SOBHA DEVELOPERS LIMITED
ANNUAL REPORT 2011-2012
MANAGEMENT DISCUSSION AND ANALYSIS
Markets and Operating Environment
The global economy was volatile in the financial year 2011-12. Issues
relating to medium-term fiscal consolidation, the exposure of European
banks to public and private debt, and recurring differences in the ways to
resolve the Euro-debt crisis continued to weigh on the global economic
outlook as the Eurozone accounts for close to one-fifths of global Gross
Domestic Product (GDP).
Adding to this was the devastating effect of the earthquake and tsunami on
the Japanese economy, with supply disruptions weighing heavily on
industrial production and consumer sentiment and spending. The looming
risk to the global outlook is also on account of the geopolitical tensions
centred on Iran that could disrupt oil supply and result in an increase in
Growth in emerging and developing economies evolved steadily as expected,
but with considerable variation across regions. However, rising inflation
is a major cause of concern for many economies.
GDP growth in advanced economies declined to 1.6% in 2011 compared to 3.2%
in 2010 and is expected to be even lower at 1.2% in 2012. The global
economy is expected to grow by 3.3% in 2012 compared to 3.8% in 2011 as
per the International Monetary Funds (IMF) January 2012 update of the
World Economic Outlook (WEO).
The greatest challenge for the global economy in this slow growth
environment is to raise productivity without losing job opportunities for
the millions who are looking for reasonably paid jobs to support their
It is heartening to note that the global economy is moving from unbalanced
growth to balanced growth. For instance, the US is getting back on the
positive growth track. And, China has shown promising progress too. Asian
countries like South Korea, India and Thailand are also growing at a fast
The key fiscal priority for major advanced economies should be to implement
well-paced consolidation programmes focused on supporting medium-term debt
The Indian economic environment Despite the economic and financial
challenges in key developed economies, India has remained a front-runner
in any cross-country comparison.
Even with a low growth figure of 6.9%, India is projected to be the second-
fastest-growing major economy (7 %) after China (8.2 %) as per the IMF. It
is estimated that the countrys economy would grow at 7.6% in FY 2013 and
8.6% in FY 2014.
With over 1.2 billion people, India accounts for nearly one-sixth of the
global population. While the rate of growth of population has consistently
declined, Indias population increased by nearly 180 million persons
during 2001-11 - the highest in the world in absolute terms.
India has a high rate of self consumption. The country boasts of a vast
domestic market that allows the economy to scale and attracts investors.
It can rely on a well-developed and sophisticated financial market that
can channel financial resources to good use, as many innovative businesses
of global standards have mushroomed in India.
Real Estate sector
The superior economic performance of India has provided a strong impetus to
the Real Estate sector, which has been witnessing heightened activity in
the recent years. Substantial end user and investor interest, large scale
investment in infrastructure and rapid urbanisation have contributed to
the growth trajectory of Indian Real Estate domain.
The housing sector alone contributes to 5-6 per cent of the Indias GDP
Housing Shortage is one of the biggest challenges for India. According to
Cushman & Wakefield Research, property market in India from 2011-15 is
likely to witness a demand for Rs.3.94 Million new housing units growing
at a Compounded Annual Growth Rate (CAGR) of 11%.
The need of the hour for the Real Estate sector in India to continue its
forward march and a proactive approach towards reforms and transparency.
The likely establishment of the Real Estate Regulatory Authority (RERA)
will serve as an important step towards advancement. The need for
streamlining approval procedures with a single window clearance structure
is also essential.
All the stakeholders, including the government and its statutory bodies
need to put their best foot forward as the demand for realty is expected
to ride on the rapid urbanisation growth and Indias progress towards
becoming a global economic hot spot.
The Company and its operating environment Sobha Developers Ltd. is one of
the leading and only backward integrated Real Estate companies in India.
The Company is built on rock solid values, benchmark quality standards,
uncompromising business ethos, focused customer centric- approach, robust
engineering and in-house research and development, which have all
contributed to making it a strong brand in both Real Estate and
Some of the key challenges in the Companys business environment are non-
availability of skilled labour, delay in plan approvals, inflationary
pressures and the existing laws of acquiring lands, which are losing their
relevance as they have not been amended for long.
In spite of a tough, challenging global environment, increase in interest
rates and tightening of liquidity, Sobha has performed credibly well
during the financial year.
Sobha tends to benefit largely from the low-cost land parcels which help
generate better margins.
The Company is also expecting that in this financial year, the RBI will be
reducing the interest rate by 100 to 150 basis points. The RBI has already
taken its first step in this direction. We hope that more such rate cuts
will be in the offing in the coming months so that we see better days
Projects and work done in 2011-12:
Work done at a record high Despite market uncertainties, Sobha successfully
completed 9 Real Estate projects measuring 3.14 million square feet of
developable area and 2.06 million square feet of Super Built Area.
The Company also completed 18 contractual projects aggregating to 2.08
million square feet.
A total of 27 Real Estate and contractual projects measuring 5.22 million
square feet of developable area and 4.14 million square feet of Super
Built-up Area were completed during the financial year 2011-12.
With this, Sobha completed over 50 million square feet of developable area
comprising 288 projects in both Real Estate and contracts, since
Some of the key projects completed during the fiscal are:
Phase 1 of Sobha Lifestyle Sobha Lifestyle at Devanahalli, Bangalore, which
is set in the scenic backdrop of Nandi Hills, with its select presidential
villas, gives living a new, elevated definition. The total area of the
site is 55 acres and approximately 33 acres were developed in Phase 1. 165
independent plots with villas have been proposed for the development of
the entire site of which 89 have been completed in phase 1.
Sobha Lifestyle has 51% of the 55 acres (approximately 25 acres) earmarked
for open spaces. There are 18 parks in the project with dedicated
pedestrian walkways and ramps. The Super Built-up Area of Sobha Lifestyle
(phase 1) is 526,953 Square Feet.
The project also has a luxurious common clubhouse with a Super Built-up
Area of approximately 23,100 Square Feet. The facilities include a large
swimming pool, badminton, squash and table tennis courts - all of which
conform to international standards.
Sobha Corporate Office:
Sobha Corporate Office (SCO) located at Sarjapur-Marathahalli Outer Ring
Road, Bangalore, is the Companys registered and Corporate Office. It
comprises a total of 10 floors (2B+G+6+T) with a Super Built-up Area of
2,10,433.71 Square Feet. The building has two wings - North Wing and the
South Wing, with a total seating capacity of 701. Replete with 31
discussion rooms, the office also has world-class facilities with a
rooftop cafeteria. Various materials which include stainless steel,
timber, and concrete have been used in this project.
