Sobha Ltd (SOBDEV) 327

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 450.4 669.5-32.7 460.4-2.2 EBITDA 115.3 165.2-30.2 128.3-10.1 EBITDA (%) 25.6 24.7 92 bps 27.9-227 bps PAT 40.1 59.5-32.6 45.0-10.9 Key Financials ( Crore) FY14 FY15 FY16E FY17E Net Sales 2,173.4 2,440.6 1,915.6 2,360.9 EBITDA 602.6 617.4 505.8 635.1 Net Profit 235.0 238.1 172.9 227.5 EPS ( ) 24.0 24.3 17.6 23.2 Valuation summary (x) FY14 FY15 FY16E FY17E P/E 13.6 13.5 18.5 14.1 Target P/E 13.4 13.3 18.2 13.9 EV / EBITDA 7.5 8.2 10.7 8.4 P/BV 1.4 1.3 1.3 1.2 RoNW (%) 10.3 9.8 6.8 8.5 RoCE (%) 14.3 12.1 9.3 11.4 Stock data Particular Amount ( crore) Market Capitalization 3,205.2 Total Debt 2,281.6 Cash and Investments 184.8 EV 5,302.0 52 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 450.4 crore and was below our estimate of 584.9 crore. It can be attributed to a 40.0% YoY decline real estate projects revenue to 284.9 crore and a 15.4% YoY decline in the revenues from contractual and manufacturing division to 167.0 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 495.0 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 FY10-14. 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 1.1-1.2 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 794.6 crore. But, in Q2FY16, the revenues from contractual business declined 15.4% YoY to 167.0 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 569.4 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 413.5 crore in Q2 FY16, which led to sharp improvement in FCFF (- 69 crore in Q2 FY16 v/s - 217.1 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

Variance analysis crore Q2FY16 Q2FY16E Q2FY15 YoY (Chg %) Q1FY16 QoQ (Chg %) Comments Income from Operation 450.4 739.0 669.5-32.7 460.4-2.2 Topline decline can be attributed to a 40.0% YoY decline real estate projects revenue to 284.9 crore and a 15.4% YoY decline in the Other Income 5.7 4.2 7.3-21.9 2.5 128.0 revenues from contractual and manufacturing division to 167.0 crore Inc/dec in stock in trade/wip -111.0-40.0-17.0 552.9-136.5-18.7 Land Cost 17.6 0.0 5.7 208.8 60.8-71.1 Material & construction cost 323.9 454.0 388.4-16.6 295.0 9.8 Employee cost 44.9 51.0 51.4-12.6 44.5 0.9 Other expenditure 59.7 89.2 75.8-21.2 68.3-12.6 EBITDA 115.3 184.8 165.2-30.2 128.3-10.1 EBITDA Margin (%) 25.6 25.0 24.7 92 bps 27.9-227 bps Depreciation 13.6 20.0 17.8-23.6 14.5-6.2 Interest 45.4 55.0 59.8-24.1 44.1 2.9 PBT 62.0 114.0 94.9-34.7 72.2-14.1 Taxes 23.2 38.7 35.4-34.5 28.4-18.3 PAT 40.1 69.9 59.5-32.6 45.0-10.9 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) 0.8 0.8 0.8 11.5 1.03-18.2 Realisation ( ) 5,821 6,400 6,703-13.2 5,989-2.8 [[ Change in estimates FY16E FY17E ( Crore) Old New % Change Old New % Change Comments Revenue 2,403.8 1,915.6-20.3 2,781.6 2,360.9-15.1 EBITDA 652.2 505.8-22.4 760.0 635.1-16.4 EBITDA Margin (%) 27.1 26.4-69 bps 27.3 26.9-40 bps PAT 244.2 172.9-29.2 293.3 227.5-22.4 EPS ( ) 24.9 17.6-29.2 29.9 23.2-22.4 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 3.8 3.6 3.2 3.6 4.3 3.8 4.3 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

