Sobha’s Bengaluru launches drive record pre-sales as luxury demand accelerates

Investment View and 1Q FY27 Highlights

Motilal Oswal Financial Services Limited (MOFSL) retains its Buy view on Sobha, supported by strong 1Q FY27 pre-sales momentum and new launches in Bengaluru and the National Capital Region (NCR). Sobha reported its highest-ever quarterly pre-sales of Rs 36.6 billion, up 76 per cent year on year.

The company launched three projects during the quarter: Sacred Grove and Phase 1 of SOBHA OneWorld in Bengaluru, and Phase 1 of SOBHA Crescent in Gurgaon. SOBHA OneWorld and SOBHA Crescent sold 40 per cent and 60 per cent, respectively, of their launched inventory.

Luxury Housing and Regional Growth

Luxury housing was a key source of growth. Sales in the above-Rs 50 million per unit price band increased 3.2 times year on year and accounted for 42 per cent of 1Q FY27 sales value. Sobha Crescent, Sobha Altus and Sobha Aranya were the major contributors. Realisations increased 9 per cent year on year.

Bengaluru contributed Rs 21 billion, or 57 per cent, of quarterly sales, while NCR contributed Rs 14 billion, or 38 per cent. The Bengaluru contribution represented the company’s strongest-ever quarter in the city.

Reported Financial Performance

Sobha’s reported financial performance was mixed relative to MOFSL estimates. Consolidated revenue increased 48 per cent year on year to Rs 12.8 billion, but was 15 per cent below the broker’s estimate. EBITDA was Rs 777 million, 34 per cent below estimate, with a 6.1 per cent margin versus the estimated 7.9 per cent. Reported PAT was Rs 508 million, 41 per cent below estimate.

The Contracts and Manufacturing business delivered steady revenue growth of 5.6 per cent year on year to Rs 1.7 billion. However, collections from this division declined 6.7 per cent year on year to Rs 1.7 billion.

Pre-sales Outlook and Project Pipeline

Management reiterated its FY27 pre-sales growth guidance of 30 per cent year on year and plans to complete 6 to 6.5 million square feet during FY27, around 20 per cent above the previous year.

The forthcoming pipeline comprises 20.8 million square feet across 17 projects, with a gross development value (GDV) of Rs 296 billion. Nine projects spanning 8.2 million square feet, with a GDV of about Rs 120 billion, are planned for launch during FY27.

Sobha also has 14.9 million square feet of unsold inventory with a GDV of Rs 192 billion, along with Rs 206 billion of revenue yet to be recognised from sold inventory.

MOFSL raised its FY27E and FY28E pre-sales estimates by 7 per cent and 12 per cent, respectively, to Rs 106 billion and Rs 130 billion, while retaining its revenue, EBITDA and PAT forecasts. The broker expects pre-sales to grow at a 27 per cent CAGR over FY26 to FY28E and residential collections to grow at a 21 per cent CAGR to Rs 103 billion.

Collections, Cash Flow and Margin Outlook

Collections were a relative weak point in the quarter. Residential collections rose 10 per cent year on year to Rs 17.6 billion, but milestone collections were delayed by labour shortages in April and May. Net operating cash flow declined 21 per cent year on year to Rs 3.1 billion.

Management expects the delayed billings to be collected in 2Q FY27 and reiterated its FY27 operating cash flow guidance of Rs 20 billion. Management also expects EBITDA margin to expand from the current 9 per cent level to 17 to 20 per cent by end-FY27, as high-margin projects complete in 3Q FY27 and 4Q FY27.

Business Development and Funding Considerations

Sobha has added projects in Mumbai and Greater Noida with a combined GDV of Rs 27 to 30 billion. FY27 land payments are expected at about Rs 11.5 billion, but could increase to Rs 15 to 16 billion if Bengaluru and NCR business-development opportunities materialise.

The company may issue up to Rs 10 billion of approved non-convertible debentures (NCDs), depending on acquisition opportunities. Its 0.6 million square feet commercial project is being evaluated for a lease model rather than outright sale, creating uncertainty over its inclusion in the launch pipeline.

Valuation and Target Price

MOFSL values Sobha through a sum-of-the-parts framework. Ongoing and upcoming projects are valued using a discounted cash flow basis, while land-bank cash flows are discounted at an 11.3 per cent weighted average cost of capital (WACC). Commercial assets are valued at an 8.5 per cent capitalisation rate, and the Contracts and Manufacturing operations are valued at 10 times FY27E EBITDA.

The broker estimates gross asset value of Rs 190 billion and net asset value of Rs 195 billion, or Rs 1,820 per share. This implies 25 per cent upside from the report CMP of Rs 1,458.