New launches and ongoing projects
During the financial year 2011-12, the Company has launched over 10 million
square feet of new projects.
As on March 31, 2012, Sobha is executing 23.04 million square feet of
developable area and 16.28 million square feet of Super Built-up Area in
In addition to the above ongoing contractual projects, the Company is
currently executing 10.05 million square feet of contractual orders for
various clients like ITC, Biocon, Trident Hotels, GMR, Wipro, IPE
(Institute of Public Enterprises), Robert Bosch, Blue Horizon Hotel,
Chaithanya Projects and many more including Infosys Technologies. The
contractual orders are primarily in civil, finishes, MEP works, interiors,
furnishing, metal & glazing works.
At Sobha, we are guided by our vision to transform the way people perceive
quality. And to ensure that the vision becomes a reality across all our
verticals, it is essential that we come up with the right plans and goals.
Our journey so far has been successful, mainly because of our strategies
that have borne fruit over time. With an eye to the future, the Companys
business plans encompass not only growth but also training, innovation and
Sobhas strategic initiatives are long-term and are directed towards the
all-round development of the Company.
Following are four key strategies which are practised at Sobha:
Capitalising on demand The Real Estate vertical of the Company helps in
establishing its brand. Sobha plans to continue to secure its position of
being a preferred provider of quality urban housing in India.
In terms of locations, the strategy of the Company has been to establish
its presence in emerging cities. For instance, Sobha consciously decided
to make a foray into fast-growing geographies like Gurgaon and Chennai to
capitalise on their high growth potential.
The key focus of the Company is to mature in the existing markets by
improving the revenues and sticking to the planning schedules, looking at
fresh land parcels and catering to the evolving needs of the customers.
The Company is a market leader in 3BHK housing in its area of operations as
it provides premium products which have an aspirational value. Sobhas
strategy of launching products in a phased manner and maintaining a
healthy volume-profitability balance has helped it meet its realisation
and targeted EBITDA (Earning Before Interest Taxes and Amortization)
margins, while building the growth momentum.
Excellence in delivery is a hallmark of Sobha, which it will continue to
live up to. The Companys delivery momentum has shifted to a higher
trajectory with deliveries scaling up to an annual sustainable rate of 6
million square feet per annum.
Of value-oriented operations and deals
On the contractual side, the Company provides effective value proposition -
which targets at providing high quality, well-designed products at
The contractual orders, although niche, help boost our scalability. They
validate our core mantras of Quality, Cost, Time, and Safety.
Higher capacity utilisation in factories is something that Sobha has always
channelised its efforts into and will continue to do.
Banking on lands
The business also expects to benefit largely from the low-cost land parcels
as these help generate better margins. The Company adopts selective land
monetisation policies in its debt reduction programme.
The strategy of the Company is to maintain a balanced debt-equity ratio to
raise more funds to expand its land bank and fuel the slew of new launches
on the anvil.
The debt-equity ratio has improved from 0.64 in FY 2010-11 to a modest 0.53
in FY 2011-12. The Company will be maintaining its debt-equity ratio in
the range of 0.50 to 0.55 in the coming years to augment its growth and
sustain a healthy balance sheet.
Sobha continues to maintain strong operating margins for its Real Estate
and contractual verticals. In spite of cost pressures due to the increase
in the prices of input materials, Sobha has continued to maintain an
operating margin of above 35% for Real Estate and above 15% for contracts.
The Company plans to abide by its laid down margins so that it can
effectively factor in changes in the macroeconomic environment and expand
Recruitment and Training Sobha has a structured recruitment process so that
genuine talent is identified and nurtured. The Company continues to
nurture its talent pool with a myriad of skills and capabilities.
The Sobha Academy is a strong pillar of support for the execution team as
it imparts well-focused training to in-house technicians and tradesmen.
All engineers and supervisors of Civil, Plant and Machinery, Planning,
Quality and Safety departments are put through in-depth training modules.
The Technician Supervisor Model adopted by the Academy for on-the-job
training stresses on the importance of hands-on-experience so that
excellence in delivery is achieved within the set timelines.
When it comes to its employees, Sobha stands for something beyond simply
increasing profits. The Company makes every effort to provide an inclusive
workplace to its employees by investing more in them by addressing their
needs so that they give their best to work every day. Be it designing a
work environment that is safe, comfortable and appealing to work in or
tapping their creativity through Company fests -Sobha does it all.
Innovation and Value Engineering Sobha uses Value Engineering as an
effective tool to improve the total value of key operations across all
levels within the organisation.
Sobha also has plans to press forward its sustainability initiatives so
that it can be a harbinger of green developments.
The Company aims to contribute considerably by planning, designing and
executing environment-friendly development across the country.
The Company wishes to maximise its efficiency with cutting edge approaches.
Profitable innovation for Sobha is a dynamic process of continually
creating effective business models, improving customer experience, and
opening new markets.
Sobha stimulates creativity through Genesis, an annual celebration of
innovative ideas and its R&D initiatives, so that it can capitalise on the
sweet spot between emerging trends, organisational capabilities, and unmet
With a footprint in 22 cities and 13 states across India, Sobha prides
itself in being one of the largest Real Estate developers in the country,
which is committed to achieving sustainable growth. Leveraging on its
unique backward integration model, Sobha has been able to integrate eco-
friendly measures into every stage of development thus bringing about a
balance between financial, environmental and social impacts of the project
activity. The Companys commitment to sustainability comes to life through
a well-structured management process that is pivoted around the PDCA
principle Plan - Do - Check - Act.
Sobha has already been awarded with the ISO 9001, ISO 14001 and OHSAS 18001
certifications for its quality, safety and environment management systems
respectively, making it one of the few construction companies in India to
achieve this feat.
Some of the key areas where Sobha places strong emphasis are discussed at
a. Green homes:
A green building can have tremendous benefits, both tangible and
The most tangible benefits are reduction in water and energy consumption
right from day one of occupancy. The energy savings could range from 20 to
30% and the water saving measures up to 30% to 50%. The intangible
benefits of green homes include enhanced air quality, excellent day
lighting resulting in health benefits of the occupants and conservation of
scarce national resources.