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) 503,708 630,947 527,560 561,494 525,369 827,070 700,483 605,985 7.9% -13.5% Average Realization ( /sq ft) 7,339 6,774 6,506 7,247 6,549 6,192 6,031 6,083-16.1% 0.9% Sale Value ( crore) 369.7 427.4 343.2 406.9 344.1 512.1 422.5 368.6-9.4% -12.7% Thrissur Sales Volume (Sq ft) 49,064 58,458 43,867 49,126 12,765 16,090 3,218 19,757-59.8% 514.0% Average Realization ( /sq ft) 5,638 5,801 5,944 6,054 4,795 6,039 6,315 7,681 26.9% 21.6% Sale Value ( crore) 27.7 33.9 26.1 29.7 6.1 9.7 2.0 15.2-49.0% 646.8% Coimbatore Sales Volume (Sq ft) 17,124 40,171 14,465 22,444 5,904 9,817 2,609 10,659-52.5% 308.5% Average Realization ( /sq ft) 5,459 5,628 4,992 5,428 7,255 6,450 4,900 4,317-20.5% -11.9% Sale Value ( crore) 9 22.6 7.2 12.2 4.3 6.3 1.3 4.6-62.2% 259.9% Pune Sales Volume (Sq ft) 24,433 23,395 35,695 24,207 23,588 24,809 21,905 17,365-28.3% -20.7% Average Realization ( /sq ft) 5,570 5,492 6,036 6,320 9,984 9,381 8,872 7,641 20.9% -13.9% Sale Value ( crore) 13.6 12.8 21.5 15.3 23.6 23.3 19.4 13.3-13.3% -31.7% Mysore Sales Volume (Sq ft) 26,538 19,547 21,864 24,926 24,650 16,334 8,711 6,100-75.5% -30.0% Average Realization ( /sq ft) 2,307 1,815 2,119 2,206 2,134 2,202 2,419 2,256 2.3% -6.7% Sale Value ( crore) 6.1 3.5 4.6 5.5 5.3 3.6 2.1 1.4-75.0% -34.7% NCR Sales Volume (Sq ft) 23,522 38,114 30,207 14,435 9,464 26,435 7,107 11,941-17.3% 68.0% Average Realization ( /sq ft) 11,076 11,368 10,450 11,230 11,853 11,386 11,576 11,522 2.6% -0.5% Sale Value ( crore) 26.1 43.3 31.6 16.2 11.2 30.1 8.2 13.8-15.1% 67.2% Chennai Sales Volume (Sq ft) 53,523 62,195 32,708 52,015 27,124 86,118 66,158 115,816 122.7% 75.1% Average Realization ( /sq ft) 5,464 5,519 5,470 2,909 4,194 3,207 4,490 3,313 13.9% -26.2% Sale Value ( crore) 29.2 34.3 17.9 15.1 11.4 27.6 29.7 38.4 153.6% 29.2% Calicut Sales Volume (Sq ft) 42,293 32,193 26,120 33,947 14,781 12,529 25,669 36,896 8.7% 43.7% Average Realization ( /sq ft) 4,869 4,749 5,048 5,798 5,268 5,522 5,641 5,457-5.9% -3.3% Sale Value ( crore) 21 15.3 13.2 19.7 7.8 6.9 14.5 20.1 2.3% 39.0% Cochin Sales Volume (Sq ft) - 16,252 22,293 51,397 17,807 9,580 5,539 25,810-49.8% 366.0% Average Realization ( /sq ft) - 7,275 7,556 7,462 7,499 7,368 7,416 7,646 2.5% 3.1% Sale Value ( crore) - 12 17 38.4 13.4 7.1 4.1 19.7-48.5% 380.4% Total Sales Volume (Sq ft) 740,205 921,272 754,779 833,991 661,452 1,028,782 841,399 850,329 2.0% 1.1% Average Realization ( /sq ft) 6,786 6,568 6,389 6,703 6,456 6,092 5,988 5,821-13.2% -2.8% Sale Value ( crore) 502.3 605.1 482.2 559.0 427.0 626.7 503.9 495.0-11.4% -1.8% ICICI Securities Ltd Retail Equity Research Page 3

