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Wednesday, January 11, 2012

Buy Shares of Sobha Developers for one year

One of the good stocks to buy in construction space is Sobha Developers. Investment research team from one of the stock broker firm, Geojit BNP Paribas, has recommended investing in stocks of Sobha Developers for one year with target stock price.

The investment rationale behind this stock recommendation is:
  • The company has sold 0.82 million sq ft in 3QFY12, a growth of 16% yoy but 12.5% lower qoq. This shows decline in quarterly sales but it was due to the lack of significant new project launches.
  • Company had provided guidance of 3-3.5 Million sq. feet of sale for FY12. It has sold 2.42 million sq ft in first 9 months of FY12 which is an increase of 14% yoy. The company looks like is on track with it’s guidance for sales.
  •  The revenue guidance out of guided sales were expected to be Rs.1500 crore. The company already had sold worth of Rs.1240 crore by December.
  •  Average sales price has increased 2% qoq for company except in National Capital Region. At the same time, sales price has increased 16.5% yoy.
  •  The company has sold 1.02 million sq ft in the newer projects launched in 2HFY12. It is around 31% of these projects and about 45% of its 3Q sales were from the projects launched in 2HFY12.
  •  The company expects to launch around 0.9 million sq ft in Chennai in 4QFY12. 
  •  Also, the company has provided a guidance for debt reduction of Rs.350 crore in this fiscal year. Debt reduction can be considered as key catalyst for the stock in near future.
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Concerns
If company slows down the execution of it’s projects and also fails to reduce the debt burden as per guidance, it could dent the profits and guidance on numbers provided by company.

Stock Financials
At CMP of Rs. 208.5, the stock trades at P/E of 12.7 with dividend yield being 1.44%. Book value of the stock is Rs. 189.33 which makes Price to Book value ratio of 1.1. This shows that Sobha developers is available at good stock valuations.

Based on above facts and details, the stock broker firm has advised to buy stocks of Sobha developers for one year with target stock price of Rs.275.

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