1. 22 May 2014
4QFY14 Results Update | Sector: Real Estate
Sobha Developers
Sandipan Pal (Sandipan.Pal@MotilalOswal.com); +91 22 3982 5436
BSE SENSEX S&P CNX
CMP: INR442 TP: INR540 Buy24,374 7,276
Bloomberg SOBHA IN
Equity Shares (m) 98.1
M.Cap. (INR b) / (USD b) 43.3/0.7
52-Week Range (INR) 455/214
1, 6, 12 Rel. Per (%) 10/19/-13
Financials & Valuations (INR b)
Y/E Mar 2014 2015E 2016E
Net Sales 21.7 23.4 27.5
EBITDA 6.0 6.5 7.9
Adj PAT 2.4 2.6 3.4
EPS (INR) 24.0 26.9 34.8
EPS Gr. (%) 8.2 12.4 29.1
BV/Sh(INR) 233.7 251.2 276.6
RoE (%) 10.6 11.1 13.2
RoCE (%) 14.8 14.9 16.8
P/E (x) 18.4 16.4 12.7
P/BV (x) 1.9 1.8 1.6
 P&L beat on higher contractual revenue: Sobha Developers (SOBHA) reported
4QFY14 revenue at INR6.3b, +7% YoY (v/s est. of INR5.4b). Positive surprise was
higher booking in contract and manufacturing division of INR2.2b (+54% YoY).
Contract segment revenue grew 44% YoY in FY14. EBITDA stood at INR1.7b (+5%
YoY) with stable QoQ margin at 27.3%. Margin failed to improve due to higher
contribution from contract segment. PAT stood at INR687m (-1% YoY) on higher
tax v/s estimate of INR560m.
 Pre-sales guidance of 15% growth in FY15 seems conservative: As reported
earlier, 4QFY14 operations revived closer to normalcy, with 0.92msf (INR6.05b) of
pre-sales. FY14 annual pre-sales stood at 3.6msf (INR23.4b), up 6% YoY, as against
initial management guidance of INR26b. Management has guided for pre-sales of
4msf (INR27b), +15% YoY (on value terms) in FY15. Guidance appears conservative
to us on the back of improved macro outlook, geographical expansion and strong
launch plan of ~10msf (SOBHA’s share of 6.6msf) in FY15, provided approval cycle
remains favorable.
 Cash flow improves on better collections, net debt down INR0.7b: Collections
from real estate improved to INR5.5b (v/s INR4.4b QoQ). FY14 collections were up
21% YoY to INR9.5b (v/s pre-sales growth of 5% YoY). Net debt was down by
INR0.7b to INR12.3b (v/s INR13b in 3QFY14), 0.54x.
 Upgrade target price by 20% to INR540: We factor projects under FY15 launch
plan of ~10msf in NAV and raise the target price by 20% to INR540 (9.5x FY16E
cash EBITDA). We assume 17% CAGR in pre-sales over FY14-16E. On the back of a
stable Government raising hope for a broad-based economic revival, we expect
housing demand to improve significantly across regions. SOBHA, with its strong
launch plan, and widening market mix should be a key beneficiary. The stock
trades at 12.7x FY16E EPS, 1.6x FY16E BV (13% RoE) and 8x FY16E cash EBITDA.
Maintain Buy with the expectation of sustenance of operational strength.
Investors are advised to refer through disclosures made at the end of the Research Report.

2. 22 May 2014 2
Sobha Developers
P&L beat on higher contractual revenue
 Sobha Developers (Sobha) has reported 4QFY14 revenue at INR6.3b, +7% YoY
(v/s est. of INR5.4b).
 Positive surprise was higher booking in contract and manufacturing division of
INR2.2b (+54% YoY). Contract segment revenue grew 44% YoY in FY14.
 Key projects crossing revenue threshold in 4QFY14 was Morzaria Grandeur
Phase I (Bangalore), West Hills (Coimbatore), Aristos (Sobha City, Bangalore),
and Ebony (Sobha Forest View).
 EBITDA stood at INR1.7b (+5% YoY) with stable QoQ margin at 27.3%. Margin
fails to improve due to higher contribution from contract segment.
 PAT stood at INR687m (-1% YoY) on higher tax v/s est of INR560m.
Presales guidance of 15% growth in FY15 seems conservative
 As reported earlier, 4QFY14 operations revived closer to normalcy, with 0.92msf
(INR6.05b) of pre-sales, post a subdued 3QFY14 with 0.7msf (INR5b). Pre-sales
velocity, however, was weaker compared to 4QFY13, with 1.1msf (INR6.8b).
 Blended realizations stood at INR6,568/sf (+5% YoY, -3% QoQ), suggesting
premium segment products continuing with their major contribution in volume.
 FY14 annual pre-sales stood at 3.6msf (INR23.4b), up 6% YoY, as against initial
management guidance of INR26b.
 Management has guided for presales of 4msf (INR27b), +15% YoY (on value
terms) in FY15. Guidance appears conservative to us on the back of improved
macro outlook, geographical expansion and strong launch plan of ~10msf
(Sobha’s share of 6.6msf) in FY15, provided approval cycle remains favorable.
Presales bounced back in 4QFY14 (msf)
0.7
0.7
0.7
0.7 0.7
0.9
0.8
0.9 0.8
0.9
0.9
1.1
0.9
1.0
0.7
0.9
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
Source: Company, MOSL
Trend in presales value and realization
2.8 2.7 3.0
4.9 4.5 4.6 4.8 5.3 5.3
6.8
6.0 6.3
5.0
6.13.9 4.1
4.5
5.2 5.5
5.4
5.7 5.6
5.9
6.3 6.5
6.3
6.8 6.6
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
Sales value (INR b)
Realization('000 INR/sf)
Source: Company, MOSL
Cash flow improves on better collections, net debt down INR0.7b
 Collections from real estate improve to INR5.5b (v/s INR4.4b QoQ). FY14
collections were up 21% YoY to INR9.5b (v/s presales growth of 5% YoY).
 Net debt was down INR0.7b to INR12.3b (v/s INR13b in 3QFY14), 0.54x.
Other highlights
 Sobha is evaluating various projects in key growth corridors of Bangalore with a
few propositions in relatively smaller ticket size. Management is set for a steady
ramp-up in monetization across regions to adhere to its target of 7msf of annual
presales by FY18.