Sobha s Q2FY16 sales volume remained flattish at 0.85 msf with sales value of 495.0 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. 5988 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 29.24 2.66 2.06 Yelahanka Property Kogilu Cross Apartments 4.75 0.52 0.35 Kanakapura Road Property Near Forest View, Hosahalli Apartments 3.6 0.46 0.46 Gopalapura Property Near Sobha Indraprastha Apartments 2.71 0.35 0.19 Sarjapur Road Property Hoddasiddhapura Apts+Row Houses 23.88 2.25 1.46 Sub-total 64.18 6.24 4.52 Chennai Sholinghanallur Property Sholinghanallur, OMR Apartments 19.17 2.1 1.37 Cochin Marine Drive Property Marine Drive Apartments 16.69 3.19 1.6 Coimbatore Harishree Gardens-7,8,9 Veerakeralam Row Houses / Villas 9.08 0.21 0.21 Mysore Jettihundi Property Jettihundi Plotted Development 14.3 0.32 0.32 Gurgaon Group Housing Babupur Sector 109 Apartments 39.38 3.21 1.93 Total 162.8 15.3 10.0 ICICI Securities Ltd Retail Equity Research Page 4

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) 2200.0 2000.0 1800.0 1600.0 1400.0 1200.0 1000.0 0.6 Q3FY14 1303 0.5 Q4FY14 1234 0.7 Q1FY15 1532 0.7 Q2FY15 1678 0.7 Q3FY15 1760 0.7 1813 Q4FY15 0.9 2030 Q1FY16 0.8 2097 Q2FY16 0.9 0.8 0.7 0.6 0.5 (x) ( crore) 2,500.0 2,000.0 1,500.0 1,000.0 500.0 0.9 0.8 0.8 0.6 0.6 1,311.8 1,298.9 1,851.6 2,232.0 2,158.8 Net debt Net debt to equity 0.9 0.8 0.7 0.6 0.5 (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 455.2 444.5 554.8 461.8 499.3 481.1 397.9 346.9 66.2 Contractual 178.8 211.0 229.3 130.7 226.2 171.6 208.4 144.8 53.9 Total Operational cash inflow 634.0 655.5 784.1 592.5 725.5 652.7 606.3 491.7 120.1 Operational cash outflows Real Estate project expenses 251.6 248.6 287.6 303.7 362.4 314.2 322.3 274.4 4.6 Contracts project expenses 171.0 145.0 171.5 138.4 187.5 162.0 127.3 135.2-14.5 Statutory Dues & Other Taxes 29.1 28.2 37.1 24.1 34.9 58.1 36.8 17.6 10.4 Corpus Repayment 6.9 5.9 2.9 4.1 2.2 2.5 1.8 3.6 0.6 Central Over Heads (COH) 32.2 44.4 32.0 37.0 34.8 40.2 7.6 47.2-16.5 Advertising & Marketing expenses 6.6 21.7 11.8 11.3 10.9 8.7 10.2 8.7-2.3 Total Operational cash outflow 497.5 493.8 542.9 518.6 632.7 585.7 506.0 486.7-17.7 Net Operational Cash flow 136.5 161.7 241.2 73.9 92.8 67.0 100.3 5.0 137.8 Monetization of land / Development Rights 0.0 0.0 0.0 0.0 0.0 5.5-5.5 0.0 0.0 Net Operational Cash Flow including Monetization of land 136.5 161.7 241.2 73.9 92.8 72.5 94.8 5.0 137.8 Financial Outflows Interest Paid (Net of interest received) 50.1 50.8 46.5 54.2 54.8 62.8 67.6 66.9 72.0 Income Taxes 18.4 22.2 45.3 14.8 24.0 26.5 19.2 10.0 13.6 Deposit 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Financial Outflows 68.5 73.0 91.8 69.0 78.8 89.3 86.8 76.9 85.6 Net Positive Cash flow (Excl. income from land monetization) 68.0 88.7 149.4 4.9 14.0-22.3 13.5-71.9 57.5 Capital Outflows Land Payments 4.2 110.3 26.1 285.5 61.5 7.7 25.7 95.7 15.2 Investment in Subsidiaries 0.0 0.0 0.0 8.8 12.0 23.8 12.6 32.2 3.8 Dividend including tax 80.3 0.0 0.0 3.5 2.3 43.0 5.8 17.6 82.6 Capex General 12.1 16.0 27.8 0.0 80.3 0.0 0.0 0.0 19.3 Capex Commercial Real Estate 4.0 8.1 3.8 0.0 0.0 0.0 16.2 0.0 5.6 Total capital outflow 100.6 134.4 57.7 297.8 156.1 74.5 60.3 145.5 126.5 Net cash inflow -32.6-45.7 91.7-292.9-142.1-91.3-52.3-217.4-69.0 Big launches in NCR, Chennai vital to volume uptick ICICI Securities Ltd Retail Equity Research Page 5

