Sobha Share Price Jumps Nearly 5% As Launch Pipeline Drives HSBC To Raise Target Price

Sobha Ltd.'s share price surged nearly 5% on Friday following HSBC's target price increase driven by the company's strong launch pipeline. This came even as its September quarter margins and launches disappointed the brokerage.

The brokerage has raised its target price to Rs 2,150 from Rs 2,000 earlier, implying nearly 42% upside while maintaining a 'buy'. In the quarter ended September, Sobha's operating margin fell to 8.2% from 10.2% a year ago.

HSBC said, "We think Sobha has successfully resolved its debt related issues with strong OCF generation, and now that the rights issue has been successfully completed, the company is set to grow aggressively."

The brokerage is also confident about the company's promoter gradually increasing its stake in the business. "Sobha is also moving towards becoming a more diversified player, though we like its calibrated approach," it said. "It is now aiming towards growth by acquiring land and entering into joint agreements more aggressively than before."

At the same time, the brokerage said it does not like that the company expects another two quarters of margin pressure owing to legacy issues which have taken longer than expected to fix.

In addition, it also noted that monetisation plan of its legacy land is still uncertain. "There is a pick-up in the run rate of overhead and taxation-related costs over the last two quarters as the company is scaling up its operations to deliver higher pre-sales," it said.

HSBC also noted that the company's reported bookings declined 32% year-on-year to Rs 11.8 billion as it launched only one new project (0.93msf) during the quarter vs its full year expectation of 9msf for the year.

"Within the mix, Gurugram was the weakest on no new launches and weak sales momentum for one of its products," it said. "With pre-sales of Rs 30.5 billion for 1HFY25, the company’s full year guidance of Rs 85 billion rests on its ability to launch more than 5msf of area during 2HFY25."

Sobha share price rose as much as 4.68% to Rs 1,588 apiece. The stock pared gains to trade 3.17% higher at Rs 1,565 apiece, as of 9:57 a.m. This compares to a 0.5% advance in the NSE Nifty 50 Index.

It has risen 63% on a year-to-date basis and 77% in the last 12 months. Total traded volume so far in the day stood at 1.31 times its 30-day average. The relative strength index was at 42.32.

Out of the 17 analysts tracking the company, 11 maintain a 'buy' rating, two recommend a 'hold,' and four suggest 'sell,' according to Bloomberg data. The average 12-month consensus price target implies an upside of 26.8%.