sobha ltd Management discussions


MARKETS AND OPERATING ENVIRONMENT

MACROECONOMIC OVERVIEW

Financial Year 2023 witnessed a mix of economic trends and conditions across different regions globally. The major advanced economies experienced varying degrees of performance. The United States witnessed moderate 2.1% growth in 2022, despite raising their interest rates from 0.25% in March-2022 to 5.25% in May-2023 to combat inflationary pressures. Sudden rapid increase in repo rates has led to building up of some stress in their financial system, even witnessed a few banks collapse since beginning of 2023. Repercussions of such rapid monetary tightening may not be completely done away with. The Eurozone, on the other hand, faced with challenges due to supply chain disruptions caused by geopolitical situation and lingering effects of the pandemic, managed to grow at 3.5%. Japan struggled with a slow recovery and deflationary pressures and grew by 1.1%. China remained a key player, with a focus on rebalancing its economy and implementing structural reforms, was also reeling under late effects of Covid and registered meagre growth of 3.0% in 2022. Overall, the world economy clocked a moderate growth of 3.4% in FY 2023. In contrast, India, as worlds fifth largest economy, has been a bright spot in FY 2023, registering growth of 7.2%, underscoring the countrys economic resilience amid geopolitical conflicts and global headwinds. Though very significantly influenced by global economic trends, supply chains and commodity prices, FY 2023 had both positive and negative impacts on the economy. India has fully come out of pandemic induced slowdown with K-shaped recovery, where some sectors have grown better than others, Real Estate being one of the sectors which recovered fast and strong. The Indian economy benefited from increased public investment, a revival in consumer demand and significant progress in structural reforms. Inflation remained persistent in the first half of the fiscal, leading to increase in repo rates by RBI to the tune of 2.5% during the year. Economic activity has remained strong and resilient, reflected in record GST collections. Most businesses have done very well and have strengthened their balance sheets, to recover losses from previous Capex investments. They are now ready to embark on fresh capacity building to fuel their next growth cycle. Government focus on rapidly building physical and digital infrastructure, aided by increased budget allocations will lead to higher wealth generation and financial inclusion, going forward. The governments focus on attracting foreign capital through initiatives such as "Make in India", "China Plus One strategy" and "ease of doing business" reforms continued to be relevant.

FY 2023 witnessed a mixed FDI flow into India. While some sectors attracted significant investments, others faced challenges. Global financial market trends also influenced Indias domestic markets during FY 2023. Volatility in international stock markets, changes in interest rates by major central banks and shifts in investor sentiment had spillover effects on Indian equities and capital flows, which remained volatile through the year. With increase in interest rates real estate stocks became out of favor with investors during second and third quarter of FY 2023, recovering moderately towards the end of the year.

Indias GDP touched USD 3.75 trillion in FY 2023 and according to the OECD, India is set to be the fastest growing economy in the G-20 over next few years, despite decelerating global demand and the tightening of monetary policy to manage inflationary pressures.

SECTOR OVERVIEW

The India real estate market size reached USD 256.8 Billion in 2022. According to a study by IMARC Group, it is expected to reach USD 780.6 Billion by 2028 with an expected CAGR of 9.2% during 2023-2028. The Real estate sector in India contributes about 6-7% to Indias GDP. It is also the second highest employment generator in the country. In addition to the growth of traditional segments like residential, commercial and retail, this will also be partly driven by newer segments such as warehousing, logistics, industrial parks, data centers, student housing, co-living and senior assisted living facilities, as well.

The Indian residential real estate witnessed a V-shaped recovery from two years of pandemic-induced lockdowns and consequent economic slowdown across Tier I, II and III cities. Demand remained strong throughout the year despite increasing property prices, interest rates and an expectation of a global slowdown. Most prominent developers across the country have performed well, recording their best sales this year.

Consolidation in the sector remained buoyant, with demand getting polarized towards credible developers with established track record and a reputed brand. This trend is expected to continue with larger share coming to bigger developers increasingly. Having said that, during the year, we also witnessed multiple Tier II developers managed to ease their financial distress and resume operations. A prominent trend in FY 2023 was demand gyrating towards premium residential projects, reflected in growth of luxury home sales in FY 2022-23. Sobha Ltd. caught on to the emerging trend in the market and redesigned some projects to suit demand for larger homes, post pandemic. These have been very well accepted by our customers. Another area which saw significant improvement is use of technology to enhance efficiency with renewed focus on design and incorporation of sustainable and green building concepts. With tools like Building Information Modeling (BIM), AI, drone tech etc. Real estate developers are bringing in higher efficiency into the development process, while improving their adherence to environmental norms.