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 4.0 3.5 (mn sq feet) 3.0 2.5 3.8 3.6 3.2 3.6 4.3 2.0 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 2,500.0 2,435.6 2,360.9 2,250.0 2,103.3 ( crore) 2,000.0 1,864.6 1,915.6 1,750.0 1,500.0 Exhibit 8: Real estate revenue trend Exhibit 9: Construction revenues to decline ( crore) 1,800.0 1,500.0 1,200.0 1,415.6 1,528.6 1,639.2 1,397.9 1,791.4 ( crore) 900.0 750.0 600.0 450.0 449.0 574.7 796.4 517.7 569.4 900.0 300.0 Source: Company, ICICIdirect.com, Research Source: Company, ICICIdirect.com, Research ICICI Securities Ltd Retail Equity Research Page 6

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% 650.0 600.0 602.6 617.4 635.1 30.0 28.0 ( crore) 550.0 500.0 548.3 505.8 26.0 24.0 (%) 450.0 22.0 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) 250.0 230.0 210.0 190.0 170.0 150.0 130.0 110.0 90.0 70.0 50.0 235.0 238.1 217.2 227.5 172.9 12.0 11.0 10.0 9.0 8.0 (%) 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 (%) 16.0 14.0 12.0 10.0 8.0 6.0 4.0 13.8 14.3 12.1 11.4 10.2 10.3 9.8 9.3 8.5 6.8 RoE RoCE ICICI Securities Ltd Retail Equity Research Page 7

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 39.37 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

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) 0.2 189.0 19.3 1.0 189.0 19.3 Ongoing & Proposed projects (B) Bangalore 15.8 1300 132.7 0.9 1170.4 119.4 NCR 2.8 370 37.7 0.7 258.7 26.4 Thrissur & Calicut 3.5 1047 106.9 0.8 785.4 80.1 Pune 0.6 25 2.5 0.8 18.6 1.9 Chennai 2.5 590 60.2 0.8 442.2 45.1 Mysore 0.2 25 2.5 0.8 18.6 1.9 Coimbatore 0.3 41 4.2 0.8 30.9 3.2 Ongoing & Proposed projects (B) 25.7 3398 346.7 2724.7 278.0 Other Land Bank (C) 202.4 3345 341.4 0.7 2341.8 239.0 Real Estate Business value (A+B+C) 228.4 6932.0 707.3 0.8 5255.5 536.3 Less: Net debt 2159 220.3 2158.8 220.3 Land cost outstanding 263 26.8 262.6 26.8 Real Estate equity value 4511 460.3 0.6 2834.1 289.2 Construction Business 4x FY17E EV/EBITDA 318.9 32.5 Total SoTP Valuation 3153.0 321.7 Exhibit 14: Valuation Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE ( cr) (%) ( ) (%) (x) (x) (%) (%) FY14 2,173.4 16.6 24.0 8.5 13.6 7.5 10.3 14.3 FY15 2,440.6 12.3 24.3 1.3 13.5 8.2 9.8 12.1 FY16E 1,915.6-21.5 17.6-27.4 18.5 10.7 6.8 9.3 FY17E 2,360.9 23.2 23.2 31.6 14.1 8.4 8.5 11.4 ICICI Securities Ltd Retail Equity Research Page 9

