BackSobha stock up 6% as sales recovery continues; cash flow management key catalyst
A key concern for investors has been rising debt levels and cash flow management. In the June quarter, net debt was largely flat sequentially at around ₹3,000 crore. The company has said it has sufficient liquidity
PremiumMUMBAI: Shares of Bangalore-based real estate developer Sobha Ltd rose more than 6% in the opening trade on Tuesday on the National Stock Exchange. This was in response to the company’s continued sales recovery in the September quarter.
Its total sales volume stood at 8.91 lakh square feet in the second quarter, registering a sequential improvement but volumes remained around 14% lower year-on-year (y-o-y). Quarterly sales run-rate in the pre-covid period was around 10 lakh square feet. Further, its dependency on Bengaluru sales volume reduced from 74% during Ql-FY21 to 60% during Q2-FY21.
According to analysts at IIFL Securities Ltd, the share of Bengaluru at 60% in overall sales is the lowest since at least 2013.
According to some other analysts, the company has been aiming to diversify into other markets, so reduced reliance on the Bengaluru market is positive. However, it should be noted that there were no new launches in the September quarter due to the lockdown. So, analysts are of the view that this may be a one-off. As per company’s data, Kochi’s share increased to 15% of overall sales while Gurgaon contributed 9% during the quarter.
“While we concede sales for the quarter could come with limited up-front cash commitment, and may be susceptible to more cancellations, but is still reflective of the strength of a superior brand to be able to garner sales in difficult circumstances," said a report by Kotak Institutional Equities on 6 October.
In value terms, sales at ₹6.9 billion was flat y-o-y, but rose sequentially to around 40%. Realisations of ₹7,737/sqft - highest in the past five quarters, were up 17.5% y-o-y. The improvement in realisations was driven by mix change to projects like Marina One in Kochi and Sobha City in Gurgaon, analysts said. The company said enquiries are almost back to pre-covid levels. However, it remains to be seen how much of these translate into sales.
Meanwhile, a key concern for investors has been rising debt levels and cash flow management. In the June quarter, its net debt was largely flat sequentially at around ₹3,000 crore. The company said it has sufficient liquidity from banks/Fl to meet obligations.
We remain focused on cash flow management and cost optimization which has helped us to manage our cash flows efficiently during the quarter. We continue to bring down our average cost of borrowing and as a result, cost of borrowing as of 30 September 2020 came down meaningfully," the statement said. However, granular details on cash flow management and debt repayment will be known only when the earnings are announced.
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