Sobha Limited’s shares soar to record ₹1,254.15, Motilal Oswal bullish on growth prospects for 2024

Sobha’s shares have been on a remarkable upward trajectory, marking a fresh record high amidst market fluctuations. The surge, specifically a 12% increase after opening at ₹1,125.95, showcases the growing investor confidence in the company.

Sobha Limited’s shares recently scaled new heights, reaching a record ₹1,254.15 in morning trade on the BSE. The surge, accentuated by a remarkable 11% uptick in the preceding session, signals a noteworthy chapter in the company’s trajectory.

Sobha’s shares have been on a remarkable upward trajectory, marking a fresh record high amidst market fluctuations. The surge, specifically a 12% increase after opening at ₹1,125.95, showcases the growing investor confidence in the company. This surge is not merely a short-lived phenomenon; Sobha’s stock has more than doubled in the last year, outperforming the BSE Realty index, which itself registered an 89% growth during the same period.

Examining the last six months unveils a particularly robust performance by Sobha’s shares, surging by an impressive 120%. This stands in stark contrast to the BSE Realty index, which experienced a commendable 54% growth during the same timeframe.

The surge in Sobha’s shares gained further impetus following an endorsement from Motilal Oswal Financial Services. The brokerage firm identified Sobha as one of its top picks for the year 2024, backing its endorsement with a buy call and an ambitious target price of ₹1,400, implying a potential 25% upside.

Motilal Oswal’s positive outlook hinges on Sobha’s strategic initiatives, particularly its focus on unlocking vast land reserves and exploring growth opportunities beyond its existing land bank. The brokerage firm anticipates that this approach will not only provide further growth visibility but also contribute to a potential re-rating of Sobha’s existing land valuation.

Motilal Oswal’s endorsement is grounded in Sobha’s commitment to unlocking substantial land reserves. The strategic move to explore growth avenues beyond the existing land bank is seen as a catalyst for sustained growth. Project launches on expansive land parcels in Bengaluru and Tamil Nadu are expected to drive re-rating for Sobha’s existing land valuation.

Motilal Oswal’s analysis positions Sobha as a potential outperformer, especially after underperforming its listed peers on pre-sales growth over FY21-23. The brokerage firm believes that Sobha is well-positioned to excel in terms of growth, given its renewed focus on unlocking its vast land reserve and exploring external growth opportunities through a healthy balance sheet.

Motilal Oswal anticipates that Sobha’s outperformance will not be limited to growth alone but will extend to improvements in profitability. The visibility in the monetization of large land parcels in Bengaluru is expected to lead to a re-rating in Sobha’s implied land valuation.

From a valuation perspective, Sobha’s stock presents an appealing proposition. It currently trades at 6.5 times FY25E EV/EBITDA, as implied based on FY25E pre-sales. This valuation represents a 25-40% discount compared to several midcap and smallcap peers, including Prestige Estates Projects, Brigade Enterprises, Mahindra Lifespace Developers, and Sunteck Realty.

Motilal Oswal expects Sobha to witness higher launches in the upcoming years (FY24-26E), reflecting the company’s commitment to sustainable growth, healthy profitability, and steady cash flows. The revision of pre-sales estimates aligns with Sobha’s strategic focus on long-term growth, placing it on a trajectory for sustained success.

The surge in Sobha’s shares, coupled with Motilal Oswal’s strategic insights, underscores the importance of transparent communication and accountability in the financial markets. Investors are keenly observing how Sobha navigates this surge and capitalizes on the strategic initiatives outlined by Motilal Oswal.