Sobha reported a steady sales momentum in Q2FY23

Sobha reported its highest-ever quarterly sales booking of Rs. 11.6 billion in 2QFY23. Due to 2Q being a relatively weak quarter and the large base of 2QFY22, sales volume remained stable at 1.34 million sq. ft., a 2% QoQ and 1% YoY drop.

However, due to the company's ability to accept price increases and improve its product mix (with a higher contribution from Bengaluru), sales value increased 13% YoY and 2% QoQ, with an average price realization of Rs. 8,709/sq. ft. increasing 3% QoQ and 14% YoY.

Adoption of hybrid work models in the IT/ITeS sector, higher disposable income, improved affordability, and home ownership aspirations gyrating toward sustained housing demand despite recent rate hikes, which remain lower than secular home loan rates in the past.

Sobha launched a new project of 0.2 million square feet in Thiruvananthapuram, its fourth market in Kerala and the 11th in India. Kerala's contribution to sales has been steadily increasing, accounting for 10% of the company's sales volume in 2QFY23. During the quarter, the non-Bengaluru contribution to sales was 22%.

Bengaluru remained a key market for Sobha, accounting for 78% of its sales volume in 2QFY23. This will be the company's second consecutive quarter with sales volume exceeding 1 million square feet, representing a 30% year-over-year increase. Sobha opened two new projects in Bengaluru totaling 0.68 million square feet of TSA.

Sobha's strong operational performance and attitude toward maintaining lower absolute debt have been key drivers of consistent net debt reduction over the last several quarters. Sobha experienced sustained deleveraging and repaid gross debt of Rs. 10 billion over the last seven quarters as a result of consistent cash flow excluding 2QFY23. A prudent capital allocation strategy is the management's balanced approach to new business development and balance sheet deleveraging. The net debt is expected to decrease further in 2QFY23.

The consolidation is expected to continue, and a developer like Sobha, with its balanced portfolio of Bengaluru and non-Bengaluru markets, is in a good position to profit from the housing cycle recovery. However, in the aftermath of a rising interest rate cycle, festive season demand and sales momentum remain critical to monitor.