8/2/2016 SobhaDeveloperssharebuyback:muchadoaboutnothingPrintViewLivemint

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Fri,May202016.0158AMIST

SobhaDeveloperssharebuyback:muchadoaboutnothing
Rs330ashareforthesharebuyback,about2.32%ofthepaidupequitysharecapital,thatSobhaDevelopersoffers,is
underwhelmingbeingamere8%higherthancurrentprice

ExpectationsontheStreetreignedhighaboutSobhaDevelopers
Ltdsdecisiontobuybackitsshares.

WhilethiswasannouncedalongwiththecompanysMarchquarter
results,thepriceof`330ashareforthebuyback,about2.32%ofthe
paidupequitysharecapital,isunderwhelming,beingamere8%
higherthanthecurrentmarketprice.

Anyway,thecriticalissueiswhetherthefirmismakingheadwayon
sales,giventhepatheticstateoftheresidentialrealestatemarket.

Onthisground,SobhasMarchquarterperformancewasdecent.
Consolidatedrevenuegrewby9%yearonyear,higherthanthe
consensusforecastofanalysts.

ThecriticalissueiswhetherSobhaDevelopersismaking
Thepointisthatthepositivedevelopmentsfortherealestatesector
headwayonsales,giventhepatheticstateoftheresidential
bywayoflowerinterestratesandpolicyreformstopromote
realestatemarket.Photo:
investmentareyettopushsales.

IntheMarchquarter,thefirmsstrongbrandequity,too,didnothelp.
Onthecontrary,newsaleswere15%lowerinvolumetermsfromtheyearagoperiod.Evenifwelookataoneyearperspective,Sobhas
fiscal2016saleswereonlyatadhigherthantheyearbefore.

AreportinearlyAprilbyElaraCapitalsays,Fiscal2016isthethirdconsecutiveyearwhereSobhahasmisseditsannualsalesguidance
with3.4millionsq.ft(msf)ofsalesworth`2,000croreversusaguidanceof4msfofsalesworth`2,600crore.

Thisisnotall.

Sobha,likeitscounterparts,issaddledwithunsoldinventoryandcostoverruns.

Althoughprojectexpenseswerelower,advertisingandmarketingexpensesandoverheadswentupduringthequarter.Butthefirm
managedtoholdoperatingmarginattheyearagolevelofaround27%.

Fortunately,inspiteoftightliquidityconditionsinthemarket,SobhasoperatingcashflowturnedpositiveintheMarchquarter.

However,itmaybetooearlytorejoiceastheroadaheadstillhaschallengesofcustomeraffordabilityandunsoldprojectsaddingtothe
costs.Themanagement,infact,hasmoderatedexpectationsbyguidingthatfiscal2017willbeflatintermsofsalesgrowth.

Thecautioustonemaydragthestockthathadearlierrisenonnewsofapossiblebuyout,whichalsoappearstobemuchadoaboutnothing.

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