This time i am writing about a sector which is totally out of favour in the market.The sector is nothing other than Realty.Sobha is a Bangalore-focused real estate developer.Its promoted by PNC Menon.It has Glazing,Concreting and Interior Divisions.The operations of the Company can be categorised into two main verticals:
- Construction and development of residential and commercial projects
- Contractual project
The Company has completed 85 residential projects and 228 contractual projects covering about 56.25 million sq. feet of area since inception.There are some reasons to beleive that the company will do well in the future.The reasons being
■ Development potential: Sobha currently owns a land bank with developable area of 112msf (saleable area of over 200msf) valued on its balance sheet at a cost of `19.5bn (or `175psf of developable area). The current value of this land is at least 4x its cost.■ The Profitability: Sobha has been consistently increased its sales and profits in the last 5-6 years which was considered as a very tough time for the real estate sector.The company has also been a consistent dividend payer(7 rs in 2013)
■ The Rupee Fall:The Brand Sobha is very familiar to NRI's.Thanks to PNC Menon's good reputation for his constructions in the Middle East.The recent fall in Rupee against other currencies has encouraged the NRI's to send more money to India,especially to Kerala.This year the Company proposes to launch projects (residential and commercial) measuring about 12.02 million square feet in which it has an economic interest of approximately 8.95 million square feet of developable area in various cities including Bangalore, Thrissur, Kochi, Kozhikode and Chennai.I believe that being a South Indian focused Real Estate Company Sobha is expected to be a beneficiary of this money
■ A repaired balance sheet: Relative to its peers Sobha follows an aggressive cash collection philosophy. Furthermore, the group has consistently launched new projects of 3msf-4msf each year,and has used its operating cash flows to reduce debt. As a result, net debt:equity ratio has fallen to 0.52x in 2013 from 1.7x in FY09, debtor days have reduced to around 105 days currently from 173 days in FY09
Valuation:Even if we assume that the Realty sector remain sluggish and slower-than-expected execution, sales and cash collection, Sobha is expected to report at least 10% growth.At the current price of 240 Rs,the market capitalization of the company is just 2400 Crs.Trading at a p/e of 11.5, this professionally managed company with good promoter is all justified to be in one's investment portfolio from Realty Sector.Remember,its not a trading idea,but an investment idea.Due to the wild fluctuation in the market,its recommendable to buy this scrip in SIP mode
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