Indias robust macroeconomic fundamentals, including a large domestic market and a young, expanding workforce, contribute to its economic strength. The governments sustained focus on policies promoting manufacturing and innovation further enhances its growth potential. Domestic consumption remains a key driver and as the middle class expands and urbanization continues, the demand for homes is poised to rise.

OUTLOOK OF OUR MARKETS

A. REAL ESTATE

SOBHA is the foremost backward integrated company in real estate space. Since inception, as a company, it has been a conscious policy to develop all skillsets in-house, in order to maintain an absolute control over the quality and timely delivery of our products. We continue to be laser focused on our product design and construction quality above anything else. To delight home buyers and exceed their expectations has been our constant endeavour, which has given us the recognition and reputation of delivering best quality homes in the market. SOBHA has ongoing presence in 11 cities across 7 states. Company is present in Bangalore, Gurgaon (NCR), Chennai, Coimbatore, Thrissur, Kochi, Calicut, Trivandrum, Hyderabad, Pune and GIFT City (Gujarat). Despite a challenging start to the year, mired in geopolitical tensions, supply chain disruption led spike in commodity prices and lingering trepidations of a global slowdown - SOBHA was able to deliver best ever operational performance during the financial year 2022-23. Company has witnessed strong performance across regions and all residential segments that it operates in. New launches with differentiated designs, crafted by our in-house design studio, keeping in view the fast changes in consumer demand has supported our business growth during the year. Demand has clearly moved towards bigger sized units to cater to additional space for specific utilities – like Office work, personal Work-out area, Kids room, permanent maids room etc. Identifying the behavioural and cyclical trends emerging ahead of the curve and customizing our product offering to suit these requirements of the times - shall remain our priority.

With SOBHAs unique Self-Reliant model, strong brand name and unmatched execution capabilities, the Company continues to deliver all the projects on time. The Company currently has ongoing real estate projects aggregating to 30.60 million square feet of developable area and 20.75 million square feet of saleable area and ongoing contractual projects aggregating to 5.24 million square feet under various stages of construction.

As on 31st March 2023, Company has delivered overall 128.00 million square feet of developable area across Real Estate and Contractual businesses. Since its inception, the Company has completed real estate projects measuring 70.33 million square feet of developable area commensurate to 52.28 million square feet of saleable area.

During the year, the Company has completed the construction activities to the extent of 5.78 million square feet of total developable area corresponding to 3.97 million square feet of saleable area.

BANGALORE

Sobha Ltd. started its operations from Bangalore and is headquartered in the city. This market contributed 69.3% to overall sales volume in FY 2022-23 . During the year, we completed projects with 2.93 million square feet of saleable area only in Bangalore. Some of the major projects completed are mentioned below:

• In SOBHA Dream Acres, we have completed Wing 25, 26, 29, 34, 35, 36 with a total developable and saleable area of 1.05 million square feet and 0.78 million square feet respectively. SOBHA Dream Acres project along with other projects across regions continue to be completed and handed over before stipulated timelines. Since inception Company has delivered 6.53 million square feet of developable area in the project. Construction of this project is carried out using Pre-cast technology.

• We have delivered entire project of SOBHA HRC Pristine with 1.34 million square feet of developable area located at Jakkur north side of Bangalore.

• Also completed SOBHA Forest Edge with 0.64 million square feet of developable area, project located in West Bangalore, in the backdrop of Turahalli forest.

Presently, in Bangalore, the Company has ongoing projects aggregating to 17.19 million square feet of total developable area and 11.71 million square feet of saleable area.

Company has launched the following projects in the current financial year.

• SOBHA Galera - A rowhouse project located in East Bangalore, spread over 4.08 acres. The project comprises of 40 row houses with total saleable area of 131,102 square feet.

• SOBHA Oakshire - A rowhouse project located next to SOBHA Lifestyle, close to Bangalore International airport. The project comprises of 80 row houses spread over 8.86 acres comprising saleable area of 275,486 square feet.

• SOBHA Insignia - A boutique super-luxury project in Bhoganahalli, South East Bangalore, with 33 apartments and a saleable area of 80,251 square feet.

• SOBHA Sentosa - Luxury Residential project located right next to SOBHA Dream Acres, with total saleable area of 779,066 square feet in South Bangalore.

• SOBHA Victoria Park – Project spread over 6.5 acres, in North Bangalore with 588,451 square feet of saleable area comprising of Row Houses and Apartments.

• SOBHA Royal Crest – Luxury project with 3 and 4 BHK apartments only, near Banshankari, West Bangalore with saleable area of 654,429 square feet.

GURGAON - NCR

Company started its operation in NCR market during the year 2011-12 with the launch of its villa project "International City" in Gurgaon. After experiencing positive feedback, Company launched its second project ‘SOBHA City, which was an apartment project and is one of the single largest group housing projects in Gurgaon. During the year 2022-23, we completed SOBHA City – Tower A2, B2, C2 totaling about 0.69 million square feet of developable area.

