Sobha Ltd Management Discussions.

MARKETS AND OPERATING ENVIRONMENT

MACROECONOMIC OVERVIEW

Financial year 2020-21 was one of the most challenging years of our lifetime. Innumerable lives, jobs and growth prospects were lost due to the corona virus induced pandemic. The world has lost 4-5 per cent of its GDP output amounting to a US dollar value of 4 trillion approximately. The unprecedented health hazard continued to disrupt the lives and livelihoods of millions of people across the globe throughout the year. Demand-supply situation remained unstable for most part of the year, impacted further by the second wave of pandemic across the nation. Bringing the economy back from the brink of catastrophe and maintaining steady growth has been the greatest challenge of all time. However, it is refreshing to know that with great collaboration between all nations, the fiscal stimuli announced by the various governments and central banking systems, and rapid testing and vaccination the situation is being managed efficiently across the globe. Indias GDP growth stands at -7.3 per cent for financial year 2020-21, and the Reserve Bank of Indias projections indicate a strong revival of the economy with GDP growth expected to be at 10.5 per cent for financial year 2021-22. This trend is already visible in quarterly GDP movement during 2020-21, with GDP moving from a contraction of 24 per cent in Q1-21 to a growth of 1.6 per cent during Q4-21 despite the disruptions caused by the ongoing second wave of the pandemic. However, we need to review and monitor with great caution, the short-to-medium term impact of the second and a probable third wave of the pandemic while continuing to work on more efficient ways of tackling its economic impact. This brings us to the efforts and role played by the research fraternity, pharma players, economists, central governments, various banking and administrative systems, and private players across the world who worked relentlessly for over a year and continue to focus on deriving more amicable solutions to the ongoing health crisis and the resultant impact on livelihoods. Throughout the pandemic, all core sector players showed robust resilience, which was further backed by a steady upward performance of financial markets in India. Indices are financial results driven and have responded positively with all sectors showing signs of a robust revival. This is a healthy development, considering the fact that various parts of the country going under limited and sporadic lockdowns at regular intervals to contain the spread of the virus, which is generally a threat to day-to-day functioning of various industries and impacts the performance of various sectors. The challenging phase we are living through is unprecedented in nature. Its impact on business operations has thrown light on sectors and related businesses which are well positioned to adopt to ever changing needs of the marketplace. Businesses with ability to innovate, agility to adapt, efficient systems and processes in place, a customer centric approach and digital reach will be in a position to succeed and scale new heights in the coming years. In hindsight, readiness to manage and overcome a probable third wave of the pandemic will determine the direction of the economy in the near-to-medium term range.

SECTOR OVERVIEW

Construction, a key contributor to the core sector, has always been a focus area for successive governments. Policy decisions taken in recent years have had a reflective impact on the real estate sector. Consolidation in the industry is happening in an anticipated manner and Covid-19 related challenges are adding fuel and accelerating the pace of process. The sector which forms about 7 per cent of Indias GDP is expected to contribute about 13 per cent to the GDP with market size of USD 1 trillion by 2030. While the ongoing pandemic has challenged the survival of some small businesses, it has also opened up avenues for listed and large players with scale and agility as their advantage. Scalability is very crucial in times of sectoral consolidation as the large players are marking substantial sales volume increases and geographical expansion plans. Smaller players continue to face operational challenges while large players like Sobha with brand recognition, known for quality products, and in-house manufacturing facilities continue to gain a considerable market share.

Despite the setbacks during first half of FY 2020-21, the realty sector witnessed a major revival in the second half of FY 2020-21. The sector survived a challenging environment and showed robust signs of recovery. This was backed by innovative sales and marketing efforts and continuous improvements in processes. Digital marketing and virtual tours of projects acted as a saviour for the industry - otherwise dependent on in-person visits and meetings. Adapting and implementing innovations with regard to virtual reality and augmented reality too played a crucial role in increasing sale volumes in the sector. Following a digital approach increased the speed of the overall process and also the quality of the customer base with serious buyers at advanced stages of buying decisions approaching to enquire about projects.

The real estate sector is anticipated to undergo further consolidation. With demand sentiment improving, execution of projects back at pre-Covid levels, and incentives for buyers like lowest interest rates and schemes for achieving housing for all by the Government of India, we trust that the coming years will be better operationally and will also give us an edge over the other sectors. Apart from the emotional value, housing has gained more prominence during this period due to human safety and security concerns and we believe this will augur well for the large players with quality products and vast project pipelines across regions. The focus of a viable and successful business remains in agility in seizing gainful opportunities, how quickly it can adapt to the changing behaviour of the customers and staying ahead of the curve always with the quality of processes, people and products that it has to offer.

OUTLOOK OF OUR MARKETS

A. REAL ESTATE

SOBHA is the foremost backward integrated company in the real estate space known for quality product delivery and on time completion and handover of projects. A reputed brand across regions, SOBHA has a presence in 10 cities across 6 states. The Company is present in Bangalore, Gurugram (NCR), Chennai, Thrissur, Kochi, Calicut, Coimbatore, Pune, Mysore, and GIFT City, Gujarat.

While the Company is present in major cities in India, it is also exploring new markets pan-India. Despite the macroeconomic challenges faced across industries, SOBHA was able to deliver a commendable operational and financial performance during financial year 2020-21. This was backed by the Companys increased digital presence and the best practices followed. The Company witnessed strong performance across regions and all the business verticals that it operates in. New product launches in view of ever-changing demand sentiments across the sector supported its business operations. As far as the real estate sector is concerned, higher sales volume coupled with upward price realization is a welcome sign during a tough macro environment.

Demand sentiment on the residential side continued to be skewed towards larger units, while in the commercial space, managed or co-working workspaces are increasingly becoming popular. New and renewed concepts like work from home or work from anywhere will benefit residential real estate. Despite all the favourable factors leading to listed players getting a better grip on the market challenges do exist ahead of us. The sector is increasingly becoming cautious of the ever-changing demands of customers. Adapting to these changing behavioural and cyclical patterns and customizing our product offerings accordingly will remain our utmost priority among all our deliverables.

With SOBHAs unique self-reliant model, a strong brand name, and unmatched execution capabilities, the Company continues to deliver all its projects on time. The Company currently has ongoing real estate projects aggregating 30.11 million square feet of developable area and 21.90 million square feet of saleable area, and ongoing contractual projects aggregating 5.64 million square feet under various stages of construction.

As on March 31, 2021, the Company had delivered overall 112.30 million square feet of developable area. Since its inception, the Company has completed real estate projects measuring 58.97 million square feet of developable area and 44.84 million square feet of super built-up area. During the year, the Company completed construction activities to the extent of 0.23 million square feet of total developable area and 0.22 million square feet of super built-up area.

