Sobha Shares Drop 3% on Weak Quarterly Sales; Stock Down 11% in a Month.

Sobha Ltd., a leading real estate developer, saw its shares fall nearly 3% in early trade on January 8 following the release of its Q3 FY25 sales report. The company's weak quarterly performance has intensified investors' concerns, and the stock has lost approximately 11% over the past month.

Key Highlights from Q3 FY25 Sales Report

1. Total Sales Value:

• ₹1,388.6 crore, representing a 28.9% decline year-on-year (YoY).
• Sequentially, sales value rose 18%, driven by a new sales area of 1.01 million square feet.

2. Top-Contributing Markets:

• Bengaluru: Accounted for ₹1,001 crore, or 72.1% of total sales, fueled by the launch of Sobha Ayana.
• Gurgaon: Contributed 10.3% to total sales, showing improved performance.
• Pune: Gained traction with the near-completion of Sobha Nesara.

3. Price Realization:

• Average price realization improved 16.5% YoY, reaching ₹13,663 per square foot.

Nine-Month Performance Overview (FY25)

For the first nine months of FY25, Sobha reported:

• New Sales Area: 3.12 million square feet sold.
• Sales Value: ₹4,441 crore, reflecting a 31.3% YoY growth.
• Average Price Realization: ₹14,226 per square foot, driven by price hikes and higher realizations from new launches.

Regional Sales Trends

1. Tamil Nadu:

• Sales value surged 79.4% YoY, driven by substantial project progress and new launches.

2. Kerala & Hyderabad:

• Maintained steady performance, supported by existing inventory.

Management Outlook and Market Dynamics

Sobha’s management remains optimistic about medium-term demand prospects, citing strong fundamentals in India’s real estate market:

• Urbanization & Job Creation:
  • Growth in Global Capability Centers (GCCs) has boosted office space absorption in 2024, serving as a proxy for job creation.
  • Sustained demand for residential properties is expected in urban areas, although increasing supply may balance the market in the medium term.

Investor Takeaway: What Lies Ahead for Sobha?

While Sobha has demonstrated sequential growth and strong regional performance in key markets like Bengaluru and Tamil Nadu, the YoY decline in Q3 sales value poses a concern. Investors will closely monitor the company’s execution of ongoing projects, price realization trends, and market conditions to gauge its recovery potential.

Key Growth Drivers:

1. Strong demand in key urban markets.

2. Improved price realizations from new launches.

3. Steady performance in regions like Kerala and Hyderabad.

However, rising supply levels and market volatility could pose challenges soon.