After a muted first half (H1FY25), South India-focussed realty company Sobha Ltd is lagging on pre-sales and new launches. In H1FY25, pre-sales or bookings slid 4% year-on-year to ₹3,050 crore, impacted by slower sales in recently launched projects. Even so, the management has retained its FY25 pre-sales guidance of ₹8,500 crore.
In H1FY25, Sobha launched five projects spread across 3.5 million square feet (msf). It targets to launch another 5.5msf of projects in H2FY25. This should take yearly launches to around 9msf across four projects in its core market of Bengaluru. In the next six-to-eight quarters, Sobha has a launch pipeline of 19.29msf.
But lately, delayed approvals in Bengaluru have been an irritant for realtors having exposure to this market. This could jeopardize Sobha’s FY25 pre-sales target, given its significant dependence on Bengaluru, which contributed 40% to pre-sales in H1FY25. In the December quarter (Q3FY25) so far, Sobha has RERA approval for around 1.1msf project; approvals for another project of around 3msf and a small project in South Bengaluru spanning nearly 0.7msf are underway, the management said in the Q2 earnings call.
Diversification is key
The sluggish pre-sales were also a fallout of a large number of projects being focussed towards higher ticket-sized units, which typically see slower offtake. For instance, during Q2FY25, the ₹3-crore plus category made up 46% of pre-sales. A better product mix aided realizations during the quarter, however upcoming launches in H2FY25 are in the middle-income segment (unit sizes across one-four BHKs). The management expects these units to see better traction and boost pre-sales.
That said, the pace of geographical diversification remains crucial for Sobha. Here, Sobha has entered markets such as Hyderabad, Pune, Greater Noida regions and is looking to foray into Mumbai in FY26 in a calibrated manner. Over the medium term, Sobha wants 40% of its sales to come from outside Bengaluru. But until that plays out, concentration risk remains.
Despite weak collections in Q2FY25, the first tranche of its recent rights issue helped Sobha trim its net debt by ₹910 crore sequentially to just ₹280 crore. The net debt-to-equity ratio declined to 0.08x from 0.47x in Q1FY25. Given the elevated borrowing cost, easing debt is comforting. Lately, Sobha has been able to cut debt through healthy cash flow generation as well as by monetizing its land assets. Sobha remains upbeat on portfolio additions and aims to keep its net debt-to-equity level below 1x.
Meanwhile, over the last six months, the Sobha stock has fallen 15% compared to the 4% decline in the Nifty Realty index. Timely new launches would decide the stock’s future course.