BANGALORE

Sobha Limited, based out of Bangalore has a sales volume of 67 per cent (approximate) coming from the Bangalore market. During 2020-21, it completed SOBHA 25 Richmond in Bangalore. At Sobha we create masterpieces and SOBHA

25 Richmond is among the most coveted. The project has 5 spacious 3-bed apartments and two penthouses. What makes SOBHA 25 Richmond unique and sought after is not just its location or the amenities, but also its rare sophistication. The project covers a developable area of 0.016 million square feet and 0.012 million square feet of saleable area.

SOBHA has also completed Sobha Dream Acres

- Tropical Greens, Phase-18 Wing 39 & 40 with a total developable and saleable area of 0.21 million square feet. The "Sobha Dream Acres" project along with other projects across regions continued to be completed and handed over within stipulated timelines despite facing major macroeconomic challenges. Presently, the Company has ongoing projects aggregating 15.74 million square feet of total developable area and 11.37 million square feet of super built-up area in Bangalore.

GURUGRAM - NCR

SOBHA started its operation in the Gurugram-NCR market in 2011-12 with the launch of International City. After experiencing a positive feedback for this apartment project, the Company launched the ‘Sobha City project in Gurugram. Sobha City is one of the single largest group housing projects in Gurugram. Under the SOBHA City project, the Company is working on 2.92 million square feet of developable area and 2.25 million square feet of super built-up area. Under the International SOBHA City project is working on 2.54 million square feet of developable area and 1.61 million square feet of super built-up area.

In total, the Company has ongoing projects aggregating 5.46 million square feet of total developable area and 3.86 million square feet of super built-up area, which will be developed and delivered in phases in Gurugram- NCR.

CHENNAI

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

Presently, the Company has 3 ongoing projects in Chennai, aggregating 1.30 million square feet of total developable area and 0.88 million square feet of super built-up area in this market.

CALICUT

SOBHA has been operating in Calicut since 2013-14 with its first project SOBHA Bela Encosta, a super luxury villa development. The Company added SOBHA Rio Vista, providing super luxury living on a beautiful river side. The spacious apartments in the lone tower are nestled on 3.66 acres of elevated land overlooking the river with acres of greenery and open space.

Presently, the Company has 2 ongoing projects in Calicut that aggregate 1.07 million square feet of total developable area and 0.72 million square feet of super built-up area.

KOCHI

Kochi is referred to as the commercial capital of Kerala. The city is a major port city in the country. It is one of the rapidly growing cities, and home to a number of technology and industrial campuses such as Info Park, Cochin Special Economic Zone, the KINFRA Export Promotion Industrial Park, Smart City at Kakkanad, and Cyber City. The Company entered Kochi market in 2013-14 with the launch of "SOBHA Atlantis".

Presently, the Company has 2 ongoing projects in Kochi, aggregating 3.20 million square feet of total developable area and 2.57 million square feet of super built-up area.

THRISSUR

SOBHA entered the Thrissur market in 2007-08 with its landmark project "SOBHA City", the first integrated township in Kerala.

During 2020-21, SOBHA launched Phase-1 of its new luxury project, "SOBHA Metropolis" in Thrissur. The total developable area of the project is 1.52 million square feet with a super built-up area of 1.17 million square feet. This project also features a commercial space of 27,607 square feet. The Company launched only Phase-1 with a developable area of 0.74 million square feet and a super built-up area of 0.57 million square feet.

Presently, the Company has 3 ongoing projects, SOBHA Lake Edge, SOBHA Silver Estate, and SOBHA Metropolis (Phase 1) in Thrissur aggregating 1.34 million square feet of total developable area and 1.01 million square feet of super built-up area.

COIMBATORE

The Company entered into the Coimbatore market in 1998-99 with the plotted development project of SOBHA Harishree Gardens and launched its first villa development, SOBHA Emerald in 2008-09. The Company currently has 3 ongoing projects in Coimbatore, SOBHA Elan with 0.42 million square feet of developable area and 0.34 million square feet of super built-up area, SOBHA West Hill with 0.05 million square feet of developable area and 0.03 million square feet of super built-up area, and SOBHA Verdure with 0.14 million square feet of developable area and 0.10 million square feet of super built-up area.

PUNE

The Company ventured into the Pune market in 2007-08 with the project ‘SOBHA Carnation, a super luxury multi-storied apartment.

The Company has one ongoing project in Pune, SOBHA Nesara, with a developable are of 0.68 million square feet and a total saleable area of 0.51 million square feet. The project located near the pristine foothills of NDA Hills, offers wide lush greens as a view, a bounty of birdlife, and a healthier lifestyle.

MYSORE

SOBHA started operations in Mysore in 2011-12 with the plotted development project "SOBHA Garden".

As of March 2021, the Company does not have any ongoing projects in Mysore.

GIFT CITY GUJARAT

Gujarat International Finance-Tec city (GIFT) – A Global Financial Hub is Indias first operational smart city. Founded by Prime Minister Narendra Modi, it is a business district promoted by the Government of Gujarat through a joint venture company. GIFT City aims to tap into Indias huge potential for providing financial services by offering world-class infrastructure and facilities to leading global financial institutions and companies.

Currently SOBHA has 1 ongoing project in the affordable segment - "SOBHA Dream Heights "with a developable area of 0.71 and super built-up area of 0.52 million square feet.

SALES PERFORMANCE

During the year, SOBHA achieved 4.01 million square feet of new sales area which is a praiseworthy accomplishment in a tough operational environment. The total value of this area including the share of joint development stood at 31,372 million with an average price realization of 7,817 per square foot. SOBHAs share of sales value stood at 24,759 million. This shows that customers trust brand SOBHA as their preferred choice for quality home.

Bangalore Gurugram Kochi Chennai Coimbatore Mysore Thrissur Calicut Pune GIFT City
FY 2016-17 2.26 0.23 0.07 0.18 0.03 0.08 0.08 0.03 0.05 -
FY 2017-18 2.60 0.36 0.32 0.10 0.07 0.07 0.06 0.05 0.003 -
FY 2018-19 2.77 0.35 0.32 0.18 0.11 0.18 0.07 0.04 0.01 0.01
FY 2019-20 3.00 0.24 0.15 0.21 0.07 0.06 0.10 0.03 0.07 0.13
FY 2020-21 2.70 0.37 0.40 0.12 0.06 0.03 0.15 0.02 0.09 0.07

Despite commercial products, SOBHAs prime focus remains on its residential business to generate positive cash flows through speedy delivery and revenue realization and to ensure appropriate investments in the best available opportunities.

