ICICI Securities maintains 'buy' on Sobha Developers.

Stock Recommendation from ICICI
CMP - 105.80
ICICI Securities has maintained a “buy” on Sobha Developers after the company’s second quarter results were in line with expectations with revenues and PAT dipping 10% Y-o-Y and 13% Y-o-Y to Rs 2.9 billion and Rs 490 million, respectively. The brokerage, however, has downgraded the company’s NAV owing to sluggish sales and stretched balance sheet.

According to the brokerage, the company is facing headwinds in the form of downturn in realty and strained balance sheet. “The debt level has increased three times to Rs 19 billion in one year, and new sales and project launches have slowed down. We lower FY09(estimated) NAV estimate to Rs 282/share (target price at Rs 169/share), assuming 25% drop in selling prices and increased timelines by 8-10 years (reducing development pipeline 55-65%).

ICICI Securities has also lowered FY09E & FY10E earnings estimates by 51% and 71%, respectively. Sobha’s balance sheet is stretched and any respite through the proposed rights issue of Rs 3.5 billion will be temporary unless housing demand picks up, it adds.