Sobha Q2 results: Profit dips 22% on higher land purchase costs

Real estate developer Sobha reported a nearly 22% fall in second-quarter profit on Monday, as higher land purchase costs eclipsed strong demand for luxury apartments in the country.

Consolidated net profit for the Bengaluru-based company fell to ₹14.95 crore ($1.80 million) for three months ended Sept. 30 from ₹19.15 crore a year ago.

Luxury home sales in the country surged 115% year-on-year in the first nine months of 2023, a report by property consulting firm Anarock Group showed, as pent-up pandemic demand for larger houses and increasing incomes prompted buyers to eye costlier houses.

Analysts, however, flagged muted launches by regional developers, including Sobha peers Prestige Estate Projects and Brigade Enterprises, in Bengaluru, on the back of delayed approvals.

Sobha had no new launches in the quarter.

A more-than-20% surge in real estate sales, helped by steady, though elevated borrowing costs and easing consumer inflation, pushed revenue from operations nearly 11% to ₹741 crore.

However, this was the company's lowest revenue growth in five quarters. Sobha also recorded a 14% rise in its total expenses, mainly due to land purchase costs, and that ate into its profit growth.

The company said last quarter that its share of the luxury segment, which counts flats priced at ₹2 crore and above, has increased to 49% from 41% in the quarter ended March 2023.

Revenue in Sobha's other segment, contractual and manufacturing - which counts commercial and home interior projects among others - fell 11%.

Average price realisation per square feet - a key profitability metric that measures the company's ability to achieve the price it sets for its properties in the market - rose to ₹10,223 from ₹8,709, Sobha had said earlier.

Shares of the company closed 2.4% higher ahead of results. They have climbed nearly 37% so far this year, compared to a nearly 51% gain in the realty index.