B. COMMERCIAL

SOBHA has primarily focused on the residential real estate segment since its inception with sporadic presence in the commercial segment. Although SOBHA has created some landmark commercial projects like Thrissurs most iconic landmark: the "SOBHA City Mall", the Companys presence in the segment has been relatively limited. Now SOBHA has a renewed focus on commercial development with several projects under progress in multiple cities.

As of March 2021, the Company had two commercial malls in this business vertical: the "Sobha City Mall" in Thrissur operations of which started in December 2015. It has a total developable area of 0.44 million square feet with a total leasable area of 0.34 million square feet. SOBHA had initially sold 0.61 million square feet. The second offering in this vertical is "1 SOBHA" mall, Bangalore with a total developable area of 0.38 million square feet and a total leasable area of 0.23 million square feet. The launch of "1 SOBHA" mall in Bangalore marks the Companys entry into the citys commercial shopping space. Located in the heart of Bangalore, this commercial development will be a host to topmost in brands from retail, F&B, entertainment, and fashion industries. The mall is poised to become Bangalores next go to destination for shopping and recreation.

C. CONTRACTUAL

The year 2020-21 was a milestone year for Sobhas Contracts vertical. Despite the challenges, the Company completed 2.33 million square feet in this vertical. Overall, the Company has delivered 53.33 million square feet of contractual work and it has 5.64 million square feet of area under execution in 9 cities across India.

While SOBHA values a long-standing relationship with a few select clients which contributes to the major scope of its total work done in this vertical, there is emphasis on diversifying the client base and reducing SOBHAs risk portfolio. The Company is actively involved in major contractual projects across India helping it with geographical diversity and a multi-client approach. The Companys corporate clients include the LuLu group, Biocon, Syngene, Taj Hotels, HCL, Wipro, Infosys, ITC Hotels, Huawei Technologies, Manipal group, and GAR Corporation.

SOBHAs ability and capacity to deliver high quality, custom-designed turnkey projects, and the domain knowledge to address tough challenges have gained it a loyal customer base for its Contracts Division. In the Contractual vertical, SOBHA has a presence in 27 cities across 14 states.

As the Company predominantly operates on a cost-plus margin basis, it seeks to expand its contractual operations while preserving its margins.

PROJECTS AND WORK DONE

SOBHA, with its self-reliant model of operations, quality products, customer satisfaction and timely delivery has set a benchmark in the industry and garnered customer loyalty over the years. Despite the macroeconomic challenges that were witnessed, steady performance continued during financial year 2020-21 too when the Company completed and handed over 2.56 million square feet of developable area.

I. OVERALL EXECUTION

Overall, SOBHA has completed 112.30 million square feet of area since its operation in 1995. The Company has been steady in launching new real estate projects and executing new contractual projects wherein significant project level investments are being made on a regular basis. These ongoing projects are excluded from the purview of overall execution since, on average, a real estate project takes around 3 to 4 years to complete.

Execution Track Record

[Area Rs. in million Square Feet]

2017-18 2018-19 2019-20 2020-21
Cumulative 92.53 103.88 109.74 112.30
Real Estate 2.58 9.75 3.98 0.23
Contracts 3.22 1.60 1.88 2.33

II. COMPLETED PROJECTS

Financial year 2020-21 witnessed the overall completion of 2.56 million square feet of developable area and 2.55 million square feet of super built-up area both in real estate and contractual verticals.

A. REAL ESTATE

In 2020-21 SOBHA completed 0.23 million square feet of developable area and 0.22 million square feet of super built-up area. During FY-21, the Company delivered 0.21 million square feet of developable area in the SOBHA Dream Acres project, Bangalore. The remaining phases of development are in progress and are ahead of schedule. The construction of these project is done using the pre-cast technology. During 2020-21, the Company completed SOBHA 25, Richmond in Bangalore. At Sobha we create masterpieces and SOBHA 25 Richmond is among the most coveted. The project has five spacious 3-bed apartments and 2 penthouses. What makes SOBHA

25 Richmond unique and sought after is not just its location and the amenities but also its rare sophistication. The Company has also completed Sobha Dream Acres - Tropical Greens, Phase-18 Wing 39 & 40 with a total developable and saleable area of 0.21 million square feet. The Sobha Dream Acres project along with other projects across regions continued to be completed and handed over within stipulated timelines despite facing major macroeconomic challenges. Since its inception, the Company has completed real estate projects measuring 58.97 million square feet of developable area and 44.84 million square feet of super built-up area.

B. CONTRACTUAL

During financial year 2020-21, the Company completed 2.33 million square feet spread across 4 cities. Since the start of its operations, SOBHA has completed 53.33 million square feet of area for various clients in 27 cities across India. Note: Others include Durgapur, Greater Noida, Salem, Baddi, Indore, Gurugram, Kolkata, Ooty, Calicut and Mumbai.

III. ONGOING PROJECTS

The Company is currently executing 35.75 million square feet of developable area and 27.54 million square feet of super built-up area.

A. REAL ESTATE

SOBHA currently has ongoing real estate projects aggregating 30.11 million square feet of developable area and 21.90 million square feet of super built-up area spread across 9 cities.

B. CONTRACTUAL

SOBHA has ongoing contractual projects aggregating 5.64 million square feet spread across 9 cities.

ENVIRONMENT, HEALTH AND SAFETY

Ensuring a healthy and safe work environment involves developing safe, high quality, and environment friendly processes, working practices, and activities that prevent or reduce the risk of harm to the people working in that environment. It also involves complying with environmental regulations such as managing waste or air emissions for reducing the Companys carbon footprint.

At SOBHA, procedures are in place for identifying workplace hazards and reducing accidents and exposure to harmful situations and substances for providing a safe work environment to its workers. This includes training employees in accident prevention, accident response, emergency preparedness, and use of protective clothing and equipment.

SOBHA is an ISO 9001, ISO 14001, and OHSAS 18001 certified Company for its quality, environment, and safety management systems respectively.

ENVIRONMENT

SOBHA strives to ensure that its construction, development activities, and real estate operations are environmental friendly. The Company complies with all environmental and occupational health and safety laws and regulations such as the Water (Prevention & Control of Pollution) Act, 1974; amendment 1988 and the rules thereunder, the Air (Prevention & Control of Pollution) Act, 1981 and the rules and orders made thereafter; the Environment (Protection) Rules, 1986; Environmental Impact Assessment Notification, 2006; and Hazardous Waste (Management, Handling & Transboundary movement) Rules, 2008 and the amendment thereafter across all its projects wherever applicable. The Company also focuses on minimizing emissions and increasing the use of renewable resources both in its construction activities and operations phase in its manufacturing facilities where all attempts are made to keep the carbon footprint low by following the best industry practices.

