HDFC Securiites has retained 'Neutral' on Sobha Developers with target price of Rs 542 as against current market price (CMP) of Rs 530 in its report.

Commenting on the investment rationale, HDFC Securities said, ''Sobha Developers (Sobha) delivered a solid operating performance in FY14 despite a challenging macro with core operating cash flow surplus of Rs 6.6 billion. However, it was offset by outflows of Rs 2.9 billion on interest/taxes and capital outgo of Rs 3.6 billion, resulting in marginal net inflow of Rs 0.1 billion in FY14 with net debt remaining flattish YoY at Rs 12.7 billion (net D/E of 0.56x).

However, with the Kochi land acquisition of Rs 3.3 billion in FY15E and capex of Rs 9 billion (Rs 3 billion of capex each in FY16E and FY17E) on APMC commercial asset, we expect Sobha to see cash flow deficit of Rs 4.5 billion over FY15-17E (pls refer Pg 3 for detailed cash flows over FY12-17E). Consequently, we expect net debt levels to rise by Rs 4.5 billion over FY15-17E to Rs 17.2 billion (net D/E of 0.5x). We retain our Neutral rating with revised NAV of Rs 542/sh (CMP Rs 530) as we roll forward our valuation to FY16E (earlier Rs 494/sh on FY15E NAV).''

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