Sobha Limited (SOBHA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Sobha Limited Q1 FY '27 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand over the call to Mr. Adhidev Chattopadhyay from ICICI Securities. Thanks, and over to you, sir.

Good evening. Thank you for joining us on the Sobha Limited Q1 FY '27 results call today. As always, from the management we have with us, Mr. Jagadish Nangineni, the Managing Director; and Mr. Yogesh Bansal, the Chief Financial Officer. I'd now like to hand over the call to the management for their operating remarks. Thank you.

5 Thank you. Good evening, everyone, and thank you for joining us for '27 earnings call. I thank all for maing time to be with us today. Our operational numbers earlier shared in the month and the detailed investor presentation is available on our website. Today, I'll briefly continuing operational highlights for the quarter. And our CFO, will be [indiscernible] greater detail. I'm pleased to share that Q1 FY '27 has been [indiscernible] in terms of sales. We achieved the highest ever quarterly real estate sales, [indiscernible], representing 76%. We sold [indiscernible] 15,655 per square feet, reflecting the strength of brand. Bangalore once again emerged as our strongest market, contributing 57% of the quarterly sales of about INR 2,067 crores driven by [indiscernible] launches of Sobha OneWorld and [indiscernible] product development. The NCR region also delivered its highest ever quarterly sales is about INR 1,384 crores, mainly driven by certain Sobha [indiscernible] reaffirming our strategy of expanding in high-growth micro markets. Together, these launches significantly contribute to our record quarterly performance. In Sobha One world, out of the overall 3,484 homes across 47.4 acres, we leased 1.4 million square feet and order sales about 40% at the launch. In Sobha Crescent, we sold about in Q1 FY '27. During the quarter, we launched 3 new projects across Bangalore and Gurgaon with the combined salable area of 6.89 million square feet and a potential sale value of about 10,000, which has further strengthened our development pipeline and provide [indiscernible]. Execution continues to remain our core strength. During the quarter, we completed 607 homes covering 1.08 million square feet. Consistent project delivery remains central to our business models and enables faster revenue, reinforcing customer confidence in the Sobha brand. We plan to complete 6 million to 6.5 million last year's completion of the [indiscernible], which can be about[indiscernible]. Our development portfolio continues to provide strong [indiscernible]. We currently have a forthcoming launch pipeline of about 20.777 million square feet across 17 projects. Of this, we are confident of launching 9 projects in square feet during the remaining period of FY '27. So this is 4 projects in Bangalore, about 3 million, 2 million square feet project in Hyderabad, which is about 1.7 million square feet and 2 projects in Kerala [indiscernible] with confidence in growth momentum over the medium term. At FY '27, we also have 14.9 million square foot entry, both put together forthcoming launch pipeline, and we have a strong visibility to be sold in the coming quarters and the years. We envisage our net debt to be at about 0 level for this year. And the important strength of our business continues to be our balance sheet. We ended the quarter with a net cash position of about INR 69 crores, low of about 7.62%. Cash and [indiscernible] INR 1,924 crores despite higher investments in land acquisition and project expansion. This financial strength gives us flexibility to continue investing in future growth while maintaining a prudent capital allocation strategy. On the financial performance, an income of INR 130 representing a growth of nearly 48% year-on-year. The remaining P&L details will be covered by our CFO. Our future earnings renewed to be very strong. As of end of this quarter, the company has INR 28,563 crores of revenue yet to be recognized from the sales that have already been done. Margin expansion as we complete the projects completely. Our backward integrated operating model continues to differentiate so by the market. During the quarter, our other businesses generated revenue of about INR 170 crores and the order book visibility for those businesses [indiscernible] has a total income of about INR 23 crores. In the steady-state run rate, we expect in this financial year also to be similar to in terms of revenue for the other businesses. Looking ahead, we remain quite optimistic about the new launch pipeline that we have. And we see a good customer demand for our products and we believe the company is well positioned to sustain this growth momentum and deliver long-term value. With that, I would like to hand over our call to our CFO, Mr. Yogesh Bansal, who will take you through the financial performance in greater detail.

