru market bucked the trend of tepid real estate market across India H1FY14 The stock corrects sharply over concerns of FCF on account of a ramp up in the RE construction budget, the company s strategy to grow into new geographies & investment in commercial RE Q3FY14 Posts dismal sales volume clearly signifying lower offtake in high ticket size projects in Bengaluru and NCR Jul-14 Launched $4 billion Sobha Hartland, a new mixed-use development near Burj Khalifa, Dubai. Construction has already started and the company plans to deliver a Aug-14 After developing three projects on the eastern side of Pune, Sobha Developers is planning to invest 250 crore in premium projects in the western suburb of Pune. The company plans to develop over one million square feet of area, primarily in the residential space Apr-15 Launches first phase of new project Sobha Dream Series with total developable area of 10.7 msf. The realisation for this project is expected at 5,500 per square feet, lower than the usual 6,000 square feet Aug-15 Sobha launches ultra-luxurious residential tower in South Bangalore comprising of BHK apartments and 4 BHK duplex apartments Aug-15 Sobha Developers has added another quill to its top by offering the top of the line extravagance condo called Sobha Meritta situated at Keleambakkam in Chennai. It consists of 556 homes having a super developed range of sq. ft and price ranging from lakh to 1.03 crore Top 10 Shareholders Shareholding Pattern Rank Name Latest Filing Date % O/S Position (m) Change (m) 1 Menon (Sobha) 30-Jun Menon (P N C) 30-Jun Platinum Investment Management Ltd. 30-Jun Menon (P N C & Sobha) 30-Jun Nordea Funds Oy 31-Jul Nordea Invest Fund Management A/S 31-Dec NTAsset (Cayman) Ltd. 30-Jun Schroder Investment Management (Hong Kong) Ltd. 31-Jul Dimensional Fund Advisors, L.P. 31-Aug Goldman Sachs Asset Management International 30-Jun Source: Reuters, ICICIdirect.com Research Recent Activity Buys (in %) Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Promoter FII DII Others Sells Investor name Value Shares Investor name Value Shares NTAsset (Cayman) Ltd m 2.47m DNB Asset Management (Asia) Limited -6.08m -0.82m Platinum Investment Management Ltd m 1.51m Morgan Stanley Investment Management (India) Pvt. Ltd m -0.81m Nordea Invest Fund Management A/S 8.48m 1.43m BNP Paribas Investment Partners Asia Ltd m -0.61m ICICI Prudential Asset Management Co. Ltd. 3.39m 0.80m Eastspring Investments (Singapore) Limited -3.04m -0.54m Goldman Sachs Asset Management International 2.87m 0.51m Goldman Sachs Asset Management Pte. Ltd m -0.53m Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 10

11 Financial summary Profit and loss statement Crore ( Crore) FY14 FY15 FY16E FY17E Net Sales 2, , , ,360.9 Growth (%) (21.5) 23.2 Other income Total revenue 2, , , ,377.3 Raw Material Expense 1, , ,172.7 Land cost Employee benefit expenses Other Expenses EBITDA Growth (%) (18.1) 25.6 Interest Depreciation Other income PBT Taxes PAT PAT Growth rate (27.4) 31.6 Adjusted EPS (Diluted) Cash flow statement Crore ( Crore) FY14 FY15E FY16E FY17E Profit after Tax Depreciation Interest Others (148.5) (136.7) (101.9) (130.0) Cash Flow before wc changes Net Increase in Current Assets (565.7) (677.4) (177.4) (249.6) Net Increase in Current Liabilities (92.1) (182.2) Net CF from operating activities (279.8) (Purchase)/Sale of Fixed Assets (81.4) (65.9) (143.1) (220.0) Net CF from Investing activities (70.9) (51.0) (127.5) (203.6) Inc / (Dec) in Equity Capital Dividend (80.3) (83.7) (64.3) (89.1) Interest paid (173.4) (188.3) (192.6) (231.0) Inc / (Dec) in Loans Net CF from Financing activities (230.2) (6.8) (320.1) Net Cash flow (80.2) 73.1 Opening Cash Closing Cash/ Cash Equivalent Balance sheet Crore ( Crore) FY14 FY15 FY16E FY17E Liabilities Equity Capital Reserve and Surplus 2, , , ,580.7 Total Shareholders funds 2, , , ,678.8 Minority Interest Total Debt 1, , , ,264.7 Deferred Tax Liability Total Liabilities 3, , , ,134.7 Assets Gross Block Less Acc. Dep Net Block Goodwill on Consolidation Capital WIP Investments Inventory Sundry Debtors Loans & Advances Cash & Bank Balances Total Current Assets 1, , , ,600.8 Creditors 1, , , ,617.0 Provisions Net Current Assets 3, , , ,476.5 Total Assets 3, , , ,084.5 Key ratios FY14 FY15 FY16E FY17E Per Share Data ( ) EPS - Diluted Cash EPS Book Value Dividend per share Operating Ratios (%) EBITDA / Net Sales PAT / Net Sales Inventory Days Debtor Days Return Ratios (%) RoNW RoCE RoIC Valuation Ratios (x) EV / EBITDA P/E (Diluted) EV / Net Sales Market Cap / Sales Price to Book Value Dividend yield Solvency Ratios (x) Net Debt / Equity Debt / EBITDA Current Ratio Quick Ratio ICICI Securities Ltd Retail Equity Research Page 11

12 ICICIdirect.com coverage universe (Real Estate) CMP M Cap EPS ( ) P/E (x) EV/EBITDA (x) P/B (x) RoE (%) Sector / Company ( ) TP( ) Rating ( Cr) FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E Oberoi Realty (OBEREA) Buy 8, Mahindra Lifespace (GESCOR) Buy 1, Sobha (SOBDEV) Hold 3, ICICI Securities Ltd Retail Equity Research Page 12

13 RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 13

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