3. 22 May 2014 3
Sobha Developers
 Cost push has seen moderation in past few years, especially on material front,
while rising labor cost remains hurdle. There are various mechanized initiatives
being taken by the company to control cost push.
 Outgo towards land purchase along with entry/return of focus on key markets
like Pune, NCR and Hyderabad will continue. However gearing would be
maintained within 0.5x-0.6x.
Market mix of presales (%)
0%
20%
40%
60%
80%
100%
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
Kozhikode
Chennai
NCR
Mysore
Pune
Coimbatore
Thrissur
Bangalore
Source: Company, MOSL
Net DER (x) – declining trend in steady cash generation
0.64
0.69
0.71
0.65
0.57
0.58
0.62
0.62
0.57
0.57
0.57
0.57
0.54
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
Source: Company, MOSL
FCFE positive in 4QFY14
FY12 FY13 1QFY14 2QFY14 3QFY14 4QFY14 FY14
Collections 18.3 21.2 6.2 6.3 6.6 7.8 26.9
RE 11.8 16.1 4.9 4.6 4.4 5.5 19.5
Contract 3.2 4.1 1.2 1.8 2.1 2.3 7.4
Land sales 3.3 1.0 -
Construction outflow 10.8 12.3 4.1 4.2 3.9 4.6 16.9
RE 7.4 8.9 2.8 2.5 2.5 2.9 10.8
Contract 3.4 3.5 1.2 1.7 1.5 1.7 6.1
Approvals 0.9 1.3 0.4 0.3 0.3 0.3 1.3
Overheads 1.0 1.4 0.3 0.3 0.4 0.3 1.4
Marketing 0.3 0.3 0.1 0.1 0.3 0.2 0.7
Gross Cash flow 5.2 5.9 1.3 1.4 1.6 2.4 6.6
Tax Paid 0.5 0.9 0.1 0.2 0.2 0.5 1.0
OCF 4.7 5.0 1.2 1.2 1.4 2.0 5.6
Land payment 0.8 1.9 0.4 0.0 1.1 0.3 1.8
Stake acquisition/general capex 1.0 0.6 0.0 0.0 0.0
Capex and others 0.1 0.9 0.3 0.2 0.2 0.3 1.0
Interest - OI 2.2 2.1 0.5 0.5 0.5 0.5 2.0
FCFE 0.7 -0.4 0.1 0.5 -0.5 0.9 0.9
Dividend 0.3 0.6 0.0 0.8 0.8
Net CF 0.3 -1.0 0.1 -0.3 -0.5 0.9 0.1
Source: Company, MOSL

