>SOBHA DEVELOPERS: FY11 sales of 3msf look achievable to us. Near term focus on debt reduction.

• FY11 sales guidance of 3msf (+50% Y/Y, FY10-2msf) seems achievable in our view given (a) company’s current bookings run rate of ~0.7-0.8msf per quarter, (b) 3.4msf of unsold inventory in its ongoing projects and (c) robust launch plans of 7msf in FY11. Our average realization assumption of Rs 3,700 psf for FY11 is in line with company guidance of Rs 3,750-3,800 psf. Overall this should drive a 40% CAGR earnings growth over FY10-12E on our estimates.

• Reducing leverage remains the key focus-Target Net D/E remains at 0.5x vs 0.8x currently. The company's overall plan is to reduce net debt by Rs4B aided by Rs2B of asset sales and the rest via operational cash flows. However, Sobha has debt maturity of Rs5B in FY11 thereby implying a cash flow gap of Rs1B. Management indicated that the company has debt facilities in place to re-finance this. Overall for FY11, we model net debt reduction of Rs3.3B which includes Rs1.5B from asset sales.

• 7 msf of new launches over the next 12-18 months: In FY10, Sobha achieved sales of 2msf largely from its ongoing projects with only one project being launched during the year. The pace of new launches is expected to pick up as unsold inventory is declining. Sobha targets around 7msf over the next 12-18 months. Preliminary work has already begun for its launches in South Bangalore (Marigold) and Pune (Carnation II).

• Delivery track record is good: In FY10 Sobha delivered 5.6msf of space in FY10 and is gearing for 6.5msf of deliveries in FY11. The company currently has 7.8msf of real estate projects under-construction, of which 4.4msf has already been sold. Historically Sobha has consistently delivered 6-7msf of projects (including contracting business) and this gives comfort to us on our sales assumptions.

• Maintain OW, Mar-11 PT of Rs420/share. A slowdown in hiring trends in the IT sector is the key risk to our OW hypothesis.

To read the full report: SOBHA DEVELOPERS