Not pursuing acquisitions; hands are full, says Sobha MD

Rashmi Pratap Mumbai | Updated on November 20, 2018 Published on November 20, 2018

FILE PHOTO - J C Sharma, MD and Vice- Chairman, Sobha Ltd.   -  REUTERS

The idea is to have a far better presence in existing cities, says JC Sharma

Realty developer Sobha Ltd is unfazed by the NBFC crisis. It is neither worrying about funding nor scouting for acquisition opportunities. In a chat with BusinessLine, the company’s MD and Vice-Chairman JC Sharma spoke about the increased cost of funds in the post-IL&FS scenario, how the firm’s backward integration model is helping improve margins, and why Mumbai remains a dream market. Excerpts:

The NBFC crisis has severely impacted the real-estate sector. Does it change things for Sobha in any way?

The NBFC crisis has not affected our company. At the same time, we are conscious of the fact that it has impacted new home loans as NBFCs had been taking a more aggressive stance than banks in their disbursal. The impact on these customers is yet to be fully understood.

Has this crisis created opportunities for you?

It does create a lot of consolidation opportunities for any financially strong player. We have already planned close to 9 million sq ft of new launches, and have good visibility on ongoing projects, which we can sell in the next few quarters. Various intermediaries have been forwarding certain new opportunities in these circumstances, and while we have looked at some of them, we are not pursuing them aggressively, and continue to focus on existing operations.

Does the drying up of liquidity impact your cost of funds, which you have been bringing down every quarter?

Till September 30, we had been bringing down our cost of funds, but I believe we have hit the bottom now. It will be difficult to reduce it further. Banks have increased their MCLR (marginal cost of funds based lending rate) and they need to pass on the increased cost to borrowers. The cost of funds will start going up if the current trend continues.

Sobha’s two revenue streams are real estate, and contract and manufacturing. Do we see the contracts and manufacturing segment getting bigger than real-estate operations, given some big contracts you have bagged?

No, that will not happen; growth will continue in both the verticals. Our backward integration model, which was primarily created to support the real-estate segment, is supporting our construction business as well. This model is the key differentiating competency we will continue to enjoy over every other player in India. It helps us deliver our projects on time and have industry-leading margins. Our key capex investment has been written off and we are now just sweating the asset.

What makes you stay away from Mumbai though you have reached Gurugram in the North?

We do have the aspiration to get into Mumbai. It is, for us, a difficult market on two counts. First, land prices are high and we cannot correlate them to the product prices. Second, we are studying how the FSI (Floor Space Index) mechanism works in Mumbai. Even if an opportunity comes to us, we can be involved with financial commitment to get in only at the design stage.

Warehousing is gaining a lot of traction after GST implementation, and so is commercial space with REITs (Real Estate Investment Trusts). Are these interesting segments for you?

Warehousing is a fast-growing segment. As retail gets consolidated, bigger opportunities will emerge. But we are not able to stack up the economic benefits of our presence there. We are not a big player in the commercial space either, as it requires extra focus. These are good sectors to be in at some point of time when cash flows and the market permits. But as things stand today, the idea is to have a far better presence in existing cities, and that takes a lot of our resources and efforts.

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Published on November 20, 2018
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