Sobha Limited — Q2 FY25 earnings call

Call held 15 Nov 2024

Management summary

Sobha reported a steady Q2 and H1 FY25, with real estate sales reaching ₹3,052 crores for the half-year and ₹1,179 crores for the quarter. Total revenue for H1 FY25 stood at ₹1,635 crores, yielding an EBITDA margin of 11.9%. The company significantly reduced its net debt to ₹280 crores by September 30, 2024, following a successful rights issue. Management outlined an aggressive launch pipeline of 5.5 million sq ft for H2 FY25 and 10 million sq ft for FY26, while also pursuing strategic expansion into new markets like Mumbai and Greater Noida.

Highlights

  • H1 FY25 Real Estate Sales: ₹3,052 crores.

  • Q2 FY25 Sales: ₹1,179 crores.

  • H1 FY25 Total Revenue: ₹1,635 crores.

  • H1 FY25 EBITDA: ₹194 crores, with 11.9% margin.

  • Q2 FY25 Total Revenue: ₹965 crores, up 25% YoY.

  • Net Debt (Sep 30, 2024): ₹280 crores, reduced by ₹908 crores this quarter.

  • H1 FY25 Operational Cash Inflow: ₹2,921 crores, up 4% YoY.

  • Launch Pipeline H2 FY25: additional 5.5 million sq ft.

  • Launch Pipeline FY26: target 10 million sq ft.

Key financials

3 periods

Headline

  • Net Debt (Sep 30, 2024)
    ₹280 Cr
  • Net to Debt Equity Ratio (Sep 30, 2024)
    0.08
  • Average Interest Rate
    9.4%
  • Revenue Yet to Be Recognized (Sep 30, 2024)
    ₹14,477 Cr
  • Projected Marginal Cash Flow (Sep 30, 2024)
    ₹16,122 Cr
  • Unsold Inventory Sale Value (Sep 30, 2024)
    ₹12,544 Cr

Q2 FY25

  • Overall Sales
    ₹1,179 Cr
  • Total Revenue
    ₹965 Cr
    YoY +25%
  • Project Related CAPEX
    ₹44.1 Cr
    YoY +100%

H1

  • FY25 Real Estate Sales
    ₹3,052 Cr
  • FY25 Total Revenue
    ₹1,635 Cr
  • FY25 EBITDA
    ₹194 Cr
  • FY25 EBITDA Margin
    11.9%
  • FY25 PAT Growth
    19%
    YoY +19%
  • FY25 Total Operational Cash Inflow
    ₹2,921 Cr
    YoY +4%
  • FY25 Real Estate Collection
    ₹2,614 Cr
    YoY +8.6%
  • FY25 Project Related CAPEX
    ₹84.8 Cr
    YoY +54.2%
  • FY25 Land Outflow
    ₹327 Cr

What they filed

Q1 FY27: revenue up 50.0%, net profit up 264.3% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue934 1,224 1,241 852 1,408 +51%943 −23%1,988 +60%1,278 +50%
EBITDA77 67 94 24 96 +25%39 −42%152 +62%78 +225%
Net profit26 22 41 14 73 +181%15 −32%92 +124%51 +264%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of H1 FY25 Revenue
₹1,573 Cr Total
  • Real Estate Segment ₹1,256 Cr 79.8%
  • Contractual and Manufacturing Segment ₹317 Cr 20.2%

Guidance & targets

Sales

  • Annual Presales Sales · FY25 · Medium confidence ₹8,500 crores
    So, on the guidance part, we continue to maintain 8,500 crores for the year? ... On the guidance, which is 8,500 crores, it entirely depends on our timing of the launches that we are expecting in the next 5 months. And we are really hopeful that things would gear up and we will be able to still do it.

    — Jagadish Nangineni

Launches

  • Additional Launch Area Launches · H2 FY25 · Medium confidence 5.5 million square feet
    In the second half where we expect to launch an additional 5.5 million square feet taking the yearly launches to about 9 million square feet across 4 projects in Bangalore.

    — Jagadish Nangineni

  • Launch Area Launches · FY26 · High confidence 10 million square feet
    Of the 19.29 million square feet in FY26 also we target to launch about 10 million square feet.

    — Jagadish Nangineni

Profitability

  • Overall EBITDA Margin Profitability · Medium to Long Term · High confidence >20%
    our goal for our EBITDA margins going in the medium to long term, which is probably we will not be able to clearly guide you for the next year or in the next half or next year. But over a period of time our aim is to take our EBITDA margins to over 20%.

    — Jagadish Nangineni

  • Real Estate Segment EBITDA Margin Profitability · Medium to Long Term · High confidence 22-25%
    Real estate would also be slightly higher, it would be closer to above 22%. It might between 22% to 25%.

    — Jagadish Nangineni

Debt

  • Gross Debt Debt · Long Term · High confidence ~₹1,600 crores
    I mean our gross debt is currently about 1,600 crores and largely we are comfortable having a gross debt of about this number... But at a gross debt level we would probably continue, in the long term we might be at an absolute level of about 1,600 crores or so.

    — Jagadish Nangineni

Capital Deployment

  • Rights Issue Capital Deployment Capital Deployment · Next 2 years · High confidence Majority of capital
    in the next 2 years we should be able to deploy majority of the capital.

