‘If GDP expands 6%, real estate will grow 9%’

Anil Urs K Giriprakash Bangalore | Updated on October 05, 2014

JC SHARMA Vice-Chairman and Managing Director, Sobha Developers

Real estate player Sobha Ltd has had a tepid first-quarter because of the slowdown in the economy. It, however, expects to do better as it believes the “feel good factor” among investors is back. In an interview with BusinessLine, Sobha’s Vice-Chairman and Managing Director JC Sharma shares the company’s plans to pare debt and boost growth.

How has the first quarter been and the second shaping up for the company?

It won’t be as good as the subsequent quarter, but we believe the kind of presence we have and the (project) pipeline will sort out the things. Eventually, we expect to do well. For the next few quarters, we expect to see improvement, though we know this improvement is more due to the sentiment part, and the feel good factor.

What about demand for the company’s projects?

I believe that from June onwards, there has been a good improvement in Bangalore. We have reasonable presence in Kerala, which too has seen an improvement. Pune is also good for us, though the NCR (national capital region) still remains challenging. Overall, the coming quarters should be better.

Can you share with us city-wise contribution to your top line?

Bangalore contributes between 30-35 per cent, though it was 40 per cent last quarter. Earlier, Bangalore contributed 50-55 per cent. But there have been occasions when NCR contributed as high as 70 per cent. But Bangalore has been a consistent performing market in real estate for India as well as for Sobha.

What is the outlook for the next few quarters for Sobha?

We expect to perform better (in the coming quarters) as the market too is expected to perform better. There has to be an improvement in investment cycle in India as most companies have stopped investing. There is a need of that investment cycle to start again and the manufacturing process must be seen at the ground level. India is booming with the excellence in manufacturing. Also, issues like the Vodafone (tax) controversy, transfer pricing and settlement issues are expected to be dealt in a sane manner as the Government has started addressing them accurately. If we can have a growth rate of about 7 per cent, most of the sectors will start performing well. We believe the real estate industry is doing better in the overall economy, so if GDP grows 6 per cent we should grow 9 per cent.

Do you think the Real Estate Investment Trust (REIT) announced in the Union Budget will be beneficial for the sector?

There will be misgivings as well as challenges as far as the REIT structure is concerned.

If someone wants to play safe and invest in commercial assets, for example International Tech Park in Bangalore, you can see there is complete transparency with a near full occupancy for the last 10 years. I think these kinds of assets cannot be build overnight.

So, how things will pan out only time will be able to tell, but one cannot deny the fact that this is the first and critical step in the right direction. The REIT with its guidelines is definitely an improvement from the first draft and this is the healthy way of evolution.

Can you tell us how have you managed the company’s cash flows?

The investment graph of our company shows that we have an annual cash flow of around ₹2,800 crore now. We have constantly improved our project profile, area profile, launch profile and this has been possible by keeping an eye on overall debt.

This year, we are doing things differently. We have started using the available resources to a greater advantage by getting certain opportunities like investing over ₹100 crore in Pune, ₹170 crore in Kochi along with Purvankara. In the coming months, there will be more opportunities and we should be able to improve as well as keep debt under control.

Today, we are able to raise the debt at around 12 per cent, whereas in the market rates are as high as 13-15 per cent and in some cases, between 17 and 18 per cent.

As far as funds are concerned, 61 per cent is company-funded assets and the rest is from the banks. The total debt was around ₹1,500 crore as on June 30 and last year it was around ₹1,300 crore.

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Published on October 05, 2014
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