[ Company snapshot 700 600 500 400 Target Price 322 300 200 100 0 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 137-3 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 1336-2179 sq. ft and price ranging from 23.57 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-15 42.2 41.4 0.0 2 Menon (P N C) 30-Jun-15 12.7 12.5 0.0 3 Platinum Investment Management Ltd. 30-Jun-15 6.9 6.8 1.5 4 Menon (P N C & Sobha) 30-Jun-15 5.6 5.5 0.0 5 Nordea Funds Oy 31-Jul-15 3.3 3.2 0.1 6 Nordea Invest Fund Management A/S 31-Dec-14 2.9 2.8 1.4 7 NTAsset (Cayman) Ltd. 30-Jun-15 2.5 2.5 2.5 8 Schroder Investment Management (Hong Kong) Ltd. 31-Jul-15 2.3 2.2 0.0 9 Dimensional Fund Advisors, L.P. 31-Aug-15 2.0 1.9 0.1 10 Goldman Sachs Asset Management International 30-Jun-15 1.7 1.7 0.5 Source: Reuters, ICICIdirect.com Research Recent Activity Buys (in %) Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Promoter 60.58 60.58 60.58 60.58 60.58 FII 31.43 31.52 31.70 21.85 29.05 DII 3.45 4.32 4.12 13.57 4.56 Others 4.54 3.58 3.60 4.00 5.81 Sells Investor name Value Shares Investor name Value Shares NTAsset (Cayman) Ltd. 13.87m 2.47m DNB Asset Management (Asia) Limited -6.08m -0.82m Platinum Investment Management Ltd. 10.96m 1.51m Morgan Stanley Investment Management (India) Pvt. Ltd. -3.94m -0.81m Nordea Invest Fund Management A/S 8.48m 1.43m BNP Paribas Investment Partners Asia Ltd. -3.49m -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. -2.27m -0.53m Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 10