Some of the common sustainable practices are elaborated below:
* Genius Loci
* Natural ventilation and lighting
* Top soil conservation
* Rain water harvesting
* Sewage treatment plant
* Organic Waste Converter (OWC)
* Fly ash blended cementations materials
Different levels of green building certification are awarded based on the
total points earned. The various levels of rating, which are awarded
* Certified - in recognition of best practices
* Silver - in recognition of outstanding performance
* Gold - in recognition of national excellence
* Platinum - in recognition of global leadership
One of the Companys projects, Sobha Turquoise, has been bestowed with a
pre-certified Platinum rating. It is the highest level of certification
issued by the Indian Green Building Council (IGBC) under the residential
As a conscious effort, many of Sobhas future projects will be certified by
b. Water management:
Water is a precious resource and to ensure its judicious use the following
practices are diligently implemented:
* The Company installs, manages and maintains a Sewage Treatment Plant
(STP) during the construction phase of all its projects. The STP is used
to treat the domestic sewage generated from labour camps. The treated
sewage is subsequently reused for curing and landscaping.
* A Water Treatment Plant (WTP) is also installed at all project sites to
treat the raw water to maintain the desired quality parameters for
* Though Rainwater Harvesting System (RHS) is mandated by law since 2012,
RHS has been a common feature of all projects developed by Sobha for more
than a decade. Run-off water from hard-paved areas of the property is
channeled to rainwater percolation pits through the external drain to
recharge the ground water table.
c. Waste management:
Waste is an unavoidable outcome of any activity, but effective management
practices can significantly help in minimising waste generation and
reducing the impact caused by its disposal. Waste management practices are
typically based on the 3R principle - Reduce, Reuse and Recycle. Some of
the waste management measures followed by Sobha are:
* Segregation of waste at the point of generation
* Useful packaging materials, recyclables and surplus building materials
are recovered and given to authorised recyclers for reprocessing and reuse
* Hazardous waste is sent to the State Pollution Control Board (SPCB)
authorised agencies for recycling or disposal as applicable
* Organic Waste Converters (OWC) are installed at project sites to convert
organic waste into compost. This approach clearly has two realisable
benefits. First, it is an environment-friendly alternative to chemical
fertilisers. Second, it saves the cost of purchasing fresh chemical
* In addition to this, OWCs are also used to process sludge from STP mixed
with garden waste to produce rich organic manure, which too is an
effective replacement for chemical fertilisers
d. Energy conservation:
Some of the energy conservation measures adopted by Sobha for all its
* Solar water heating and landscape lighting
* Solar lighting for all common areas within the project site
* Only energy efficient CFL lamps are used for lighting in landscape,
terrace, corridor and lobby areas
* VFDs are installed to reduce the plumbing load
* Gearless lifts have been installed to reduce power consumption
Monitoring is an integral part of any management process. For ensuring
effective management, key environmental aspects like ambient air quality,
DG stack emissions, soil contamination, noise levels and water quality are
monitored and documented periodically during the construction phase and up
to the warranty period in the operational phase. All samples are tested in
the Companys very own fully equipped Environmental Laboratory at Sobha
In addition to internal monitoring, quarterly monitoring is carried out by
an independent KSPCB approved external agency. Appropriate mitigation or
control measures are immediately adopted if any monitored parameter
records an increase above the permissible limits prescribed by KSPCB.
Apart from this, the Company closely reviews all its environment-friendly
measures to ensure that these initiatives result in a positive impact on
the environment. A stringent quarterly review is carried out at all sites
during the pre-construction and construction phases. Every year, based on
the results of the quarterly review, the Company rewards the personnel at
respective project sites for following the Best Sustainable Practices.
a. Workers welfare
The following workers welfare initiatives are undertaken by Sobha to help
the workers lead a balanced, rewarding and productive life:
* Medical Care Center (MCC) / first aid center / ambulance room and an
emergency vehicle are made available at all sites. The Company ties-up
with hospitals which are located near the sites to ensure that the best
medical facilities along with a trained first aid person are available
anytime to take care of the workers
* A well-equipped clinic is mandatory on every Sobha site to treat cases of
minor accidents and illness
* Occupational health-related medical evaluation is undertaken at regular
intervals through quarterly medical camps, which are organised for the
benefit of all site workers and their families
* Day-care centers are provided at labour camps to take care of the
children of the labourers. Where along with elementary education, quality
food is also provided to them
* Superior sanitation practices are followed at all project sites. The
workers are also educated to follow good personal hygiene practices
* Regular pest-control activities are undertaken to prevent the outbreak of
any vector borne diseases at labour camps
* Separate water tanks are installed for bathing and drinking facilities
for the workers in the labour camps
b. Safety of workers
At Sobha, safety is one of the highest priority. Some of the safety
initiatives undertaken during FY 2011 -12 are discussed below:
* Five times during the fiscal year, Sobhas in-house projects were
recognised as zero accident sites, a record achievement for Sobha
* Safety Day was celebrated at all the in-house projects of the Company
this year. The winners and the runner-ups were awarded for following all
the safety protocols and achieving zero accidents at their sites
* Scaffold systems and signages were introduced. These are extremely
effective in reducing accidents and increasing awareness among workers
* After implementing safety penalty systems, the Company managed to control
many unsafe practices and minimised accidents
* The Company has banned the use of 4-inch wood cutting machines at the
sites to prevent accidents
* A separate power tool room and a carpentry yard were introduced. Only
authorised operators with special identify cards have access to these areas
* Exclusive P&M check lists have been introduced for each phase of the
* Fire fighting and first aid training are conducted periodically for
contractors and various execution teams
* Hygienic labour camps installed with CFL lights, sockets and
switchboards, were introduced
Sl. Year Total man-hours Accidents
No. worked (Million) Minor Major Fatal Total
1. 2010-2011 28 9 17 3 29
2. 2011-2012 24 2 11 1 14
Corporate Social Responsibility
At Sobha, we believe some of our finest achievements do not just refrain to
our growth figures. They also extend to Vadakkenchery and Kizhakkenchery -
two small panchayaths in Palakkad district of Kerala.