In total, the Company has ongoing projects aggregating to 3.91 million square feet of developable area and 2.61 million square feet of saleable area, which will be developed and delivered in phases. Under the SOBHA City, the Company is currently working on 3.42 million square feet of developable area and 2.33 million square feet of saleable area. Under the International City the Company is working on 0.43 million square feet of developable area and 0.28 million square feet of super built-up area.

During FY 2022-23, Company has relaunched 6 towers in SOBHA City, after re-designing them to adapt to changing customer preferences. These re-designed units are larger with additional space provided for home office. It was very well accepted in the market enabling us to make historic sales on its launch.

CHENNAI

Chennai is known as automobile capital of India. It is home for large automobile and auto-ancillary units along with considerable contribution from IT and ITES sectors.

Presently, the Company has 2 ongoing projects, aggregating to 0.56 million square feet of total developable area and 0.35 million square feet of super built-up area - SOBHA Arbor and SOBHA Gardenia. SOBHA Arbor a luxury apartment project with 0.39 million square feet of developable area and 0.29 million square feet of saleable area. It is envisioned to be a luxurious residential enclave, featuring the very best in SOBHAs sustainable luxury living segment with beautiful landscapes all around the project, The Arboretum, organic gardens and plenty of aesthetic green features. SOBHA Gardenia is a villa project spread across 6.85 acres of lush greenery, with a truly upscale eco-friendly living.

COIMBATORE

The Company ventured into the Coimbatore market in the year 1998-99 with the plotted development project of ‘SOBHA Harishree Gardens and launched its first Villa development, SOBHA Emerald in the year 2008-09.

Company currently has 2 ongoing projects namely, "SOBHA West Hill" with 0.03 million square feet of developable area and 0.02 million square feet of saleable area and "SOBHA Verdure" with 0.16 million square feet of developable area and 0.11 million square feet of saleable area.

CALICUT

Company has been operating in Calicut since 2013-14 with the first project of "SOBHA Bela Encosta", a Luxury Villa Development.

Presently, the Company has one ongoing project that aggregates to 0.13 million square feet of total developable area and 0.08 million square feet of saleable area.

KOCHI

Kochi is referred to as the commercial capital of Kerala. The City is a major port city, growing at a rapid pace - home to a number of technology and industrial campuses such as Info Park, Cochin Special Economic Zone and KINFRA Export Promotion Industrial Park, Smart City at Kakkanad and Cyber City. The company ventured into Kochi market in the year 2013-14 with the launch of SOBHA Atlantis.

Presently, the Company has 2 ongoing project in the city, aggregating to 3.95 million square feet of total developable area and 2.58 million square feet of saleable area.

"SOBHA Marina One" is a Joint venture project along with Puravankara group. Located on the marine drive, with 2.61 million square feet of developable area.

"SOBHA Atlantis", located near the Kaniyampuzha river, is slightly inside the city with 1.34 million square feet of developable area.

THRISSUR

Company entered the Thrissur market in 2007-08 with its landmark project "SOBHA City", one of a kind first Integrated Township project in Kerala. Presently, the Company has 3 ongoing projects, "SOBHA Lake Edge", "SOBHA Silver Estate" and "SOBHA Metropolis" aggregating 1.47 million square feet of total developable area and 0.96 million square feet of saleable area.

TRIVANDRUM

Trivandrum (Thiruvananthapuram) is the capital city of Kerala characterized by with its calm beaches, back waters and rich culture. It is also famous as the Information technology capital of the state, since it is home to the first and largest IT park in India, Technopark, established in 1990. The district is home to more than 9% of total population of Kerala.

During the year, Company has launched its first project in Trivandrum.

• "SOBHA Meadows - Whispering Hill"– Luxury apartment project with a saleable area of 196,420 square feet, designed on theme of living close to nature. Project is located just 7 km away from Technopark, one of the largest IT hub of India. One-of-a-kind, nature-rich living set in the evergreen city - these residences are designed carefully to maintain the natural contours with about 70% open spaces and allows you to explore a lifestyle thats pro nature. Developable area of the project is about 0.23 million square feet.

PUNE

The Company ventured into the Pune market in the year 2007-08 with the project "SOBHA Carnation", a Super Luxury multi-storied apartment project. Currently we have one project in progress, "SOBHA Nesara" with a developable area of 0.94 million square feet and a total saleable area of 0.62 million square feet. The project located near the pristine foothills of NDA Hills, offers wide lush greens for views, a bounty of birdlife for tweets and a healthier lifestyle.