For achieving all this, the Company has installed a pre-cast unit for its construction activities. Instead of using the conventional block work or bricks for its construction activities, SOBHA uses pre-cast elements which come with many advantages. They are fast to make, consume less labour, lead to minimal wastage, and do not need plastering work. These pre-cast elements use minimum resources while also reducing wastage at the same time.

ENERGY SAVING MEASURES

SOBHA practices energy conservation by installing solar panels for lighting common areas and solar water heaters in all its projects. Some of the highlights in this area are:

• Eighty per cent of the power required for the glazing factory is being catered to by roof top solar systems.

• Around 90 per cent of the power required for SOBHAs corporate office is by solar and wind power using an off-grid system.

• All lights in apartment projects staircases come with inbuilt sensors to save energy.

RAINWATER HARVESTING

Rainwater harvesting is another effort at the Company for addressing the acute problem of water scarcity. Rainwater harvesting has emerged as one of the most viable options for meeting the water requirements of an increasing population. Rainwater harvesting also helps restore depleted aquifers thus enhancing sustainable water yields in areas surrounding SOBHAs project sites. Rainwater harvesting is done in two ways: through collection tanks for roof-based runoffs and through recharge pits for land-based runoffs. Water from the terrace runoffs is treated and re-used thus reducing the need for getting water from external sources or extracting groundwater to meet a projects requirements. The land-based (surface) runoff is passed through percolation pits which help in enhancing the depleting groundwater table. Wherever feasible in residential projects, even surface runoff is collected in storage tanks and after treatment the water is used for primary purposes further reducing the demand for external fresh water.

SEWAGE TREATMENT PLANTS

SOBHA uses specially designed Sewage Treatment Plants (STPs) to treat the waste water generated in its buildings. The treated water is used for secondary activities like flushing toilets, watering the landscape areas, cleaning the common areas, and at construction sites for dust suppression. The STPs help reduce a projects consumption of fresh water for its various activities.

STP uses a hybrid technology – the Activated Sludge Process (ASP) followed by the Ultra Filtration (UF) technology for enhancing the quality of the final treated sewage. This process conforms with the standards set by the Pollution Control Board.

Acoustic enclosures are being provided for air blowers to mitigate noise pollution that can possibly be caused in the vicinity. Ozonators are being provided at STPs exhaust and fresh air ducts to remove odour and also improve the quality of air for the operators working inside the plant room. Air curtains are also provided at the STPs entrance to prevent the odour from escaping into the open area. The Company has regular educational programmes for its construction workers on the dos and donts of using natural resources. The Company also constructs dedicated STPs for camps where the construction workers stay.

ORGANIC WASTE CONVERTERS

The Company has been successfully using Organic Waste Converters across all its projects in India. It is mandatory to use solid waste management plants during the operational phase of all projects. The integrated solid waste management system operates on the principle of the 4Rs - Reduce, Re-use, Recycle, and Recover.

Waste is segregated at the household level into organic/ inorganic waste and collected in separate bins. Organic waste is converted into compost using Organic Waste Converters. The compost is used as organic manure for the landscape and plantations at project sites. Inorganic waste is given to authorized waste recyclers for further processing.

Organic waste generated in and around the projects during the construction stages is diverted to nearby piggery farms and the local municipal corporation while the inorganic waste is handed over to authorized waste recyclers. All these efforts help the Company in restoring eco-sanitation wherever it works.

WATER TREATMENT PLANTS (WTPS)

For ensuring safe and healthy drinking water, SOBHA provides water treated with Pressure Sand Filters and Reverse Osmosis units in all its projects. The RO treated water is provided in one point in the kitchen for drinking purposes.

LABORATORY FACILITY FOR WATER TESTING

The Company has a functional chemical laboratory and microbiological laboratory at the Sobha Academy to analyse water samples for physicochemical and microbiological parameters. This laboratory is managed by qualified personnel and equipped with instruments like pH meter, DO meter with probe, COD reactor, spectroflex meter, BOD incubator, centrifuge, a water distillation unit, laminar flow, biological incubator, electron microscope, digital colony counter, and autoclave which are essential for ascertaining the quality of the water from physicochemical and microbiological points of view.

COVID-19 SPECIFIC ACTION

The previous year posed unique challenges with the global Covid-19 pandemic and the subsequent lockdowns through the April and May 2020.

As the lockdown eased in May 2020 and construction sites geared up to restart operations, all project heads and EHS managers were briefed with a detailed presentation about extant rules and regulations and the precautions to be taken at the sites to prevent the spread of Covid-19.

HEALTH AD SAFETY

Safety is integrated in the Company core processes to help inculcate the value of health and safety among its workforce. The Company strongly believes that environment, health, and safety (EHS) are an integral part of our day-today activities at the workplace. Continuous efforts are made to raise awareness and understanding about the value of safety and health programmes across the spectrum including management leadership and workers. A systematic approach at finding and fixing hazards in the workplace forms a part of these programmes.

The EHS management system at SOBHA is effective as it is partnered by an effective leadership and owned by every employee of the Company. This shows a demonstrably strong commitment to health, safety, and environment by the top management in implementing industrial best practices and achieving the Companys goal of zero accidents.

SOBHAs safety team creates awareness and provides skill development training programmes to enhance the skills and competencies of workers and tradesmen on this important aspect. The National Safety Council conferred the Company with the first position in the state level safety awards in the construction category for Sobha Royal Pavilion. In addition to already existing practices, during 2020-21, the following activities were undertaken for health and safety:

COVID-19 RISK REDUCTION MANAGEMENT

• CDRRM-Covid19 Disaster Risk Reduction Management implemented at projects and workmen colonies Pan-India.

• Site operating procedures prepared for lockdown and post-lockdown phases.

• Out station projects monitoring process done through virtual audits to ensure a safe and healthy work environment.

NEW PRACTICES AND THEIR IMPLEMENTATION

• All the safety documents, check lists, and procedures were revised and updated during the lockdown.

• QST home page application designed and live status.

• LOTO (Lockout Tagout) system for all electrical panels, pumps, DG, hoist, and other equipment.

• The safety health tag system implemented for all power tools.

• Earth pits values display and standard board/stickers.

• Electrical cable routing fixed standards using holders for external and insulated J hook for internally.

ACHIEVEMENTS

• FY 2020-21: There were zero accidents with 23 million manhours in Pan-India projects.