    — Jagadish Nangineni

Contract & Manufacturing Margin

  • EBITDA Margin Contract & Manufacturing Margin · FY25 · High confidence Similar to H1 FY25 (6%)
    This year you will see similar margin.

    — Yogesh Bansal

  • EBITDA Margin Contract & Manufacturing Margin · Next Year (FY26) · High confidence Improvement
    But next year you will start improving our margin in contract and manufacturing division.

    — Yogesh Bansal

Risks & concerns

  • Project approval delays (especially in Bangalore)

    medium

    Management stated these are 'routine matters' but acknowledged they are trying to quicken the process internally, while external factors are not in their control.

    Analyst acknowledged

  • Stress on margins in contract and manufacturing segment

    medium

    Attributed to resource mobilization and cost escalation, expected to continue for 'next couple of quarters'.

    Management acknowledged

  • Slowdown in luxury real estate demand

    low

    Management believes the market is reaching a 'steady state' rather than continuous increase, and demand is micro-market specific, not a general slowdown.

    Analyst downplayed

Areas of evasion (1)

  • Book value of land bank

Q&A highlights

1 direct, 1 evasive
Pace of sales for high-value launches and H1 presales performance Direct
67% of our inventory right now is over 4 crores. And typically, the larger ticket size sales we have seen is the pace of sale is over the period of the project and hence it is an expected thing that we would be able to do the sales of these projects over the course of the project.

Addresses concerns about lower-than-expected presales despite new launches, attributing it to the nature of luxury project sales and inventory mix.

Asked by Parikshit Kandpal

Book value of the 1,817 acres of land bank Evasive
We do not have the number exactly but we will circle back and provide you that number.

This is a critical metric for real estate companies, and management's inability to provide it on the call suggests either lack of readiness or unwillingness to disclose immediately.

Asked by Parikshit Kandpal

Promoter's commitment to subscribe to unsubscribed portions of the rights issue's second tranche if market price is lower Partial
In case of any nonpayment, I mean the first tranche would be forfeited. And if those are available and we will have redistributed the promoter would be willing to take up those.

Clarifies the promoter's intent regarding forfeited shares, which is crucial for investor confidence in the rights issue's success, especially given the market price being below the rights price.

Asked by Parikshit Kandpal

3 min read 7 chapters

Detailed narrative

H1 FY25 Performance Overview

Sobha reported H1 FY25 real estate sales of ₹3,052 crores, with Q2 FY25 contributing ₹1,179 crores. Total revenue for H1 FY25 was ₹1,635 crores, including ₹1,256 crores from real estate and ₹317 crores from contracts and manufacturing. The company achieved an EBITDA of ₹194 crores, translating to an 11.9% margin for H1 FY25, and PAT improved by 19% over H1 FY24.

Debt Reduction and Capital Deployment

Following a successful rights issue that raised ₹1,999 crores (oversubscribed by 1.39X), Sobha significantly reduced its net debt by ₹908 crores this quarter, bringing the net debt down to ₹280 crores as of September 30, 2024, with a net debt-to-equity ratio of 0.08. Management plans to deploy the majority of the rights issue capital within the next two years for project investments and strategic land acquisitions, aiming to maintain long-term gross debt around ₹1,600 crores.

Robust Launch Pipeline

The company launched 3.53 million square feet across 5 projects in H1 FY25, including Sobha Infinia (0.49 million sq ft) in Q2 FY25. Management has an aggressive launch pipeline for H2 FY25, targeting an additional 5.5 million square feet, which would bring total yearly launches to about 9 million square feet. For FY26, Sobha aims to launch approximately 10 million square feet, building on a strong pipeline of 19.29 million square feet residential and 1.19 million square feet commercial projects.

Geographic Expansion and Land Bank Strategy

Sobha has initiated entry into Greater Noida with a small land parcel and is actively evaluating multiple opportunities in Mumbai, a strategic market. The company also holds land banks in Hosur (about 150 acres) and Hoskote (close to 300 acres) which are being considered for future development or monetization. The total land bank under various stages of consolidation is 1,878 acres, with 207 acres identified for subsequent projects that could yield 26 million sq ft.

Margin Outlook

While the contract and manufacturing segment's EBITDA margin was around 6% in H1 FY25 and is expected to remain similar for the full FY25 due to stress in civil and glazing contracts, management anticipates improvement in FY26. For the overall company, the long-term goal is to achieve EBITDA margins exceeding 20%, with the real estate segment expected to contribute even higher, in the range of 22-25%.

Market Dynamics and Sales Strategy

Management acknowledged that 67% of their current inventory is in larger ticket sizes (over ₹4 crores), where sales typically occur over the project's lifecycle. To balance this, H2 FY25 launches will include products across various ticket sizes (1BHK to 4BHK apartments). They perceive the luxury real estate market as reaching a 'steady state' rather than continuous rapid growth, with demand being micro-market specific.

Unrecognized Revenue and Cash Flow Visibility

Sobha has a substantial ₹14,477 crores of revenue yet to be recognized from completed sales, with a blended margin of over 33%, expected to be recognized over the next 4-5 years. The projected marginal cash flow from ongoing and forthcoming residential projects stands at ₹16,122 crores, indicating strong future cash flow visibility. Unsold inventory across ongoing projects has a sale value of ₹12,544 crores.

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