Good evening, everyone. Q1 FY '27 quarter reflects improved revenue and profitability, healthy operating cash generation and continued strength in our balance sheet with a net cash position. So our total operation cash inflow during the quarter increased by 8.2% year-on-year basis to INR 1,924 crores. Real estate collections stood at INR 1,756 crores compared with INR 1,599 crores in Q1 FY '26. Collections from contract and manufacturing business stood at INR 168 crores. Total net operation cash flow is generated INR 312 crores. During the quarter, project expenditure increased in line with increase in construction activity. We also incurred higher sales and marketing expenditure in line with increased sales and new project launches. The company generated cash flow of INR 290 crores. During the quarter, we invested approximately INR 370 crores in land and approximately INR 70 crores in CapEx. The quarter recorded an overall net cash outflow of INR 149 crores. This net cash outflow was primarily attributable to planned investment in land and future development opportunities. These investments were undertaken while retaining a strong liquidity position and a net cash balance sheet. Coming to P&L front, total income for Q1 FY '27 stood at INR 1,330 crores, representing an increase of approximately 48% year-on-year. Deducted revenue increased by approximately 60% to INR 1,107 crores compared with INR 694 crores in Q1 FY '26. Revenue from the [indiscernible] business stood at INR 171 crores, compared with INR 162 crores in the corresponding quarter of the previous year. Profit after tax stood at [indiscernible] crores compared with [indiscernible] in Q1 FY '26. The improvement in profitability [indiscernible] higher real estate [indiscernible] continued financial discipline. During the quarter, our residential real estate contributed revenue of INR 63 crores [indiscernible] of 1.24 million square feet comprising 819 homes, reflecting our continued focus on timely project execution and delivery. Our balance sheet continue to be a key source of strength. As on 30th June 2026, gross debt stood at INR 1,110 crores, while cash and cash equivalents stood at INR 1,769 crores. Our net debt ratio stood at negative 0.14% and our average borrowing cost is 7.62%. Our strong cash position, low leverage and competitive borrowing costs provide us with the flexibility to fund construction, land acquisition and pursue growth opportunity without compromising financial discipline. We have projected receivables of sale and unsold value approximately INR 31,000 crores again [indiscernible] incurred INR 91,000 crores projected marginal cash flow of INR 12,000 crores from completed and ongoing projects. Together, these figures provide substantial visibility for future collection [indiscernible]. For FY '27, our financial priorities remain focused on maintaining a strong and liquid balance sheet, improved collection and operating cash generation and discipline in capital allocation. We remain well positioned to support sustainable business growth. Thank you once again for joining us today. With that, we can open the floor for questions.

[Operator Instructions] The first question is from the line of Girish Choudhary from Avendus Spark.

Congratulations on the strong pre-sales. I mean, firstly, if you -- obviously, you had a strong start to the year. So if you could just give us the presales growth or the booking value you're targeting for fiscal '27? And as a follow-up, you mentioned about 8 million square feet of launches for the remaining 9 months. So if you could give the GDV and also the time lines on the key projects, which we should look forward to?

Thank you, Girish. The last quarter, I mean, like end of the financial year, so we have guided for at least 30% growth in the presales. That I think we should be able to continue to achieve. And if all the launches happen within time, probably we can do slightly better than that. But as of now, I think we continue to aim for that in terms of presales. Now coming to the exact timing of these remaining project launches of about 8.2 million square feet, like in the opening comments I have given, those most -- all these about 9 projects, we would be able to do it within the next 9 months. So those -- most of them would be -- I mean, this quarter would be about 3 projects and which are a couple of projects in Kerala and 1 plotted development in Bangalore and probably a small 0.4 million square feet project in Bangalore. But other than that, the remaining projects would be coming in Q3 and Q4.

Got it. Got it. That's useful. And secondly, what we noticed also collections were relatively modest considering the presales. So was this primarily a timing issue because a large part of sales came towards the end of quarter? And should we expect a material improvement from this quarter onwards?

Yes, that's right. What you are -- what you mentioned was right. One is the collections from new sales have come towards the end of the quarter. And hence, there is -- I mean there is more collection that would be coming from these new sales, but part of the collections only have come in this Q1. Second is typically, our milestone billing collections this time were relatively lower because some of the milestones we could not achieve due to labor shortage in -- mainly in April and May. And hence, the billing -- corresponding billing could not happen. And hence, there is a small shortfall there also. Otherwise, in general, things seem to be good in terms of overall cash flow visibility.

Okay. So we are on target to do the INR 2,000 crores, I think, which was guided in the past for the year?

INR 2,000 crores of operating cash flow?

Yes, yes.

Yes. I mean that is on an average for the next few years, if you take an aggregate level of what is the marginal cash flow. But we should -- as we grow, we should be able to do -- we should be able to touch that number.

Yes. Lastly, if I may, on the land payments, we have seen around INR 370 crores during the quarter higher than the normal run rate. So if you could explain, I mean, for fiscal '27 and '28, what are the commitments and then from a business development point of view, what are you seeing?

Yes. I mean, this quarter, in addition to our current normal commitments of the existing land, we have invested in a couple of new lands. One small land we have bought in Mumbai, and we have invested in a new opportunity in Greater Noida. So put together, these are the 2 new ones. Otherwise, the rest are towards commitments of the future forthcoming projects that we have already declared.

[Operator Instructions] The next question is from the line of Puneet Gulati from HSBC.

My first question is with respect to your disclosures on the forthcoming project, where you talk about potential sales value of INR 295 billion. And versus that, the margin that you talk about in Slide 15 is INR 68.3 billion. This is a lot lower than what you had in the previous presentation at close to INR 86 billion of margin and a smaller saleable value for forthcoming project. What is the change here?