CORPORATE SOCIAL RESPONSIBILITY

Corporate Social Responsibility (CSR) takes on a whole new meaning at Sobha Limited, the only backward integrated real estate player in the country. CSR at SOBHA Group is a sincere devotion that stems out of genuine concern and drive to provide comprehensive and sustainable social development in rural India. It is in this context that the Company, under the aegis of the Sri Kurumba Educational and Charitable Trust, initiated Graamasobha, a unique social developmental initiative for Vadakkenchery, Kizhakkenchery, and Kannambra grama panchayats in Palakkad district of Kerala in 2006.

The Trust identified nearly 4,525 families (around 17,311 people) from below the poverty line (BPL) segment. The families were adopted through an in-depth scientific poverty mapping called the Social Empowerment Mapping Exercise (SEME). Beneficiary identity cards were issued to the adopted families. As a result, the Trust has detailed and authentic data about each beneficiary and his or her individual requirements. 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 for poverty alleviation.

The in-depth Social Empowerment Mapping Exercise was undertaken by the Social Empowerment Department (SED) of the Trust to fulfil the following objectives:

• Identify and enlist genuine beneficiary families from the three panchayats (6 villages) using clear-cut norms and terms.

• Generate qualitative and multi-dimensional baseline reports on the target families, so that specific programmes and activities can be implemented for their benefit.

• Devise target-based, area-specific empowerment programmes and activities for key human development verticals like education, health, employment, and housing.

• Design an effective mechanism to measure and monitor processes and the pace of the Trusts empowerment programmes.

Broadly, SOBHAs CSR activities cover the following areas:

– Providing education

– Providing healthcare facilities

– Looking after the aged and others in need

EDUCATION

THE SOBHA ACADEMY

The Sobha Academy was established in 2007 to empower and enable 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. Targeted specifically at children from the weaker sections, all applications that come to the Sobha Academy are scrutinized to ensure that only deserving candidates are given access to the free and quality education that the Academy provides. Selected students undergo a medical fitness test and the final selection of students is done through an open draw. Every year 90 girls are admitted to LKG through a draw. The Academy, which follows the CBSE curriculum, provides academic and integrated support such as books, transportation, uniforms, food and healthcare, all free and also provides a smart classroom facility, a good library facility, full-fledged science and computer labs, special emphasis on sports and cultural activities, communicative English, and personality development. During 2020 - 21, 1,115 students in the Vadakkenchery, Kizhakkenchery, and Kannambra panchayats were on the rolls from LKG to Class 12.

The quality of the students pursuing higher education in various reputed universities in the country after passing higher secondary education from The Sobha Academy, bears testimony to the excellent training it has been providing since its inception. A good number of students crack entrance examinations such as NEET, JEE, and KEAM every year. Most of these students ensure their seats in professional colleges without any special coaching by private institutions. This exemplifies the possibility of a person achieving success irrespective of any kind of adverse circumstances if s/he is provided quality education and befitting opportunities.

SOBHA ICON HSS

Sobha Icon Higher Secondary (commenced from 2013) is a full-time teaching and learning programme with Science and Commerce streams. It has 30 admissions in each class. Icon is not an affiliated school but functions as a Teaching and Learning Centre within the scope of the Kerala State Council for Open and Lifelong Education (SCOLE) and is registered as an open regular programme of the Kerala Directorate of Higher Secondary Education. Students enjoy the same status as regular school students. Students are given intensive 8 hour teaching-learning sessions, 6 days a week. All facilities and services are free of cost including uniforms, books and food.

It is interesting to note that Icons have secured scholarship worth over Rs 9.5 crore during the last 6 years from major universities through open competitions. This does not include government scholarships or fellowships or grants.

As of March 2021, more than 160 students had graduated through Sobha Icon. A close monitoring of their progress is being done continually to ensure the initiative is delivering on its purpose. It is very heartening that there is cent per cent college enrolment among Sobha Icons, a rare feat for many institutions. Sobha Icons have joined courses that appealed to them.

Ninety per cent of the beneficiary students belong to OBC and SC families while 75 per cent are girl students. Social change should start with educational empowerment of this segment and hence this prioritization.

PROVIDING HEALTHCARE FACILITIES SOBHA HEALTH CARE

Established in February 2007 by the Sri Kurumba Educational and Charitable Trust, Sobha Healthcare is one of SOBHAs flagship CSR activities which provides free and easy access to primary healthcare. It has redefined the limits of primary healthcare institutions anywhere in the country. The target group comprises of 4,525 BPL families from the three adopted panchayats including students of Sobha Academy and Sobha Icon, their parents, and widow pensioners, besides senior citizens from Sobha Hermitage, young mothers and their children, all employees of the Sri Kurumba Educational and Charitable Trust, SOBHAs project staff, and migrant workers. The facilities include free consultations, diagnosis, tests, treatment, and medicines. The hospital has the following facilities:

• Cardiac and Pulse Oxymetry

• Centralized Oxygen, Suction provision

• 3 and 12 Channel ECGs

• Digital Ultra Sound Scanning System and ECHO Test

• 300 MA X-Ray with Computerized Radiology (CR)

• Laboratory with Automatic Haematology and Bio-chemistry Analysers

• Minor Operation Theatre

• Pharmacy

• Ophthalmology Department with automatic digital equipment, upgraded auto refractometer, slit lamp, indirect ophthalmoscope and direct ophthalmoscope.

• Dental Department with an ultra-modern unit with a PLANMECA RVG unit, Intra oral camera, and fibre optic twin beam micro motors.

• Physiotherapy Unit with Short Wave Diathermy, Ultra Sound Therapy, Interferential Therapy, Traction Unit (Cervical and Lumbar), TENS, Wax Therapy, and Portable TENS.

In total 7,057 outpatients were treated during 2020-21 under Sobha Healthcare. On an average, 24 patients were treated every day at the centre.

LOOKING AFTER THE AGED AND THE IMPOVERISHED SOBHA HERMITAGE

The focus of SOBHAs CSR activities is equally on the aged. Besides the young, the Trust also firmly believes in looking after the elderly. Sobha Hermitage, which was set up with the specific aim of providing shelter and assistance to elderly from weaker sections of society, has now become a home for senior citizens and young widows and their children. Besides providing residents a roof over their heads, Sobha Hermitage also makes sure that they are provided all necessary amenities to lead comfortable lives. Residents have independent rooms, a library and a common television room, a gym and also internet access. All residents can also avail of round-the-clock medical facilities, including overnight which are provided by paramedical staff; there is a doctor on call during non-working hours. The Hermitage also has an in-house clinic. Cultural and social activities and celebrating birthdays of residents are also organized at the Hermitage.

