Thursday, July 24, 2014

Sobha Developers has a Target of Rs. 485

PNC Menon, Founder & Chairman Emeritus, Sobha Developers
By Mohammed K, Special Correspondent:
Thursday, 24th July 2014, 07:41 PM IST:

Sobha Developers Ltd (BSE: 532784, NSE: SOBHA) today closed up by over 3% in both BSE & NSE, in tune with the overall bullishness that has been prevailing in the Indian market for over a week now.

Sobha’s closing prices today were Rs. 454.45 in BSE and Rs. 455.50 in NSE.

Sensex was up by 125 points today, and Nifty was up by 35 points to close at an all-time high of 7830.60. CNX 200 and CNX Realty - both of which has Sobha Developers as a constituent, closed up by 0.31% and 0.61% respectively, today.

Nifty has been moving up for the 8th consecutive day, to close above 7800 for the first time today, and as such, looks ripe for a correction. However, mid-cap/small-cap indices as well as some sectoral indices like  CNX Realty have not shared that full rebound.

Sobha Developers had recorded its 52-Week High of Rs. 583.80 in early June and corrected and consolidated since then. The Bangalore headquartered realty major’s failure to rebound meaningfully was mainly due to an operational update they published in early July, which showed that sales bookings had dipped by 20% in the first quarter of this fiscal.

While that will prevent Sobha stock from an immediate recapture of the yearly high, this realty counter can trade higher from the current levels, and hit a target of Rs. 485 in the coming days or weeks, also helped by the recent friendly budget for the realty sector.

Also Read: Jammu & Kashmir Bank Hits Target

Risks to look out for include a poorer than anticipated result in Q1, and a severe correction in markets especially in mid-cap indices and/or CNX Realty. A stop-loss of Rs. 410 should be placed while pursuing a target of Rs. 485.

On the fundamental side, Sobha Developers is an average performer compared with India‘s better performers, with a Return on Equity of 10.93% for the last fiscal, and is now trading at a TTM P/E of 19 times.

However, in its sector of real estate development, it has several strengths over many of its peers, like a prudent debt policy, a strong brand equity in its core markets like Bangalore, low-cost land banks, and good performance in financial parameters like collections and cash flow.

Sobha Developers had recently filed its Share Holding Pattern (SHP) for Q1 in BSE, and it shows that compared with the previous quarter, DIIs have increased their stake in the stock by 0.67%, while FIIs have reduced it by 0.75%. However, the FII stake in Sobha is still quite high at 32.22%.

Major institutional investors in the stock, according to the latest SHP, are Platinum Investment Management / Platinum Asia Fund, Eastspring Investments (Singapore) / The Prudential Assurance Company, Swiss Finance Corporation, Nordea 1 SICAV - Emerging Stars Equity Fund, and DNB Fund / Asian Small Cap.

For a longer time-frame, Sobha Developers stock can be a good investment candidate, if its core return ratios like RoE show steady up-ticks from the current average level.