Sobha’s record pre-sales and launch pipeline underpin expected margin recovery

Investment View and Valuation

Emkay Research’s October 20, 2026 result update maintains a BUY rating on Sobha with an unchanged target price of Rs 1,900. The positive view is based on record first-half FY27 pre-sales, a sizeable second-half launch pipeline, an expected sharp recovery in reported margins and the stock’s valuation discount to net asset value (NAV).

The target price implies a 19 per cent premium to NAV, while the CMP of Rs 1,178 represented a 26 per cent discount to NAV. The key monitorable identified by Emkay is the reported EBITDA margin.

Pre-sales and Launch Pipeline

Sobha delivered its best-ever first-half FY27 pre-sales of Rs 58.6 billion, up 47 per cent year on year. New launches contributed 70 per cent of first-half pre-sales.

The second-half FY27 launch pipeline exceeds 12 million square feet and carries a gross development value of Rs 180 billion, alongside unsold inventory of Rs 185 billion. Emkay expects FY27 pre-sales of Rs 110 billion to Rs 120 billion, representing year-on-year growth of 35 per cent to 45 per cent and exceeding management’s guidance of Rs 106 billion.

Emkay’s FY27E forecast comprises Rs 110 billion of pre-sales, 6.8 million square feet of sales volume and average realisation of Rs 15,591 per square foot.

Financial Performance

Reported operating performance was mixed. Collections were Rs 20.8 billion in 2QFY27, up 2 per cent year on year, and Rs 40.1 billion in 1HFY27, up 5 per cent. Net operating cash flow declined 17 per cent year on year to Rs 7.5 billion in 1HFY27, although Emkay expects cash flow to catch up in the second half.

Reported EBITDA margin remained low at 6.5 per cent in 1HFY27, despite a 124 basis point year-on-year improvement. Sobha remained net-cash-positive by Rs 3.2 billion, although gross debt increased by Rs 5.0 billion year on year to Rs 15.1 billion.

Expected Margin Inflection and Deliveries

The expected margin inflection is central to Emkay’s thesis. The broker expects more than Rs 220 billion of revenue recognition with high embedded EBITDA margins. Deliveries from Sobha Neopolis and Sobha Manhattan are expected to begin from 3QFY27.

Emkay expects EBITDA margin to exceed 15 per cent in 2HFY27 and 20 per cent from FY28. FY27 PAT is expected to exceed Rs 3.0 billion, representing growth of about 50 per cent year on year.

Management expects FY27 deliveries of 6 million square feet, of which 2.5 million square feet had been delivered in the first half. Revenue recognition is linked to customer handovers rather than project deliveries.

Demand, Market Expansion and Project Additions

Management said demand, enquiries and sustenance sales remained steady across markets, except for one or two micro-markets. About 70 per cent of inventory is in the Rs 20 million to Rs 50 million ticket-size range, while sales above Rs 50 million are mainly from Gurugram.

Sobha is expanding beyond Bengaluru and Gurugram through Greater Noida, Mumbai and Hyderabad. It added land parcels in Bengaluru, Gurugram and Mumbai, acquired a Chandivali project in MMR with Rs 10 billion GDV, and has project acquisitions in Greater Noida and MMR.

The Hoskote project has total GDV of Rs 75 billion, with 65 per cent of inventory released and Rs 25 billion of pre-sales booked.

Sum-of-the-Parts Valuation

Emkay values Sobha on a sum-of-the-parts basis. It applies 8 times EV to September 2028E residential embedded EBITDA of Rs 23.8 billion, based on Rs 116.0 billion of sales bookings and a 21 per cent embedded EBITDA margin.

Key Execution Factors

Execution of launches, sales absorption, cash-flow recovery, customer handovers and the anticipated reported-margin expansion are the principal factors that could determine whether the thesis is realised.