To usher in holistic growth at the grass-root level, the Company, under the
aegis of its CSR arm, Sri Kurumba Trust, initiated Graamasobha - a unique
social development initiative for the two graama panchayaths in the year
DEVOTION AT WORK GRAMA SOBHA:
In order to make a difference, our Chairman, Mr. RN.C. Menon, wanted to
reinvent the timeless Gandhian concept of Gram Swaraj by developing
world-class infrastructure and effective strategies to improve the quality
of life of the rural masses, thus making the villages self-reliant. For
this, specific information on the socio-economic dynamics of the poor
living in the two panchayaths was required.
So, an in-depth Social Empowerment Mapping Exercise (SEME) was undertaken
by the Social Empowerment Department (SED) of the Trust to fulfil the
1. To identify and enlist genuine beneficiary families from the two
panchayaths using clear-cut norms and terms.
2. To generate qualitative and multi-dimensional Baseline Reports on the
target families, so that specific programmes and activities could be
implemented for their benefit.
3. To devise target-based, area-specific empowerment programmes and
activities for key human development verticals like education, health,
employment, housing, and water.
4. To design an effective mechanism to measure and monitor processes and
the pace of the empowerment programmes of the Trust. -
In 2008, the Trust selected trained and deployed 20 people on a full-time
basis to complete the exercise. For about a year, they studied the
incidence, depth, and severity of poverty of the beneficiaries with the
help of various ** mapping methods.
The Trust covered more than 15,000 families and identified nearly 2,500
families (around 11,000 people) from the BPL bracket. Individual photo
identity cards were issued to each member of the adopted families.
Based on the data, the Graamasobha model was developed. The lives of
thousands of underprivileged citizens are getting positively transformed
through this growth model, which has a bottom-up approach towards poverty
The following key social development institutions were established for the
development of the deprived;
The Sobha Academy was started to empower and enable the rural poor to break
away from the vicious circle of poverty, ignorance, deprivation, and
exclusion by providing their children with high-quality education.
Selection to the Academy is done through an open draw from a list of
eligible candidates short-listed after intense research. More than 650
children have access to free, quality education due to this initiative.
Once admitted, all the requirements of the children, including food,
transportation, uniforms, books, medical care, etc. are met at no cost.
The school, whose first session commenced on June 1, 2007, follows the
Another educational initiative of the Trust is Sobha Icon, which aims at
creating Icons for India by making high-quality learning opportunities
available for meritorious students who have exceptional skills but not the
opportunities to grow. Regular academic professionals have been engaged to
enhance the performance of more than 100 students. The project is carried
out with the help of various school authorities, teachers, parents and
other stakeholders in the education sector.
A new initiative, Sobha Medals for Academic Excellence, is being
envisaged. It will reward all the toppers of SSLC examinations from the
academic year 2012-13 onwards in the project area.
Sobha Health Care
The Sobha Health Care Centre has redefined the limits of primary healthcare
institutions anywhere in the country. The target group comprises the 2,500
BPL families of the adopted panchayats, senior citizens of Sobha
Hermitage, students of the Academy and their parents. The facilities
include free consultation, diagnosis, tests, treatment, and medicines. The
Centre has also set up outreach counters to reach out to the needy at
their doorsteps. Gynaecology and paediatric wards are also going to be
launched soon. Besides, a comprehensive medical insurance scheme covering
every member of the BPL families is being envisaged.
A School Health Programme (SHP) has been initiated through which
comprehensive medical screening is carried out for the students, and
preventive care is provided.
The Graamasobha initiatives are also playing an instrumental role in
raising awareness about personal hygiene practices, particularly among the
children studying in the Sobha Academy and their families, thanks to the
stringent cleanliness guidelines laid down by the Trust for its
beneficiaries and staff members. The families now strive towards keeping
themselves and their living and working conditions clean to prevent
diseases and maintain good health.
Sobha Hermitage, located on 23 acres of verdant green estates, is the most
benevolent home one can hope to find for the deprived. It is the epitome
of humanity, offering love, care, and support to the neglected sections of
the society - senior citizens as well as young widows, referred to as
young mothers, and their children. The residents stay in a secular and
secure environment where they are provided with food, clothing, shelter
and premium resources and services along with the best facilities, all on
Sobha Vocational Training Centre The Sobha Vocational Training Centre
(SVTC) has advanced resources and facilities. It aims at providing
functional vocational training, and paid apprenticeships in carpentry to
youth from poor families. Plans are afoot to add more trades in the near
future. Direct and indirect employment is provided to hundreds through
Besides this, various other centres have been established for imparting
training in computers, music and tailoring.
Sobha Community Centre The Sobha Community Centre is a beautiful and
spacious edifice for the deprived. It comprises a dining hall that has a
seating capacity of 300. While it is open for public use for a nominal
fee, its core purpose lies in feeding the poor, several of whom are fed
free of cost every day. Special community feeding of about 30 aged and
destitute women is organised daily.
The Centre also plays host to various community mobilisation programmes
including medical camps, orientation and training classes, and social
weddings. It will soon be expanded into a full-fledged social development
centre at par with international standards.
Rural Women Empowerment The Trust has also undertaken a series of Women
Empowerment initiatives. It has already unveiled a programme for
comprehensive rehabilitation of young mothers living at the Hermitage.
While they are presently employed on a salary basis in the Academy, they
all have to complete graduation, for which the Trust will offer the
necessary support and resources. After graduation, they will be placed in
suitable positions in the institutions of the Trust. Separate living
apartments are being constructed for them which they can move into, as
their children grow older. Support will also be provided if they want to
get married. In yet another widow assistance programme, more than 48
widowed mothers and their 90 school-going children, selected from the
designated project area, have been brought under the safety net since
2007. They are provided with resources and facilities, besides a monthly
living allowance of Rs.1,000 per month. Special tuition classes are
arranged for their children. The Trust also plans to provide them with a
housing complex in the future through a social housing and employment
The Trusts emphasis is on providing maximum employment opportunities for
women. In fact, 90% of the staff comprises female members. All girl
staffers, when they get married, are given a special marriage allowance of
Rs.60,000 to meet their expenses in addition to the other entitlements.
The Social Wedding Programme is a constructive response of the Trust to
help extremely poor families to get their daughters married. The Trust has
been conducting dowry-less mass social weddings for the past five years.
Pre and post marriage counselling is carried out for all the couples.
