Motilal Oswal Reiterates Buy On Small Cap Stock, Sees 46% Strong Upside, Declares 30% Dividend

Leading brokerage firm Motilal Oswal reiterates "Buy" on Sobha Ltd. with a target price of Rs.750 apiece. Considering the given target price, the stock is likely to fetch strong gains of upto 46% if it is purchased at the current market price i.e. Rs. 516.05 apiece.

On May 29, 2023, the Board of Sobha recommended a dividend of Rs. 2/share i.e. 30% for the financial year 2022-23. It is a small-cap real estate sector company with a market capitalisation of Rs. 4,894.52 crore.

Dividend

"Recommended a dividend of Rs. 3.00/- (30%) per equity share for the financial year ended March 31, 2023, subject to the approval of the members," the ocmpany said in an exchange filing.

Valuation & View

Motilal Oswal said, "With higher-than-expected launches in FY24, we increase our FY24/FY25 presales estimate by 7%/11% to INR60b/INR68b. On the P&L front, we maintain our revenue estimate, but have reduced EBITDA by 36%/24% for FY24/25, reflecting the margin pressure on the contracting business. SOBHA is progressing well on the pre-sales growth trajectory. The steady cash flow is enabling debt reduction and renewed focus on new land investments. However, with the delay in launch of Hosur project and the launch at Hoskote still more than a year away, we do not expect any material re-rating triggers from the land valuation perspective in the near term."

It added, "That said, the current valuations imply a near zero value (INR3b) to the land bank, which is unwarranted. We arrive at a fair land value of INR26b (taken at book value) v/s INR3b of implied value. We roll-forward our estimates and also bake in marginal debt repayment thus resulting in an increased TP of INR750. We reiterate our BUY rating on the stock."

Stock Outlook

The current market price of Sobha's stock is Rs. 516.05 apiece on NSE. It jumped 1.80% from its previous close. Its 52 week low is 412.10 apiece and 52 week high is Rs. 750.85 apiece, respectively.

The stock declined 0.36% in the past 1 week, while, in the past 1 month, it jumped 12.54%. It declined 4.64% in the past 1 year. In 3 years it gave 165.66% positive return and 2.43% in 5 years, respectively.

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