Karvy Stock Broking has downgraded Sobha developers (SDL) to 'Sell' from 'Hold' with target price of Rs 485 in its report.
Commenting on the investment rationale, Karvy Stock Broking said, "SDL reported a muted pre-sales volume for 1QFY15 which marks of slow start to the post election sales rush. Absence of new launches and April-14 being a lackluster month, resulted in 18% YoY and QoQ decline in pre-sales.
In our earlier notes, we had highlighted that the true test of sentiment tailwinds shall start reflecting in sales from 2HFY15E and we continue to believe so with enough evidence of new launches 10 million sqft over next 3-4 quarters; easing interest rates; conducive policy environment & fence sitters coming back to market. Given this backdrop and SDL modest sales guidance of 4mn sqft, the expectations of FY15E to be a better year vs FY14E shall help take out some wind from Government actions and its implication on demand.
SDL now trades above our fair value estimate of Rs 485 share and we downgrade our rating on SDL from HOLD to SELL. We maintain our NAV based target of Rs 485 share valuing real estate business at Rs 457share (0.7x FY15E end NAV), contracting business at Rs19/share and manufacturing business at Rs 10 share".
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