Forty girls from both the panchayats are selected every year for this bi-
annual social initiative. The Trust sponsors the wedding attires for the
couples, four and a half sovereign of gold for each girl and household
utensils. In addition to this, each couple is entitled to invite 50 people
to the wedding. The average wedding expense for each girl amounts to
Sobha Group strongly believes that if an initiative like Graamasobha can be
taken up by other organisations too, it could change Indias poverty
equation forever and bring about a sea change in the social fabric of this
Research and Development
The demand for new housing and infrastructure in India is increasing
rapidly. This growth must be constantly fuelled with innovative approaches
and latest methods in construction, which take into account the social,
economic and environmental imperatives.
Sobha always strives for perfection and continual improvement. Most of the
projects developed, designed and built by the Company incorporate R&D
initiatives and newer processes thereby creating added value for clients.
To Sobha, advancing construction activities with the help of R&D directly
translates into improving productivity to save time and cost; enhancing
quality, value engineering, exceeding customer expectations, delivering
greater value and increasing the skill set of the workforce.
Innovation management as key success factor The organisation uses
innovation to spot and develop new growth segments.
The Companys motto for innovation is Think, Act, Share, Celebrate, which
translates to Think individually; Act team wise; Share with the employee
fraternity; and Celebrate Sobhas success as a family.
Sobha has a structured way of receiving ideas from its employees - through
an in-house online application called IdeaSpace. This provides a platform
for virtual discussion of the idea which ensures organisational
participation in identifying the best practices. Ideas pertaining to
different areas of operations are invited and judged on the following four
parameters: quality, feasibility, safety and customer orientation. Models
that can lead to improved business performance are implemented. They are
also showcased in an exhibition, Genesis, which is organised by the
Company every year to celebrate creativeness and innovation.
Monthly Value Engineering workshops addressing concern areas are organised
to help the participants analyse and suggest innovative and practical
Sobha drives innovation at three levels:
* Central Innovation
* Division Innovation
* Project-specific Innovation
1. Central Innovation Process and IT:
On the process front, the Process and Information Technology department of
Sobha develops processes as Standard Work Process Procedures (SWPPs),
wherein each activity, spanning every department of work, is extensively
The process development procedures have helped the Company in upgrading its
Enterprise Resource Planning (ERP) system. ERP facilitates the flow of
information across all functions within the Company and helps effectively
manage external communication with the stakeholders. Our ERP system has
helped improve efficiency, simplify work processes and improve customer
Some of the successes with our ERP and other Information Technology
applications during the year have been:
* Sales and construction agreements as well as the sale deed can be
generated using the ERP system
* Providing a customer portal to help customers login and view their
* Sending SMSs through ERP to customers for payment reminders and receipt
* Sending SMSs through ERP to sales team members with details on
prospective customer allocations
* Constantly enhancing the Companys homegrown ERP to manage the budgeting
and capital expenditure request process for the Plant and Machinery
Department and managing the sales invoicing process for the mattress
* Working with the design team to adopt Revit as an architectural design
* Implementing an office automation and surveillance system at Sobhas new
Designing projects as per the LEED and IGBC guidelines result in better
lighting and ventilation.
Creating in-house expertise Network rendering technology and render farms
have been implemented to create in-house walk-throughs for projects.
Bar bending schedule
Bar Bending Schedule (BBS) can be produced accurately from the structural
drawings using the newly implemented Rebar CAD software. Using the
software, the reinforcement wastage of the project can be brought down
from 3% to 1%.
Introduction of LED light fixtures The Company has introduced LED light
fixtures in place of normal Metal Halide (MH) & CFL light fixtures. LED
light fixtures consume very less power and save up to 60% of electricity.
They also last ten times longer when compared to other fixtures.
Lighting management system
Introduction of Lighting Management System (LMS) with the following
features for energy conservation:
Daylight sensors help in actively managing the amount of artificial light
in a room when natural sunlight is available. They can substantially
decrease lighting power consumption depending on the amount of natural
light available and the accuracy of the daylight harvesting device.
The occupancy and movement sensors are introduced in meeting rooms, cabins
and toilets of various contractual projects as they help conserve energy.
They also cut down on the use of light fixtures during non-working and
unoccupied hours at the workspace.
Introduction of heat pump for hot water An air-sourced heat pump works by
absorbing heat from the outside air and transferring it to water in a
The heat pump is an all-in-one device that discharges hot water according
to the desired requirement up to a water temperature of 600 celsius. It is
one of the most economical systems to heat water for domestic use. This
highly efficient unit uses free renewable energy from the air and is three
to four times more convenient than a conventional electric heater.
The heat pump is a safe and eco-friendly device, which can be installed
outside a house or on the terrace. It is best suited for row houses and
New formwork system proposed using H-Beams and brackets
The new formwork system proposed using H-Beams and brackets will help
remove the usage of silver oak (a type of timber) for primary and
The lack of availability, increasing costs and quality issues of the silver
oak wood were the main concerns, which necessitated the use of factory
made H-Beams. The use of this system can qualitatively improve the column
beam framework and subsequently reduce the thickness of external
Introduction and implementation of Debris Crusher The Debris Crusher is a
machine that works with the jack load method and a 10 bhp motor. It is a
compressor used to compress blocks, rocks, concrete moulds and debris. It
crushes up to 25 mm. These compressed materials are later used for screed
concrete and backfilling.
The output capacity of the machine is 8 tonnes/ hour. About 3% of the
debris generated is recycled and used for backfilling. Hence the cost of
carting the debris outside the site premises is considerably saved.
Implementation of the thin bed mortar system A thin bed mortar system has
been implemented to reduce the environmental impact, save water, improve
energy efficiency, reduce maintenance and maximise a buildings life. This
methodology helps save labour, time, water and energy. One unique and
distinct advantage is that it is free from curing post application.
2. Divisional Innovation
Introduction of automatic spraying machine The automatic spraying machine
helps in reducing the limitations of the traditional way of spraying like
high lacquer consumption, low coverage area, large drying time and high
material wastage. As the amount of lacquer being used in the work piece is
less, it reduces the material consumption by 10 to 20% and increases the
coverage area by 20 to 40%.
Boltable spring corner cleat for window and ventilators
The innovative idea of Window Cleat allows one to make a perfect corner
connection, which is controlled by an in-built key and pins. This is
implemented in the toilet ventilators of our residential units.
Polyester fibres into concrete Adding polyester fibres to concrete during
the production of kerb stones and paving slabs (of less than 100 mm
thickness) acts as a secondary reinforcement measure. It also helps in the
reduction of cement content and reduces the amount of CO2 released into
Thermal insulating blocks
EPS (Expanded Polystyrene Foam) has lower thermal conductivity and a high
ability to resist heat transfer, and hence, making it a good insulating
material. It is also lightweight and environmentally-friendly due to its
minimal processing energy.
