This real estate stock is skyrocketing more than 21% in one week. Should I buy?

A residential and commercial real estate company, Sobha has seen strong buying sentiment in equity markets after posting strong sales that beat analysts’ estimates for the quarter ending June 2022 (Q1FY22). On Friday, shares of Sobha settled on a bullish note, however, within a week the company posted double-digit growth. With strong sales bookings and new launches, Sobha is well positioned in the upcoming industry. ICICI Securities has assigned a buy rating to the Sobha stock.

On Friday, Sobha shares closed at 675.40 each per 34.60 or 5.40%. Shares had hit an intraday high of 678.80 each – resulting in overall gains of 5.93% on the day compared to Thursday’s close of 640.80 each. The market capitalization of the company is approximately 6,405.89 crore.

This week, Sobha shares have soared at least 21.21% on strong quarterly sales data. On July 1, Sobha shares were approximately 557.2 each on BSE.

In the first quarter of FY23, the Bangalore-based property developer recorded its highest ever quarterly sales volume of 1.36 million square feet, up 51.7% year-on-year. The company’s share of sales value is also the highest since its inception in 951.7 crores in Q1FY23 vs. 570.9 crores in the first quarter of FY22.

Sobha recorded total sales of 1,145.5 crores in Q1FY23 vs. 682.9 crores in Q1FY22 and 1,109.6 crore in Q4FY22. Average price realization improved to 8,431 per square foot, with price increases on ongoing projects.

In its regulatory filing, the company said that Bengaluru’s sales volume and value were the highest since its inception thanks to the launch of 3 new projects. Meanwhile, cash flow remained healthy in the quarter, leading to a further reduction in net debt.

During the quarter, Sobha launched 3 new residential projects in Bengaluru with over 2 million square feet of salable area.

“We have continued our calibrated price increases across all projects and cities to offset inflationary forces. Despite price increases, rising mortgage rates, demand for our homes continues to be strong across all segments , especially in Bangalore and Gurugram,” Sobha said. in his file.

Should you buy Sobha shares?

Release Preliminary Sales Data, ICICI Securities Research Analyst Adhidev Chattopadhyay Said FY23 First Quarter Gross Sales Bookings Worth 1.36 Million Square Feet 11.5 billion compared to the Isec estimate of 10.5 billion and is the best quarter in company history in terms of sales bookings. While the company previously forecast flat gross sales volume of ~5.0 million square feet in FY23E (4.9 million square feet in FY22) citing input cost pressures and rising mortgage rates, the strong start to FY23 following three new project launches in Bengaluru is encouraging.

For all of FY22, the company recorded its best annual sales performance with gross sales bookings of 4.91 million square feet. 38.7 billion, the analyst pointed out.

While strong sales books and new launches are seen as the bright spots for Sobha going forward in FY23, the company is also expected to raise prices as inflation and mortgage rates could put pressure. on its margins.

According to the analyst, heading into fiscal 23E, when the company has a strong launch pipeline of around 13 million square feet, given inflation in input costs and mortgage rates which are expected to increase further in FY23E, the company estimates that it will need to take further price increases of 5 -6% in FY23E (6% price increase in FY22) to protect margins, which may have a marginal impact on demand. As a result, the company guided a flat gross sales volume of ~5.0 million square feet in FY23E (4.9 million square feet in FY22) with a sale value gross up 5-6% to reach 40 billion rupees (38.7 billion rupees in FY22).

“We are currently modeling a FY23E and FY24E sales booking value of Rs 40.3 billion and Rs 43.9 billion, respectively against FY22 sales bookings worth 38, Rs 7 billion. However, given the outperformance in the first quarter of FY23, we see an upside risk to our estimates,” the analyst added.

Based on the above, ICICI Securities has assigned a buy rating to Sobha’s shares. The analyst said: “We maintain our buy rating with a TP based on the revised SOTP of Rs 744/share (previously Rs 712) due to project level and balance sheet adjustments. Key risks to our appeal are a slowdown in residential demand and an increase in the company’s level of indebtedness.”

Disclaimer: The opinions and recommendations made above are those of individual analysts or brokerage firms, and not of Mint.

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