4. 22 May 2014 4
Sobha Developers
Story in charts
New launches to drive presales
4.2
10.4
2.4
5.7
10.0
2.1 2.8 3.3 3.8 3.7 4.1 4.8
FY10 FY11 FY12 FY13 FY14 FY15E FY16E
launch(msf) Sales volume (msf)
Source: Company, MOSL
Expect presales value to post 17% CAGR
6.2 10.8 17.0 22.2 23.4 27.4 32.1
3,000
3,887
5,152
5,892
6,302
6,675 6,749
FY10 FY11 FY12 FY13 FY14 FY15E FY16E
Sales value (INR b) Realization(INR/sf)
Source: Company, MOSL
Higher geographical expansion
0%
25%
50%
75%
100%
FY10
FY11
FY12
FY13
FY14
FY15E
FY16E
Bangalore
Thrissur
Coimbatore
Pune
Mysore
NCR
Chennai
Cochin
Calicut
Source: Company, MOSL
Steady uptrend in cash flow (INR b)
1.3
3.1
4.6 4.7
5.3
1.8
4.0
5.6
6.0
6.9
FY12 FY13 FY14E FY15E FY16E
Core OCF Core cashEBITDA
Source: Company, MOSL
Proforma Cash flow estimates
INR b FY12 FY13 FY14 FY15E FY16E
Collections 18.3 21.2 26.9 30.4 34.5
RE 11.8 16.1 19.5 23.3 27.2
Contract 3.2 4.1 7.4 7.1 7.2
Rental income 0.0 0.0 0.0 0.1
Construction outflow 10.8 12.4 16.9 19.3 22.0
RE 7.4 8.9 10.8 13.3 15.6
Contract 3.4 3.5 6.1 6.0 6.4
Capex and others 0.1 0.9 1.0 1.4 1.7
Gross Cash flow 5.1 5.0 5.6 5.8 6.7
Tax Paid 0.5 0.9 1.0 1.1 1.5
OCF 4.6 4.1 4.6 4.7 5.3
Core OCF 1.3 3.1 4.6 4.7 5.3
Land payment 0.8 1.9 1.8 1.6 1.7
Interest 2.2 2.1 2.0 2.0 2.0
FCFE 0.7 -0.5 0.9 1.2 1.7
Dividend 0.6 0.6 0.8 0.8 0.9
FCF 2.9 1.6 2.8 3.2 3.7
Source: Company, MOSL

5. 22 May 2014 5
Sobha Developers

Sobha Developers: an investment profile
Company description
Sobha Developers (Sobha) was incorporated in 1995
and is a leading real estate player in Southern India
(total saleable area of 243msf) with a strong presence
in Bangalore, Pune, Chennai, Kochi, Gurgaon etc. The
company has a uniquely backward integrated business
model through presence in contractual and
manufacturing segment. It enjoys a strong brand due
to its quality of execution and enviable delivery track
record. It has been a preferred partner for Infosys in
many of its marquee assets development. Sobha has
executed over 307 projects, comprising a total
development area of 55msf+.
Key investment arguments
 Core markets offer resilience, coupled with
market consolidation.
 Ability to differentiate, quality and brand aid
comfort in operations.
 Liquidity and cash flow generation strong enough
to drive growth and expansion.
Key investment risks
 Bangalore market saturation and delayed
monetization in new cities.
 Reinvestment risk due to sub-optimal capital
allocation in land, capex.
Recent developments
 ICRA has upgraded its long term rating to ‘A-’ from
‘BBB+’, while BRICKWORK ratings has upgraded the
ratings to ‘BWR A’ from ‘BWR A-’ for the long term
bank loan facilities
Valuation and view
 We factored in projects under FY15 launch plan of
~10msf in NAV, and raising target price by 20% to
INR540 (9.5x FY16E Cash EBITDA). We assume 17%
CAGR in presales over FY14-16E.
 On the back stable governance raising hope for a
broad based economic revival, we expect housing
demand to improve significantly across region.
Sobha, with its strong launch plan, and widening
market-mix should be key beneficiary.
 The stock trades at 12.7x FY16E EPS, 1.6x FY16E BV
(13% RoE) and 8x FY16E cash EBITDA. Maintain Buy
with expectation of sustenance of operational
strength.
Comparative valuations
Sobha Prestige Oberoi
P/E (x) FY15E 16.4 18.0 14.2
FY16E 12.7 14.0 11.7
P/BV (x) FY15E 1.8 2.2 1.6
FY16E 1.6 1.9 1.5
EV/Sales (x) FY15E 2.4 3.5 6.0
FY16E 2.1 2.9 4.7
EV/EBITDA (x) FY15E 8.7 11.4 10.3
FY16E 7.3 9.3 8.1
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
Consensus
Forecast
Variation
(%)
FY15 26.9 33.7 -20.3
FY16 34.8 41.2 -15.4
Target price and recommendation
Current
Price (INR)
Target
Price (INR)
Upside
(%)
Reco
442 540 22.2 Buy
Shareholding pattern (%)
Mar-14 Dec-13 Mar-13
Promoter 60.6 60.6 60.6
Domestic Inst 2.9 2.8 3.1
Foreign 33.4 33.0 33.4
Others 3.2 3.6 2.9
Stock performance (1-year)

6. 22 May 2014 6
Sobha Developers
Financials and valuations

7. 22 May 2014 7
Sobha Developers
N O T E S

8. 22 May 2014 8
Sobha DevelopersDisclosures
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Disclosure of Interest Statement SOBHA DEVELOPERS LTD
1. Analyst ownership of the stock No
2. Group/Directors ownership of the stock No
3. Broking relationship with company covered No
4. Investment Banking relationship with company covered No
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