3. Project-specific Innovation
Secant pile wall system Secant pile walls are constructed by drilling
overlapping vertical shafts and backfilling them with lean concrete. In
alternate shafts, a steel pile section is installed, and the lean concrete
provides soil retention between piles. This system provides water cutoff
and even helps in earth retention. Lateral bracing is often required as
this system is generally used for deeper excavations and in cases of high
water table conditions. The secant pile wall system is ideal for sites,
which are nearer to residential complexes as it helps cut down on noise
A more accurate concrete finishing methodology A high-quality, dual
operation screed vibrator accompanied with a rotating laser instrument
allows a 100 mm thick layer of freshly poured concrete to be compacted,
levelled and smoothened in one operation. The laser is used for
transferring and checking reference levels to a 1 mm accuracy thereby
delivering a perfectly levelled floor, on which tiling can be directly
Excellent image as an employer One of the key reasons for Sobhas sustained
growth is its employees. The Companys focus on establishing and
maintaining a good workplace environment, introducing training programs to
equip the workforce to handle their on-the-job challenges and taking steps
to inspire leadership have gone a long way in making it an attractive
employer. Sobha has been able to garner top slots for campus recruitment
at some of the leading engineering colleges and management institutes
across South India.
Sobha recruits candidates based on their technical, functional and
behavioural competencies. Beginning with a comprehensive induction
programme, right from the time of entry of a new recruit, the Company
provides the right inputs to ensure seamless integration of young minds
and expertise in the organisation - a workplace where talent can blossom
and realise its full potential.
Sobha believes in nurturing its employees, without any discrimination. As a
responsible corporate citizen, the Company encourages persons with
disabilities in its candidate pool.
As of March 31, 2012, Sobha has employed a workforce of 2,502, up 12.5%
(278 in absolute number) from 2,224 in March 31, 2011.
Recognised as a top employer Sobha Developers Ltd. has been honoured with
the Employer of the year in Real Estate award at the Realty Plus
Excellence Awards 2012.
Empowering young minds
Around 80% of Sobhas workforce comprises young people, who are under 35
years of age. They bring about a fresh perspective to the Companys work
environment and foster the innovation culture of Sobha. Young employees
also seek out creative challenges and view their seniors as vast resources
from whom they can gain knowledge.
The professional development of employees is fuelled through various
training and development modules. High performers with a potential to grow
in the organisation are provided with challenging opportunities for taking
up higher responsibilities in line with their career aspirations.
The Company has a Management Trainee Scheme, through which it hires bright
civil engineers from leading institutes and grooms them to become future
leaders. They are equipped to deal with the most critical project
management and delivery functions.
The Company also provides a first taste of job experience to several
interns who are given hands-on training. The integrated work processes at
Sobha give them a wide exposure to world-class construction practices.
Growth-oriented work environment In addition to offering attractive career
and development opportunities for employees, Sobha also believes in
compensating them based upon their performance, merit and competitively in
relation with the market. The Human Resource Department of the Company
conducts a compensation survey periodically to benchmark Sobhas
remuneration against the market.
Key metrics such as cost and revenue per employee are tracked closely to
measure the efficiency of the employees and attractive performance linked
incentives are given if the desired targets are achieved.
Working on the holistic development of employees through initiatives like
providing honest feedback for improvement or appreciating them for their
achievements help in employee retention.
The transparent Company culture, which is built on values, such as respect,
support, and recognition of achievements has always been a source of
motivation for our talent pool. The staff-centric policies are the key
differentiators, which give Sobha a competitive advantage over the others.
Employee-friendly initiatives Creative Club
Sobha has a Creative Club, which adds value to every Sobhaites life. The
Club actively celebrates important occasions like Earth Day, World
Plumbing Day, Earth Hour and Environment Day besides days of national
significance like Independence Day and New Years Day and all festivals.
It also plays an active role in fostering creativity among all employees.
Employee Welfare Fund
The Creative Club has also set up a Sobha Employee Welfare Fund.
Sobhaites across various divisions can voluntarily contribute to this
fund. The funds raised are used to help a Sobhaite in his or her medical
The Company publishes its in-house magazine, Innerve, every quarter. It
updates employees on the latest Company information and all people-related
activities. Following are the key objectives of the magazine:
1. To be the most effective means of internal communication
2. To enhance employee belongingness and engagement
3. To create a sense of pride and association among employees
Thanks to employees
The good reputation of our high-quality products is due to our employees
commitment, performance and loyalty. Sobhas workforce was instrumental in
helping the Company achieve another excellent result in FY 2011-12. We
express our sincere thanks to all our staff members who have contributed
to our success.
Staff development at the forefront People are our strength, so employee
training programmes and initiatives are an integral part of Sobhas growth
vision. The training modules are driven by technology and enhanced by
innovation. They have been a major driving force of our success.
The challenging business scenario necessitates continuous development of
employees in terms of skills and competencies in line with the work
Sobha has a technologically well-equipped Academy where both technical and
behavioural training is provided. The trainings are structured in the
1. At the time of joining, an induction program is conducted to familiarise
the employees with various business units, departments and work processes.
2. After joining, all employees have to undergo annually three days of
behavioural training besides three days of technical or work-related
3. Reverse trainings are conducted at the project sites. Its a platform
for the Companys employees to unleash their hidden potential as a trainer
and share their knowledge with others within the Sobha family. Through
this, the staff gets an opportunity to learn more about their lines of
work as they teach their peers about their technical know-how and share
4. Workers development training programs are conducted to address the
needs and concerns of the construction workers with the aim to improve
Sobha Academy - where knowledge meets know-how
Sobha Academy is an inter-company training centre that offers world-class
training in construction with state-of-the-art facilities. Artisans like
Mason, bricklayer, tile-layer and carpenter are trained in batches of 25-
30 at the Academy. Quality, safety and cleanliness are the three words the
Academy promises to add to the trainees vocabulary and make sure they
learn to practice it.