SOBHA YOUNG MOTHERS REHABILITATION PROGRAMME

A comprehensive rehabilitation package for young mothers (widows) living in the Hermitage is in operation. Special arrangements are in place for their living, safety, security, and welfare at no cost. The widowed mothers and their children live together. All mothers are encouraged to continue their education and many have completed their graduation and others are catching up. All of them are employed at the Sobha Academy with good remuneration which they can save. One of the young mothers is a post graduate and is employed at the Sobha Academy as a qualified teacher. Their children are admitted to the prestigious Sobha Academy, where they get quality education. For those young mothers whose children have grown up, individual self-contained flats have been constructed and allotted for each family. The Trust also provides free of cost vegetables, provisions, fruits, milk, and dresses to these families. There are 10 young mothers and their 16 children living at Sobha Hermitage. Support is also provided if they want to get re-married. It is remarkable that out of 18, 7 young widows have been remarried with support from the Trust.

SOBHA RURAL WOMENS EMPOWERMENT

To empower rural women, 36 widowed mothers and their 65 children from the Vadakkenchery and Kizhakkenchery panchayats are being provided with basic monthly living allowances besides clothing, medical, and other personal accessories. Their childrens educational expenses too are met by the Trust.

SOBHA DOWRY LESS SOCIAL WEDDING PROGRAMME

This social wedding programme is a constructive approach to tackling multiple serious issues of dowry and destitution. So far 647 girls from economically and socially weaker sections of society have been married under the aegis of the programme ‘Dowry free social wedding. The girls and parents are given pre-marriage counselling and the Trust also does post-marriage monitoring and renders help as needed.

SOBHA COMMUNITY CENTRE

The Sobha Community Centre is a beautiful and spacious building for the deprived. It plays host to various community mobilization programmes including medical camps, orientation and training classes, and social weddings. The centre also has a dining hall that has a seating capacity of 300, where several poor people are fed twice a day free of cost.

SOBHA GOING GREEN

SOBHAs green philosophy of development is widely accepted across the spectrum. Several green initiatives are underway in the CSR project areas also. The entire campus was constructed with a minimum carbon footprint and without making many changes to the natural surroundings. Large-scale rain harvesting methods and processes are in place, planting of more than 3,000 trees and herbs has been done, and preserving the existing flora and fauna to the extent possible has been undertaken. The Trust also has very large waste management plants to process the waste generated. All the CSR project campuses are plastic free, no-smoking, and non-alcoholic areas, striving to achieves sustainable lifestyle. The power laundry at Sobha Hermitage is run on steam generated by a boiler to conserve electrical energy. Recently a solar energy plant has also been installed. SOBHA also provides support to other green attempts like maintaining a community pond.

SOBHA ORGANIC FARMING

The Trust is cultivating vegetables, fruits, and paddy at Moolamcode, Anakkappara, and Mangalam for in-house use. During 2020-21, around 13,000 kg of paddy and 4,000 kg of organic vegetables were harvested.

RESEARCH AND DEVELOPMENT

During 2020-21 the Research & Development Departments focus was on the following areas. This was a much-needed focus as it contributes to SOBHAs strength and helps it to stay resilient while providing best in class products to its consumers.

ISSUE MITIGATION

A study on the performance and distress of different elements in the building, external landscape and hardscape in handed over projects was done. Cost effective solutions to issues as listed below were provided after thorough investigations.

WATER INGRESS IN LARGE OPENINGS

With architectural detailing on facades, improving external aesthetics by eliminating chajjas and increasing window aperture sizes (for increased lighting and ventilation), preventing water ingress was a challenge. This was addressed with the development of newer window profiles incorporating step, slope, and level difference (Fig Old and New Section). Newer profiles for large windows with fixed bottom and top sliding were adopted.

UPROOTING OF EXTERNAL KERBS /PAVERS DUE TO UNCONTROLLED GROWTH OF TREE ROOTS.

Tree Root Barriers (Terram Root Guard) were placed selectively around trees closer to the kerbs/pavements that deflect the roots away from them.

RUSTING OF MILD STEEL ELEMENTS

Rusting of mild steel elements such as fences and light posts in external areas and the paint peeling off from fire pipes were exposed in the terraces. Improvements in paint methodology and process by fabrication vendors and use of application specific coatings were advocated.

INTRODUCING NEW CONSTRUCTION MATERIAL i. M-Sand/P-Sand as replacement for natural river sand for use in external plastering was explored and use of admixtures for making them compatible with performance requirements was done. ii. Use of UPVC door frame protectors preventing damage to SIL door frames post installation and until handover snag was done thus reducing huge replacement costs. iii. Introduced cable sealing solutions for cable entries to basements enhancing water tightness at cable entry cut-outs.

IMPROVIZATION IN WORK METHODOLOGY

The process for the refurbishment of aluminium shuttering materials was set to maximize quality output in the process of re-cycling of shuttering resources which helps to minimize new procurement.

The following feasibility study was done on Alternate Construction Material as part of the Cost Reduction Study. i. Use of Welded Wire Reinforcement. i. Use of Fly Ash in Concrete. iii. Use of PVC/WPC boards as alternatives for imported multi boards for utility door shutter panels etc.

EMPLOYEES

Attracting and retaining talent has been the cornerstone of the Companys Human Resource function. SOBHAs human capital plays a critical role in its growth. Its robust talent acquisition system has enabled it to fulfil all business demands with a strong resource supply at all times. The Companys onboarding model has helped it to effectively integrate employees joining the Company and bring them up to speed for delivering results. SOBHAs focus on competency building of fresh recruits has enabled faster release of freshers to its projects. During the last year, the employees had to embrace new and different ways of working such as ‘work from home and were subject to stress, fears and anxiety never experienced before. Technology played a vital role during this crisis, especially in terms of workforce connectivity and ensured that work went on unaffected.

SOBHAs organizational strength as on 31 March, 2021 was 3,061 employees as against 3,219 as on 31 March, 2020.

TRAINING AND DEVELOPMENT

Training and developing employees is a must for any organization to be successful. This can be done by ensuring that the employees skills, abilities, and knowledge are constantly updated both to meet world standards and also to satisfy discerning and demanding customers needs. Training also helps employees move ahead on their career paths and helps them take on more responsibilities. SOBHA too benefits as a company through training as it helps it to plan succession roles, address the challenges of changing technologies, and opens up possibilities of widening the scope of the work that it does.

At SOBHA, the organizational training and development plan includes in-house and external workshops/seminars as per need.

