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We hope to continue double-digit growth in residential space: JC Sharma, Sobha Developers

Our per square feet realisation has come down, but the margi..

Our per square feet realisation has come down, but the margins have remained intact and our strategy to shift to the smaller units has paid off, JC Sharma, VC & MD, Sobha Developers, tells ET Now.

Edited excerpts:

What was the impact because of the new accounting changes? Contract manufacturing also seems to have done quite well. What are the triggers here?

We have introduced the Accounting Standard 115 from first quarter onwards. It allows us to recognise the revenue on competition basis. The real estate revenue can only be recognised once we perform our obligations. Comparable data is not possible for these two quarters of this financial year versus similar quarters last financial year. Had we followed that, the earlier norms of Accounting Standard 11 and 18 our performance would have been further up, the top line may be by 37% and the PAT by 44% and we would have achieved the topline of Rs 900 crore.

But even during this new accounting method that we have followed, we have shown quarter on quarter growth. We have improved our cash flows. We have improved our operational margins. We have improved our PBT and PAT. The contracts and manufacturing division has been doing well as well. The operational performance that we have been displaying for the last two quarters, are showing double digit growth on the operational performance also.

As we move forward, the same will get reflected in our top line as well as bottom line, duly supported by the contract and manufacturing division. This will also be a great financial year as far as our company is concerned, in a reasonably rough environment.

How much of your total house sales were done by NBFCs? Could crunch by NBFCs impact your sales?

It is a good point. There are two sets of NBFCs. There are NBFCs like HDFC, PNB Housing, LIC Housing, Can Fin Homes and others which are not being impacted by the problems.

Then there are a few private sector NBFCs which on behalf of even the existing customers have not been paying their portion of the loan disbursement. At the same time, they are assuring that the payment will be made and theres a delay of almost two to three weeks.

We believe they are going through that asset-liability mismatch syndrome which should be resolved only by this month end or so. We are not an expert but in our case, the so-called market share of these companies it is not even in double digit, it is in lower single digit.

We believe that as far as we are concerned, it may not have a great impact. We also do not borrow from such companies as a corporate and otherwise also there is zero impact. In our case, 80% plus of the customer base consists of professionals with salaried income and they get money at relatively good rates from say SBI or from other financial institutions which may not get impacted. But yes, this issue needs to be taken care of to ensure that the orderly growth in our sector does not get impacted.

The growth has been quite impressive in the contract and manufacturing segment. Is this just a one-off or is this growth sustainable?

We achieved almost Rs 900 crore or so of the top line recognition in the last financial year. We are aiming at growing it to Rs 1,200 crore in this financial year and we are well on target. With an order book of almost Rs 2,300 crore in our hand, we should be growing this business double digit at least in the foreseeable future.

A similar thing also goes for the real estate residential space where we hope to continue to grow on a double digit basis.

You are confident of a double digit growth but in any market — be it Bangalore, Mumbai, Delhi, Lucknow or Kanpur — nobody is excited about buying or owning real estate or investing in real estate?

I would not be able to comment upon that but generally speaking, the market remains tough. At the same time, we are seeing guys who are the first-time buyers. The actual buyers prefer to buy when they believe that their disposable income and eligibility allows them to buy home relatively early in their life phase. They are buying the homes. Our per square feet realisation has come down, but the margins have remained intact and our strategy to shift to the smaller units has paid off.

At the same time, we are also conscious of the fact that consolidation is the order of the day and in that consolidation process today, if a customer has an intrinsic and inherent belief in a reputed developers completion schedule and its past performance, they are taking the call of buying during the construction phase. But in cases where the track record is not up to the mark, those developers definitely are seeing the dip in their sales volume.

While the market as a whole in 2018 will grow bigger than what it has achieved in 2017, considered from the peak of 2012-13, even now we have not achieved those volumes. So, there are inherent contradictions but within the contradictions, the consolidation is allowing a few developers to show better numbers at the cost of market growth.

Sales improved primarily in Bangalore and Gurgaon in the quarter gone by. What are the trends that you have witnessed there? Any specific impact from Kerala exposure? What are the promising pockets for you?

We consider Kerala as a great market where we want to take total volumes to a million square feet new sales a year in three years time. We have invested a lot in the Kerala market and we believe this is the market where we can sell more and can continue to enjoy the market leadership.

At the same time, certain exceptional events can impact the volume as well as the cash flows. We believe that from December onwards, when NRIs return to Kerala, the sentiments should revive and from next month onwards, things should begin to look better. This financial year, despite the setback of four to five months, Kerala will continue to perform better.

Gurgaon is one of the most genuinely growth-oriented markets in the north and we are investing a lot in that market. We have a role to play and in the years to come, Gurgaon as well as the NCR as a whole will be a great market for Sobha.

We have got a good land bank and a good pipeline of new projects being launched in Bangalore. We should maintain our market leadership and provide the kind of products which the market can accept in the near future. That way, we will keep offering both 1,000-square feet apartments and 4,000-square feet luxury homes to customers and that way we will have double digit growth for the next few years as far as residential space is concerned.

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