The technical training structure at Sobha is divided into two parts -
supervision and inspection. The Company has identified 28 activities,
which go into the execution of a project. To execute each activity there
is a laid down sequence and procedure using the right tools and
methodology. These kinds of activity-specific trainings help in delivering
Similarly, each of the technicians is trained to carry out all the
activities related to his trade in a sequential manner. For instance, a
worker who is recruited from a village is extensively trained to acquire
the skills required to execute the simplest task related to his trade. He
is given minimum theoretical and maximum practical training for a period of
over four weeks. This is followed by another eight weeks of on-the-job
training under senior and experienced technicians at the project sites.
His skills are then put to test based on the proficiency achieved in
executing the laid down activities. Next, he is provided execution
training rigorously for nine months. Following which he is trained on
higher skill sets; thereby the training process becomes an ongoing one.
The Sobha Academy has conducted a total of 55,816 hours of structured
training for 4,364 employees and technicians during this fiscal year.
The Academy plays a large role in ensuring that the artisans and employees
are rightly skilled and well-oriented.
Sobhas employees are encouraged to attend outstation as well as external
trainings to keep themselves up-to-date with the latest skills and
knowledge pertaining to their area of work.
Every year several new training modules are introduced to cater to all
sorts of delivery and execution functions.
Some of the new technical training programmes introduced in FY 2011-12
include concreting, scaffolding, masonry, plastering, water-proofing,
painting, tiling, marble & granite work, metal work, aluminum fixtures &
glazing works, project management, reinforcement, construction safety,
pre-cast buildings and green building orientation. While the behavioural
ones comprise communication skills, etiquette and mannerism, man-
management, leadership skills, administration at sites, stress management,
industrial relations and interviewing skills.
Risk Management Report
Risk Management is a continuous and dynamic process that involves
identification, assessment, analysis, and measurement of all potential
threats, events, and associated risks which may have a bearing on the
achievement of stated objectives or on the operations of the Company. The
Board of Directors and Audit Committee of the Company have been entrusted
with the responsibility of establishing and implementing an effective risk
The following are the key risks faced by the Company:
Strategic and Market Related Risks Industry Specific Risk
The Real Estate market is affected significantly by changes in economic
conditions, demographic trends, employment, and income levels, among other
factors. The Companys business is dependent on the availability of Real
Estate financing in India. Recession in the economy may cause the Company
to experience limited availability of funds in the future.
Sales Market Risk
A decline in the Real Estate market may cause the property buyers to remain
risk averse and the market spending may turn more cautious because of it.
These factors could have adverse effects on the Companys business and
future growth, or could otherwise decrease the revenue generated from some
or all of the Companys residential, commercial, and contractual
Customer Relation Risk
A substantial portion of revenues from contractual projects is generated
from one major client operating in the Information Technology sector. If
the said client either reduces or stops providing the Company with
contractual projects or if there is a slowdown in the IT sector, it could
have a material adverse effect on the Companys business and its results
The Company may face significant competition from other Real Estate
developers which undertake similar projects within the same regional
markets as the Company. Due to the fragmented nature of the Real Estate
business, adequate information about the competitors projects may not be
available and accordingly the Company runs the risk of underestimating the
supply in the market.
Diversification and Investment Risk
Expansion into new geographies exposes the Company to risks such as low
level of familiarity with the development of properties in the new
geographies, attracting potential customers in the new markets, etc. The
impairment of intangible assets that may arise out of acquisition, such as
goodwill, can also cause additional financial burden to the Company.
Investments usually have a gestation period spanning several years. The
associated risks include those related to obtaining requisite regulatory
approvals for the projects. Changing government policies may also impose
restrictions or prohibitions on investments.
The strategic risks described above are inherent to the sector in which the
Company operates. The demand for housing in India is huge and the
potential for growth in cities due to migration will definitely present
more opportunities to the sector in the years to come. The Company believes
that quality is the key differentiator wherein the customers get complete
value for the investments made. As per the internal estimates of the
Company, majority of the homebuyers are less dependent on debt finance.
The Company has also been adding new customers in the area of contractual
projects, so that the dependency on one major client is reduced.
Project Implementation Risk One of the primary inputs for a construction
company is the availability of land. The uncertainty of underlying title
of the land in India is a major factor and involves the risk of legal
disputes and related costs. The other inherent risks in the project
implementation phase include delays in implementation, supply chain
issues, migratory labour, accidents, cost and quality control.
Availability and Volatility of Input Costs Risk Fluctuating input costs is
a risk inherent to the Real Estate business. The Companys operations are
subject to increase in expenses due to a number of factors such as
increase in construction, repair and maintenance costs, sub-contracted
service costs and labour costs.
The Companys performance depends to a significant extent on the abilities
of its senior management personnel and loss of services of such personnel
could have a material adverse impact on the Companys business. Also, if
the Company is unable to identify, attract, and retain competent manpower
such as engineers and architects, the business could be adversely affected.
IT and System Risk
The Company uses an Enterprise Resource Planning (ERP) system known as R
Construct for integrating its core and back-end activities such as
architecture, engineering, projects and costing. Any disruption of the
existing IT systems or a delay in implementation could disrupt the
Companys ability to track, record, and analyse the work in progress or
cause loss of data.
The Company employs well-governed processes to ensure that project-level
implementation risks are minimised. The Company has an in-house Quality,
Safety and Technology (QST) department to address quality issues of the
end product. The Company has effective polices to retain and motivate key
personnel to contain the risk of attrition. The Company owns the
intellectual property associated with the ERP System and has an in-house
IT Department which caters to the development and maintenance of the IT
Systems, ERP framework and the associated IT related issues. The Company
engages in negotiating long-term contracts for the purchase of key
material, and it also follows a backward integration model wherein the key
inputs for the final product are sourced in-house, thereby reducing the
dependency on external suppliers.
Interest Rate Risk
The Company has incurred floating rate indebtedness for its projects to a
certain extent. Changes in interest rates, which are highly sensitive to
factors such as governmental, monetary and tax policies, may increase the
Companys cost of borrowing and impact its profitability.
Investments in the Real Estate sector are relatively illiquid. The Company
may not be able to liquidate its assets promptly in response to economic
conditions in the Real Estate market, or may be required to give a
substantial reduction in the price to ensure a quick sale.
The Company undertakes certain projects in cooperation with various other
parties. Credit risk arises when they do not perform their obligations as
in such circumstances, the Company may be required to make additional
investments in the joint venture or become liable for its obligations.