A comparative table depicting employee strength as against cumulative delivery is given below:

The training provided to employees has resulted in boosting productivity, increasing employee satisfaction, fostering an organizational learning culture, creating a safe working environment, and the upgradation and updation of technology. It has also led to improvements in leadership and management skills and quality and higher productivity and the resultant optimum ROI. Training at SOBHA is broadly divided into Technical, Behavioural and Adhoc (mainly sales).

TECHNICAL TRAINING

Technical employees are trained at different levels to help them become the best in class by mastering the latest technological developments in the field. During FY 2020-21, 78 online technical training programmes were conducted in which 526 employees were trained. These webinar training was conducted for employees working in Bengaluru, Thrissur, Chennai, Calicut, NCR, Hyderabad, and other locations where SOBHA has projects.

Eleven candidates (management trainees/ trainee engineers) were trained for 12 days; 42 webinar sessions on Good Practices to be Implemented at Sites were conducted for 340 site staff members from SOBHA projects pan-India.

BEHAVIOURAL TRAINING

AtSOBHA,behaviouraltrainingisequallyimportant as it helps empower employees to leverage their positive skills. Behavioural training helps enhance employees ability to handle conflicts, helps in creating win-win situations, accommodating changes and flexibility, and following a dynamic approach. Since behavioural training polishes skills and develops talent, it also contributes to an individuals overall development. Behavioural training at SOBHA covers a range of subjects including team building, time management, and developing motivational, leadership and interpersonal skills.

During 2020-21, 104 planned behavioural training programmes were conducted for employees at different levels in which 922 employees were trained.

ADHOC TRAINING

172 adhoc behavioural and technical training programmes were also conducted during the year which were attended by 1,545 employees at different levels. Other training included 4 training programmes for the sales team, 11 department centric training programmes, and 47 post effectiveness evaluation programmes; these were attended by 662 employees.

In all, the Training Division conducted 656 training programmes covering 5,736 participants including employees on non-SOBHA rolls (many employees attended multiple trainings) during the year.

TRAINING, A CONTINUOUS EXERCISE

SOBHAs training wing, Sobha Academy, conducts training on a regular basis. The Company assesses employee performance to gauge employee skills and provides employees requisite training for enhancing their skills. Smooth transition from offline to online training was done using the change management process. Due to the pandemic, most of the training was conducted online in the first quarter while later, regular training was started at site, the corporate office and Academy following all Covid protocols.

EMPLOYEE COMMUNIQUES

SOBHA publishes an in-house magazine Innerve which communicates news and developments in the organization to its employees. The magazine also carries articles written on various issues by the senior management, recognizes high performing employees, and also carries contributions by employees.

RISK MANAGEMENT REPORT

The Companys financial position and the results of its operations are subject to certain risks and liabilities that may affect its performance and ability to achieve its objectives. The factors that the Company believes could lead to its actual results differing materially from expected and previous results are discussed hereunder. However, there are other risks and uncertainties that may also affect the Companys performance and ability to achieve its objectives that are not currently known to the Company or which are deemed immaterial.

CAUSES OF RISKS

Real estate risks can be caused by many factors. To provide some structure, these factors can be grouped under several major categories as provided below:

CAUSES OF RISK IN REAL ESTATE

In the real estate sector, a company is exposed to risks at various levels some of which are within its control while many of them are not. Hence, a company must have a risk mitigation and management policy in place. SOBHA has implemented an ERM programme through which it reviews and assesses significant risks on a regular basis to ensure that it has internal controls. This system includes:

• Policies and procedures,

• Communication, supervision, and continuous monitoring,

• Training programmes, and

• Processes for taking the issues to appropriate levels of the senior management.

RISK MANAGEMENT PROCESS:

The risk management process is another form of decision-making which can be understood through the risk management chart provided below:

This system helps the Company facilitate its abilities to respond appropriately to risks and in achieving its objectives and ensuring compliance with the applicable RERA law and its statutory obligations.

The principal risks and uncertainties that might affect the Companys business are identified below. The listing agreement with the stock exchanges mandates the identification, minimization, and periodical review of these risks and uncertainties. However, it is not possible for the Company to implement controls to adequately respond to all the risks that it may face and there can be no complete assurance provided that, the steps that it undertakes to address certain risks, including those listed below will manage these risks effectively or at all. The key risk factors are listed here to give a brief overview of the types of uncertainties that are prevailing in the existing scenario.

Risks which are beyond the Companys control include:

NATURAL AND MAN-MADE DISASTERS

Natural disasters include earthquakes, fires, droughts, floods, and pandemics (like Covid-19 or Spanish flu) and man-made disasters include acts of terrorism and war.

RISK CONTROL MECHANISMS

Insurance coverage is an appropriate way of managing disaster-related risks. Apart from a sufficient insurance coverage, SOBHA also takes appropriate measures to ensure that the structural design of its buildings conforms to applicable construction standards in the various regions that it is operating in. The Companys properties are insured against natural risks like fire, floods, and earthquakes with periodical review of adequacy, rates, and risks covered under professional advice.

RISKS RELATED TO THE SECTOR SALES MARKET RISKS

Modern day businesses including those in the real estate sector are customer centric and driven by market sentiment and competition. Though everyone aspires to own a home, there is a chance that the decision to purchase a house can be deferred due to certain changes in existing economic or market conditions.

LAND RELATED RISKS

For any construction company, land is a primary input and non-availability of an appropriate parcel of land at a strategic place at a reasonable price can lead to an increase in its prices. Such a situation with its resultant increase in the price of the land can have an adverse impact on the Companys performance. Further, availability of land, its use, and development are subject to approvals by various local authorities under applicable local laws and regulations. This makes the price of land volatile. A drop in land prices may erode the book value carrying the cost of land. This in turn could affect the Companys profitability.

OWNERSHIP AND LAND TITLE RISKS

Lack of information and low transparency coupled with age old property related issues and risk of legal disputes and their related costs are key risks in the real estate segment in India leading to the slackening of overall growth in the sector.

MACROECONOMIC RISKS

Interest rates, inflation, and exchange rate risks are among the important macroeconomic indicators which are subject to several factors which primarily have to do with the government, monetary and tax policies, domestic/international economic and political conditions, and other factors beyond a companys control. Changes in interest rates may increase a companys cost of borrowing and impact its profitability. These risk factors are a driving factor in the development of the real estate sector.

REGULATORY RISKS

Local, state, and central regulatory bodies control the real estate sector through laws and regulations governing the acquisition, construction, and development of land including zoning, permitted land use, fire safety standards, height of buildings, and access to water and other utilities. SOBHAs business is subject to all these laws and regulations. Any delay in obtaining an approval under these laws and regulations will expose the business to higher risks.

