Sobha shares soared 16% today. Motilal Oswal sets target of Rs 1,400 on stock

Shares of Sobha Ltd climbed over 16 per cent on Thursday after hitting fresh all-time high earlier in the day. The real estate stock hit a record high of Rs 1,339.95 on BSE, before closing the day at Rs 1298.05, up 16.25 per cent.

After underperforming its listed peers on pre-sales growth over FY21-23, Motilal Oswal expects Sobha to outperform in terms of growth. given its focus on unlocking its vast land reserve and exploring external growth opportunities through its healthy balance sheet.

"The outperformance is  also expected to be driven by improvements in profitability. Further, visibility in the monetisation of some of its large land parcels in Bengaluru will lead to a re-rating in its implied land valuation. Sobha is our top idea for 2024 with a revised TP to Rs 1,400, 25 per cent upside potential," the brokerage said.

Motilal Oswal has factored in higher launches over FY24-26E and revised its pre-sales estimates for Sobha by 4 per cent for FY24 and 12 per cent for FY25.

"We believe that as the company unlocks its vast land reserves and explores growth opportunities beyond its existing land bank, it will provide further growth visibility. Project launches on its large land parcels in Bengaluru and Tamil Nadu will drive re-rating for its existing land valuation," Motilal Oswal said.

Motilal Oswal said the focus on sustainable growth will put the company on a long-term growth path.  Sobha's 200msf land is valued at Rs 3,800 crore  against Motilal's arrived value of Rs 6,000 crore assuming 25-75 years of monetisation.

The company trades at 6.5 times FY25 EV/Ebitda which Motilal Oswal said is at 25-40 per cent discount to its comparable midcap/smallcap peers.

A slowdown in residential absorption, delay in monetisation of large land parcels, and inability to sign BD deals are a few risks for the stock, Motilal Oswal said.

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