The Company has managed its gearing levels efficiently during the last
three financial years. The gearing ratio has come down from 1.72 in 2008-
09 to 0.53 in 2011-12. The management is of the view that the present
level of debt is optimum for the Company for ensuring sustained growth in
the future. The Company has adopted an effective method for purchase of
land, and due diligence of joint development partners is conducted before
entering into any joint development agreements.
The Company is involved in certain legal proceedings in relation to the
lands owned by it and claims in relation to taxation matters. Any adverse
decision may have a significant effect on the Companys business,
prospects, financial condition, and results of operations.
The Company is subject to extensive local, state, and central laws and
regulations that govern the acquisition, construction, and development of
land, including those related to zoning, permitted land uses, fire safety
standards, height of the buildings, access to water and other utilities.
The Companys business may be affected by changes in Government policy,
social and civil unrest and political or other developments in or
affecting India. Specific laws and policies affecting Real Estate, foreign
investment, and other matters affecting investment in the Companys
securities could change. Such changes could adversely affect the Companys
The occurrence of natural disasters, including earthquakes, fires, pandemic
diseases and man-made disasters, including acts of terrorism and military
actions, could adversely affect the Companys results of operations or
The Company has a strong in-house legal department and engages outside
experts to mitigate legal and regulatory risks. It is an active member of
trade associations like CREDAI and FICCI and makes joint representations
to the Government and Regulators on common issues being faced by the
sector. The Company takes adequate insurance coverage for managing disaster
related risks and adopts sufficient measures to reduce the incidence of
Overall Risk Mitigation Mechanism
The Company has well-governed systems and processes in place to identify
and take steps to mitigate or minimise the Company related risks. The
Company has constituted a Risk Council comprising personnel from cross-
departmental functions, which meets at regular intervals to address the
risks faced by the Company, mapped in terms of probability along with the
impact. The Risk Council advises the management on key mitigation related
issues for better decision-making.
The Audit Committee and Board of Directors of the Company are aware of the
aforementioned risks faced by the Company and have adopted adequate and
timely risk management measures to counteract the risks.
Operational and Financial Analysis
Execution and Delivery
Sobha is one of the few Real Estate developers in India, which has executed
51.80 million square feet of developed area since inception. The Company
has completed 79 Real Estate projects covering 25.45 million square feet
and 209 contractual projects measuring 26.35 million square feet. Sobha
has a strong community of over 10,000 customers.
In the financial year 2011-12, the Company has completed and handed over
5.22 million square feet of developed area comprising 9 Real Estate
projects covering 3.14 million square feet and 18 contractual projects
covering 2.08 million square feet of developed area.
Sobha is currently executing 38 Real Estate projects covering 23.04 million
square feet and 47 contractual projects comprising 10.05 million square
feet of developable area.
During the past five years, Sobha has executed an average of 6.62 million
square feet of developed area and 5.80 million square feet of Super Built-
up area annually, thus indicating a strong delivery capability.
Despite a challenging macroeconomic environment, the Company, during the FY
2011-12, achieved Real Estate sales of 3.28 million square feet compared
to 2.78 million square feet of saleable area in 2010-11.
The summarised Real Estate sales performance of various cities where the
Company has its operations in for the financial year 2011-12 is given as
The value of the new sales achieved during the financial year is T17.01
billion. During the financial year 2011-12, the overall price realisation
has improved from T4,082 per square feet to T5,181 per square feet, up by
27%. The sales value also increased from T11.33 billion to T17.01 billion,
up by 50% and fresh sales volume increased from 2.78 million square feet to
3.28 million square feet, up by 18%.
During FY 2011-12, the Company has earned an EBITDA margin of 31.38%
compared to 25.74% in the previous financial year. The higher margins are
mainly due to the increase in the Real Estate sales when compared to the
contractual projects and higher price realisations.
The Company had launched new projects in Bangalore, Chennai, Gurgaon, Pune,
Coimbatore and Mysore aggregating to a total development of 10.45 million
square feet, which will be completed in a phased manner.
During the year, the Company has increased its footprint in three new
cities namely Gurgaon, Chennai and Mysore. Despite a few challenges in new
markets like variations in customer preferences and local laws, the
Company was able to sell 0.50 million square feet of new sales indicating
a great promise in the years to come.
Sobha, during the financial year 2012-13, is planning to launch residential
projects with an eclectic product mix of multi-storied apartments, row
houses, super luxury villas, commercial development and plotted
development in Bangalore, Coimbatore, Thrissur and Mysore covering a total
Super Built-up area of 5.86 million square feet wherein the Company has an
economic interest of 4.30 million square feet.
During the financial year 2011-12, the Company generated net positive cash
flows of T5,302.44 million against T4,131.32 million during the previous
year indicating an increase of 28.35% on a year over year basis.
Cash Flows (Rs. in million)
Profit before Tax 2,952.36 2,435.96
Depreciation 387.78 277.73
Changes in Working Capital 1,499.66 1,043.23
Net Interest 941.51 752.92
Others (478.87) (378.52)
Operating Cash Flow 5,302.44 4,131.22
The Company has divested some of its non-strategic land parcels for an
amount of Rs.1,365.36 million during the financial year ended March 31,
2012 compared to Rs.1,539.62 million during the financial year ended
March 31, 2011.
As on March 31, 2012, the Company has outstanding loans of Rs.11,257.70
million compared to Rs.12,109.65 million as on March 31, 2011. The net debt
as on March 31, 2012 is Rs.10,645.90 million compared to 1,844.30
million as on March 31, 2011. The net debt has decreased by Rs.1,198.40
million during the financial year ended March 31, 2012. The reduction of
debt is mainly on account of internal accruals and partly due to land
monetisation. Consequently the Debt/ Equity ratio has reduced to 0.53. The
graph depicts the financial indebtedness position of the Company for the
last two financial years.
The Company has an economic interest in land parcels spread over nine
cities having a developable area of 216.66 million square feet. The
average cost of land is Rs.173 per square feet and Rs.86 per square feet
when factored on a FSI basis. The graph shows the distribution of land
bank across the various cities.
Key Ratios 31.03.2012 31.03.2011
EBITDA Margin 31.38 25.74
Pre Tax Margin 21.05 17.62
Post Tax Margin 14.32 13.20
ROE 10.41 10.24
ROCE 9.91 8.57
Earnings per Share (Rs.) 20.48 18.61
Book Value (Rs.) 204 189.33
Debt/Equity Ratio 0.53 0.64
Price Equity 16.27 15.77
Price/Book Value 1.63 1.55