This midcap realty stock has grown 3.5 times in 1 year and counting; can you still join the party?

Should you buy Sobha Ltd (SOBHA) shares? Bengaluru-headquartered real estate developer Sobha Ltd's stock has grown 3.5 times in just one year, a surge most analysts attribute to a post-COVID boom in the sector backed by steady demand across segments and rising per capita purchasing power. That's far superior to a 28.7 per cent rally in the headline Nifty50 index and even a stunning 136.5 per cent surge in the sectoral Nifty Realty gauge. Yet, several analysts remain positive on the realty stock from a long-term perspective. 

Here are 10 key things to know about the midcap realty stock:

1. Latest news

In an operational quarterly update released on April 4, the realty company said FY24 was the strongest year for the entire sector given the robust demand in the country.

Sobha said it had achieved its best annual sales value of Rs 6,644 crore, new area sales of 6.08 million square feet, and an average price realisation of Rs 10,922 per square foot, amid a positive economic environment driven by strong fundamentals. Consistency in the domestic economy is "well reflected in steady GST collections throughout the year, ending the financial year with March 2024 recording the second-highest ever collections", the company pointed out. 

Here are some other highlights from the update: 

• Sobha successfully launched six residential projects, adding 7.02 million square feet to its portfolio in FY24

• It completed sales for some of its marquee projects: SOBHA Dream Acres (Bangalore) and SOBHA City Gurgaon (NCR), GIFT City projects in FY24

• It launched four new projects in Q4 with a total saleable area of 3.18 million square feet (two launched in the last week of March)

• Increased government expenditure, domestic consumption growth, all-round physical infra development led India to a leadership position in economic growth despite a turbulent geopolitical environment; that laid a strong foundation for the future as well
• Growth recognised even by global agencies ALSO READ: Moody's raises India's GDP growth forecast
• Higher share of this economic activity skewed towards urban centres, leading to growing migration

For the December quarter, Sobha recorded its highest-ever quarterly presales in value and volume, at Rs 1,950 crore and 1.7msf, marking year-on-year growth of 37 per cent and 13 per cent respectively, according to brokerage HDFC Securities. 

Sobha's total launch pipeline for the next two years stood at 22msf, out of which, launches amounting to 3 msf were planned for the March quarter, as the property developer intended to further ramp it up, analysts at the brokerage wrote in a report dated February 9.

According to Motilal Oswal Financial Services, Sobha's planned launches of 3 msf were expected to materialise towards the end of the final quarter of FY24, with the management aiming for the launch of projects amounting to 17msf by the end of the next financial year. 

2. What analysts say

Analysts are positive on the stock owing to its strong fundamentals, launch pipeline as well as realisations. 

Sobha Ltd recorded a record performance in FY24 in terms of value, according to Zee Business analyst Varun Dubey. 

The company's sales value increased 5.5 per cent in the final quarter with a 13.5 per cent jump in price realisations, Dubey highligthed.

3. Valuation

Analysts at brokerage MOFSL value Sobha at an EV/EBITDA multiple of 6.5 times the FY25 estimates based on pre-sales, indicating a 25-40 per cent discount to its comparable peers from the midcap and smallcap segments, PEPL, BRGD, MLDL and Sunteck.

4. Earnings

Sobha Ltd is yet to announce the date of release of its fourth-quarter results.

Q3 results: For the October-December period, Sobha registered a consolidated net profit of Rs 15 crore, down 52.8 per cent on a year-on-year basis. 

Its quarterly revenue dropped 21.1 per cent to Rs 684.9 crore while margin improved by 60 bps to 10.8 per cent, according to a regulatory filing.

5. Key triggers

According to Zee Business research, there are a bunch of positive triggers for the realty sector as a whole:  

• Expectations of strong growth
• Record price realisations for Q4 as well as FY24 
• Strong launch pipeline; key markets responding to launches well
• Improving cash flows
• Reducing debt

"We believe that as the company unlocks its vast land reserves and explores growth opportunities beyond its existing land bank, the growth visibility will improve considerably," wrote Motilal Oswal Financial Services analysts about Sobha, expecting the realty firm to deliver an all-round performance over the next few years.

6. Risks

• Delay in interest rate cuts
• Rise in inflation
• Economic slowdown
• Geopolitical uncertainties

"Earnings and sales growth would be the key factors to watch out for," said Sugandha Sachdeva, Founder of SS WealthStreet.

7. Technical outlook

“The outlook for Sobha remains robust, building on its strong uptrend since Q2 CY23. Despite some profit booking in the last two months, the stock has demonstrated resilience, finding buying interest at lower levels and forming a solid base around Rs 1,250. Recently, Sobha surged to a new high of Rs 1,687, marking a remarkable rally of over 10 per cent this month. The bullish sentiment surrounding Sobha is evident, albeit with a hurdle at Rs 1,675, corresponding to previous highs. A convincing close above this resistance level could signal further upside potential,” Sachdeva of SS WealthStreet told Zeebiz.com.

“From a medium-term perspective, a convincing close above Rs 1,675 could pave the way for higher targets, with projections extending towards Rs 1,950 and potentially the Rs 2,100 mark. Overall, with a strong foundation established and positive market sentiment prevailing, Sobha appears poised for continued upward movement. Investors should monitor the stock closely, particularly its performance relative to the key resistance levels, to capitalise on potential opportunities in line with the bullish outlook,” Sachdeva added.

8. Stock vs peers

Many analysts find the stock to continue to rise owing to strength in the overall real estate space. 

Sobha appears to be commanding a higher price-to-earnings multiple than its peers. Its PE multiple on a trailing 12 months basis stands at 167.42 as against the sectoral average of 66.15, according to stock research portal Trendlyne. 

9. Sobha Ltd (SOBHA) target price

Zee Business analyst Ashish Chaturvedi has a medium-term 'buy' call on Sobha Ltd. He has placed his six-month target for the stock at Rs 1,770.

Chaturvedi's target implies a 10.7 per cent upside from the stock as of April 9.

10. Profile: What does Sobha Ltd do?

Established in 1995, Sobha Ltd is among the most widely known real estate developers in the country.

The stock entered the listed space in December 2006.