Financial summary Profit and loss statement Crore ( Crore) FY14 FY15 FY16E FY17E Net Sales 2,173.4 2,440.6 1,915.6 2,360.9 Growth (%) 16.6 12.3 (21.5) 23.2 Other income 10.3 14.9 15.6 16.4 Total revenue 2,183.8 2,455.5 1,931.2 2,377.3 Raw Material Expense 1,090.5 1,366.1 906.9 1,172.7 Land cost 232.0 156.1 191.6 224.3 Employee benefit expenses 186.5 197.7 217.5 239.2 Other Expenses 293.9 259.4 285.3 313.9 EBITDA 602.6 617.4 505.8 635.1 Growth (%) 9.9 2.5 (18.1) 25.6 Interest 173.4 188.3 192.6 231.0 Depreciation 69.0 72.3 58.0 64.6 Other income 10.3 14.9 15.6 16.4 PBT 370.5 371.7 270.9 355.8 Taxes 136.8 127.7 92.1 121.0 PAT 233.7 244.0 178.8 234.9 PAT Growth rate 8.2 1.3 (27.4) 31.6 Adjusted EPS (Diluted) 24.0 24.3 17.6 23.2 Cash flow statement Crore ( Crore) FY14 FY15E FY16E FY17E Profit after Tax 235.0 238.1 172.9 227.5 Depreciation 69.0 72.3 58.0 64.6 Interest 173.4 188.3 192.6 231.0 Others (148.5) (136.7) (101.9) (130.0) Cash Flow before wc changes 465.8 489.7 413.7 514.1 Net Increase in Current Assets (565.7) (677.4) (177.4) (249.6) Net Increase in Current Liabilities 433.6 (92.1) (182.2) 332.3 Net CF from operating activities 333.6 (279.8) 54.1 596.8 (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 23.5 610.3 250.0 - Net CF from Financing activities (230.2) 338.3 (6.8) (320.1) Net Cash flow 32.5 7.4 (80.2) 73.1 Opening Cash 67.0 105.5 112.9 32.7 Closing Cash/ Cash Equivalent 99.5 112.9 32.7 105.9 Balance sheet Crore ( Crore) FY14 FY15 FY16E FY17E Liabilities Equity Capital 98.1 98.1 98.1 98.1 Reserve and Surplus 2,193.3 2,333.7 2,442.3 2,580.7 Total Shareholders funds 2,291.4 2,431.8 2,540.4 2,678.8 Minority Interest 8.8 14.8 20.7 28.1 Total Debt 1,404.4 2,014.7 2,264.7 2,264.7 Deferred Tax Liability 101.0 163.1 163.1 163.1 Total Liabilities 3,805.6 4,624.4 4,988.9 5,134.7 Assets Gross Block 571.2 678.3 698.3 718.3 Less Acc. Dep 246.4 318.7 376.7 441.3 Net Block 324.8 359.6 321.7 277.0 Goodwill on Consolidation 9.8 7.9 7.9 7.9 Capital WIP 41.2-123.1 323.1 Investments 0.0 0.0 0.0 0.0 Inventory 407.6 408.0 525.0 407.0 Sundry Debtors 645.4 720.6 524.8 646.8 Loans & Advances 328.4 337.5 496.0 441.1 Cash & Bank Balances 105.5 163.1 32.7 105.9 Total Current Assets 1,486.9 1,629.2 1,578.5 1,600.8 Creditors 1,557.3 1,462.0 1,312.0 1,617.0 Provisions 146.6 149.8 117.6 144.9 Net Current Assets 3,429.7 4,256.9 4,486.1 4,476.5 Total Assets 3,805.6 4,624.4 4,938.8 5,084.5 Key ratios FY14 FY15 FY16E FY17E Per Share Data ( ) EPS - Diluted 24.0 24.3 17.6 23.2 Cash EPS 31.0 31.7 23.5 29.8 Book Value 233.7 248.0 259.1 273.2 Dividend per share 8.2 8.5 6.6 9.1 Operating Ratios (%) EBITDA / Net Sales 27.7 25.3 26.4 26.9 PAT / Net Sales 10.8 9.8 9.0 9.6 Inventory Days 407.6 408.0 525.0 407.0 Debtor Days 108.4 107.8 100.0 100.0 Return Ratios (%) RoNW 10.3 9.8 6.8 8.5 RoCE 14.3 12.1 9.3 11.4 RoIC 14.6 12.2 9.4 12.3 Valuation Ratios (x) EV / EBITDA 7.5 8.2 10.7 8.4 P/E (Diluted) 13.6 13.5 18.5 14.1 EV / Net Sales 2.1 2.1 2.8 2.3 Market Cap / Sales 1.5 1.3 1.7 1.4 Price to Book Value 1.4 1.3 1.3 1.2 Dividend yield 2.5 2.6 2.0 2.8 Solvency Ratios (x) Net Debt / Equity - - - - Debt / EBITDA 2.3 3.3 4.5 3.6 Current Ratio 3.0 3.5 4.1 3.5 Quick Ratio 1.5 1.8 2.2 2.0 ICICI Securities Ltd Retail Equity Research Page 11

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) 267 350 Buy 8,751 9.7 14.7 36.2 34.4 22.6 9.2 19.3 12.4 5.1 2.4 2.0 1.7 6.9 9.0 18.5 Mahindra Lifespace (GESCOR) 482 590 Buy 1,968 65.2 21.8 30.9 7.5 22.3 15.8 7.6 11.4 8.8 1.4 1.3 1.2 18.3 5.9 7.9 Sobha (SOBDEV) 327 322 Hold 3,207 24.3 17.6 23.2 13.5 18.5 14.1 8.2 10.7 8.4 1.3 1.3 1.2 9.8 6.8 8.5 ICICI Securities Ltd Retail Equity Research Page 12

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 400 093 research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 13

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