You're right, Puneet. So the main difference for the new forthcoming majority -- I mean, the mix of the projects, a greater mix is towards joint development. And hence, that's the marginal cash flow you would have seen reduction. Second is earlier in this marginal cash flow for forthcoming projects, we had Hoskote and Hoskote as one of the main projects, which had -- which was our own land and hence, the marginal cash flow was much higher.

Okay. So the GBV that you state is basically including the landowner share?

Yes. This is the gross value of all the projects -- of the entire project.

Okay. That's fine. And secondly, while you talked about potential 2 acquisitions this quarter, one in Mumbai and then one -- sorry, the other one I missed out.

In Greater Noida.

And have you paid for both of them?

Yes.

Okay. So how should one think about full year allocation of capital towards land? What is the run rate one should assume?

We have done last year -- I mean, we would -- from a land payment point of view, we would be roughly similar to land for last year. And going forward, there will be an incremental from a -- I mean, last year, we did about INR 1,160 crores. And this year, we already did about INR 370 crores. And we have identified a couple of opportunities where I think we can invest in Bangalore and in NCR. So if we are able to complete those transactions, then we might look at closer towards INR 1,500 crores to INR 1,600 crores this year.

Okay. That's helpful. And lastly, your 9 project launches, does that also include the balance phase of Oneworld or that's separate?

No, that doesn't include balance phases. Like I said, we have taken the entire project of Sobha OneWorld in the new project launches in Q1.

The next question is from the line of Parikshit Kandpal from HDFC Securities.

Jagadish, congratulations on a great quarter on presales. So my first question is, I mean, the way we were forecasting this quarter, the first half was a washout because of geopolitical issue. So just wanted to understand what led to the strong demand coming back towards the second half of the quarter, both in Gurugram and Bangaluru. And also wanted some color on Noida, how the Rivana has done after there were some delays you said the sales could have got pushed out. So just your sense on the demand, what has surprised -- just surprised us positively? And where do you think the real estate cycle currently is?

Thank you, Parikshit. So like you have seen in Q1 -- or let's say, Q1 of this calendar year, right? We had been preparing for these launches for some time. And hence, the time advantage that we had got in terms of preparation is what I believe has -- is what led to a stronger performance in this quarter. So for any new launches, like you know, it's not only dependent on the timing of the launch, but also the extent of preparation for that. So in that aspect, we were much better prepared and hence, there is a stronger response is what we can see in Q1. Otherwise, the overall demand scenario seems to be quite stable from what we have seen in terms of the launches and also what we are witnessing post the launches also. It's been quite steady. So we believe that it is a reasonably good demand scenario. What I would like to -- we would like to see is how the supply is going to come up. Specific to your question related to Rivana. Rivana has also been quite steady. It's not a project where it is a much higher -- we have not seen much higher sell-through in the -- at the launch. But post that, during the quarter, it has been quite steady in terms of monthly sales and the quarterly sales.

Okay. My second question is on the INR 1,500 crore tentative. I mean you said that the deals could get close INR 1,500 crores CapEx on land may happen this year. So just wanted a breakup of how much will be Bangaluru and how much is the contribution from NCR and MMR on this? And whether is it right to assume that out of INR 1,500 crores, [ roughly INR 15,000 crores ] [indiscernible] addition will happen?

Yes. I mean from a remaining capital allocation, part of that is towards our current commitments of the 20.77 million square feet, that's roughly about another INR 400 crores. And our past commitments, those are also that's about another INR 200 crores. So those -- I mean, those are about INR 600 crores plus already we have done about INR 370 crores. So remaining is about INR 600 crores. So that INR 600 crores odd, we will -- we should look at the current opportunities that we are pursuing. It's still a little early to disclose that, but it's -- at a good valuation and hence, we should be able to -- typically, in any new land buy, we see that the value of the land is between about 15% of the total sale value. So it would be in the similar range.

So this will be largely in NCR, INR 600 crores, INR 700 crores incremental beyond the existing in the past commitments which you said. So out of the INR 600 crores to INR 700 crores, where -- how will be the geographical breakup of this?

It's part of it is -- majority is in Bangalore and the remaining is split between -- largely between NCR and a little bit portion to Mumbai.

Okay. And just a third question on this Hoskote. Sir, how much is the contribution from the Sobha Oneworld out of the total INR 22,000-odd crores of sales, how much is the contribution? Because the numbers look a little lower, the numbers would have been. So was there any spillover you're going to book in Q2 out of this? Just wanted the total cumulative sales on this and how much has been recognized in Q1?

About -- you have seen about 45% of the overall sales is from Oneworld sale and the remaining is from both like Bangalore and NCR have contributed close to 87%.

Sorry, I didn't hear you, how much?

Bangalore and NCR together have contributed about 87%.