GIFT CITY - GUJARAT

Gujarat International Finance-Tech city (GIFT) – A Global Financial Hub, GIFT City is Indias first operational smart city. Founded by Prime Minister Shri. Narendra Modi, it is a business district promoted by government of Gujarat through a Joint-Venture Company. The objective behind the set-up of GIFT City is that it aims to tap into Indias huge potential for proving financial services by offering world-class infrastructure and facilities to leading global financial institutions and companies. Currently Company has 2 ongoing projects here - "SOBHA Dream Heights" is in affordable project category with developable area of 0.81 million square feet and saleable area of 0.52 million square feet, "SOBHA Avalon" is an apartment project with developable area of 0.42 million square feet and saleable area of 0.32 million square feet.

HYDERABAD

Hyderabad, capital city of Telangana, is one of the fastest growing cities in India and poised to become the vibrant urban centre and next technology hub for the country. City known for its historic legacy and cultural diversity is now on an accelerated growth path. Due to rapid IT industry boom in the city, it is one of the prime go-to destination of young India pursuing career in technology domain.

During the year 2022-23, Company has launched its first project in the Hyderabad market.

• "SOBHA Waterfront" – This is luxury apartment project located in Somajiguda, the heart of Hyderabad city, overlooking famous Hussain Sagar Lake. It is being developed over 4.03 acres land parcel and comprises of 4 towers with a total saleable area of 654,661 square feet. The 3 BR and 4 BR apartments between 1,948 square feet to 3,287 square feet are designed to offer comfortable and spacious living spaces with stunning views of the lake and cityscape. Total developable area of project is about 0.80 million square feet.

SALES PERFORMANCE:

During the year, SOBHA sold 5.65 million square feet of new saleable area which is historic best performance. Total value of these sales was at 51,978 million with an average price realization of 9,200 per square feet. SOBHA share of sales value stood at 42,313 million. SOBHAs primary focus remains on residential business to generate positive cash flows through speedy delivery and revenue realisation and to ensure appropriate investment in the best available opportunities.

Bangalore* NCR Kerala* Tamil Nadu* Pune GIFT City Hyderabad

FY 2018-19

2.95 0.35 0.43 0.29 0.01 0.01 -

FY 2019-20

3.06 0.24 0.28 0.28 0.07 0.13 -

FY 2020-21

2.73 0.37 0.57 0.18 0.09 0.07 -

FY 2021-22

3.35 0.68 0.38 0.16 0.17 0.17 -

FY 2022-23

3.92 0.78 0.42 0.16 0.06 0.21 0.10

* Kerala includes Trivandrum, Thrissur, Calicut and Kochi

* Tamil Nadu includes Chennai and Coimbatore

* Bangalore is inclusive of Mysore

B. COMMERCIAL

SOBHA has developed two commercial rent yielding assets. Company owns a total leasable area of 476,785 square feet across these 2 properties –

(1) Thrissurs most iconic landmark: the "SOBHA City Mall" and

(2) in Bangalore "One Sobha Mall" located right at the city centre. As of March 2023, the Company has two commercial malls in this business vertical.

• ‘SOBHA City Mall at Thrissur has a total leasable area of 0.32 million square feet out of which SOBHAs share of leasable area is 0.28 million square feet. It is an iconic landmark in the city, commenced its operations from December-2015.

• ‘One SOBHA Mall in Bangalore is with total leasable area of 0.22 million square feet, SOBHAs share being 0.19 million square feet. Located in the heart of Bangalore, this commercial development is host to the topmost of brands from Retail, F&B, Entertainment and Hospitality industries. The mall is poised to become Bangalores next go to destination for shopping and recreation.

C. CONTRACTUAL

During the year 2022-23 the Company has completed 0.62 million square feet of contractual projects.

Overall, since inception the Company has delivered 57.66 million square feet of contractual works and we have 5.24 million square feet of area under execution in 3 cities across India. While SOBHA values long-standing relationship with few of our select clients which contribute to major scope of our total work done in this vertical, there is emphasis on diversifying the client base and reduce SOBHAs risk-portfolio. We are actively involved in major contractual projects across India helping us with geographical diversity and multi-client approach. The Company has delivered projects for LuLu group, Biocon, Dell, Bosch, Syngene, Taj Hotels, HCL, Wipro, Infosys, ITC Hotels, Huawei Technologies, Manipal group, GAR Corporation, etc.

During the year we have added new projects in Karle SEZ Hub in North Bangalore for development of two commercial blocks of 2.54 million square feet.

SOBHAs ability and capacity to deliver high quality, custom designed turnkey projects and the domain knowledge to address the tough challenges have gained a loyal customer base for the contract division. In the contractual vertical, SOBHA has delivered across 27 cities in 14 States. Company seeks to expand its contractual operations while preserving its margins.