LEGAL RISKS

SOBHA is involved in some legal proceedings related to the land it owns and claims in relation to taxation matters. Any adverse decision here may have a significant effect on the Companys business, prospects, and financials.

POLITICAL RISKS

Changes in government policy, social and civil unrest, and political developments in or effecting India could affect the Companys business interests. Specific laws and policies effecting real estate, foreign investments, and other matters effecting investments in the Companys securities could also change.

RISKS RELATED TO THE ECONOMY

An economic slowdown and uncertainty in the economic system like the natural risks associated with the construction sector are beyond the control of a company so also the risks that have to do with the economy. A sluggish economy or even recession in a specific industry such as IT/ITES can lead to a decrease in sales or market rates for residential projects. In extreme cases of an economic downturn, a company may also run the risk of customer insolvency though the registration of property happens only on the receipt of all the dues from a customer. These factors could decrease revenue generation from some or all a companys businesses, adversely effecting its business and future growth.

Further, uncertainties in the national or global economic scenario, a changing demographic profile of the country, and inflation also have a bearing on the functioning of a company operating in the real estate sector. In India, a real estate companys business is dependent on the easy availability of finance. An economic slowdown can result in fund shortages as lenders may want to act safe.

RISKS WHICH ARE IN SOBHAS CONTROL CUSTOMER RISKS

SOBHA operates in 10 cities which contribute to the Companys revenue. A significant portion of sales from its real estate operations is generated in Bengaluru. A decline in revenue in this real estate market or a shift in customer loyalty may have an adverse effect on its business and operating results.

The Contractual business depends solely on orders received from corporate entities for their construction requirements. A substantial portion of the revenue from Contractual projects is generated from major clients operating in the information technology sector. Due to the ongoing pandemic, most of the IT firms have provided work from home facility to their employees, which will impact demand in the commercial office segment. If these client either reduce or stop providing SOBHA contractual projects, or if there is a slowdown in the IT sector, this could adversely affect the Companys business.

BORROWING RISKS

Construction activities which are a major contributor to the Companys revenue are capital intensive and require significant expenditure on land acquisition and development. An efficient borrowing strategy has placed SOBHA ahead of its competition with respect to borrowing costs. However, SOBHA is subject to risks normally associated with debt financing and may be required to dedicate a portion of its cash flows to the repayment of its debt commitments. It may not be possible to generate adequate cash flows in certain extreme scenarios to service principal and interest payments. In certain cases, lenders also have the right to recall a loan. Such an event could impact SOBHAs liquidity and credit rating.

LIQUIDITY RISKS

The real estate industry has its own challenges and dynamics. The time required to liquidate a real estate property can vary depending on the quality and location of the property. Therefore, SOBHA may not be able to liquidate its assets promptly in response to economic, real estate market, or other conditions.

CREDIT RISKS

In most of the cases, SOBHA develops properties on a joint venture basis. Credit risks arise when its JV partners do not discharge their obligations and, in such circumstances, SOBHA may be required to make additional investments in a joint venture or become liable for the other partys obligations.

PROJECT IMPLEMENTATION RISKS

Real estate projects are vulnerable to several implementational problems such as regulatory compliances which may cause project start up delays, construction delays, cost over-runs, and unavailability of skilled labour, accidents, and quality gaps. SOBHAs operations may be unfavourably impacted if these risks are not mitigated on a real-time basis.

INPUT COST RISKS

Many times, operations of a real estate project are subject to budget over-runs due to several factors like increase in construction costs, growing sub-contracted service costs, and increase in labour costs. Increased operating expenses may affect SOBHAs profit margins if is not able to sell the properties with desired margins. There is a chance of reduction in demand if the selling price of unsold properties is increased.

SUPPLY CHAIN RISKS

If suppliers of raw materials curtail, discontinue, or disrupt the supply of materials, SOBHAs ability to meet its material requirements for projects could be impaired. This could lead to a disruption in construction schedules and projects may not be completed on time.

MANPOWER RISKS

The construction industry is highly dependent on its manpower and its ability to retain this manpower. Employee attrition could have an adverse impact on SOBHAs business. SOBHAs performance could also be affected if it is unable to identify, attract and retain key employees like engineers and architects.

COMPETITION RISKS

The residential real estate sector is highly competitive. Other developers undertaking similar projects within the same regional markets are in direct competition with SOBHA. Due to the fragmented nature of the real estate development business, adequate information about small and medium level competitors projects may not be available and SOBHA could run the risk of underestimating the supply in the market.

DIVERSIFICATION AND INVESTMENT RISKS

Though SOBHA is a backward integrated company, expanding into new businesses or new geographies exposes it to new risks such as low levels of familiarity with the development of properties in the specific area or market for the new projects development. Its competitors may be better known in these markets and may also enjoy better relationships with vendors/suppliers/landowners/ joint-venture partners, and customers.

RISK CONTAINMENT STRATEGY AND MEASURES TAKEN FOR RISK MITIGATION

SOBHA always strives to produce customer centric and high-value products for quality conscious and niche customers. This is evident from the customer support that it got during the recent economic reforms initiated by the central Government. SOBHAs customers are not dependent on external resources and are able to manage their financial requirements internally. The Company has a dedicated and robust in-house sales and marketing team which is entrusted with the task of generating enquiries for its products and transforming them into sales. This reduces dependency on external agents and brokers. SOBHA also has a dedicated Customer Relationship Management (CRM) Department to cater to customer feedback, resolving their queries and grievances, addressing their issues, streamlining the purchase process, and receiving feedback. An online portal has been designed for customers on which they can share their views and check the status of the projects. The CRM Departments core responsibility is ensuring smooth and hassle-free transfer of products to the satisfaction of the customers.

Taking calculated risks is a part of all businesses. A business growth depends on companys ability to absorb the risks related to the sector. After a careful evaluation of the risks SOBHA has been steadily expanding its geographic presence in the real estate domain. This diversification has reduced its dependency on a single market, Bangalore, which at one point accounted for all its sales. Bangalore now contributes only 65-70 per cent of its sales.

To avoid dependency on a single large client in the Contractual vertical, the Company is making a conscious effort to enlarge its corporate client base. Enlarging this client base includes tapping into a big pool of corporates and institutions to ensure that its dependency on any one client is reduced. Out of the projects currently underway, the share of contractual orders received from other clients has increased. SOBHA has a proven track record in servicing its debt obligations. The gearing levels of the Company have been efficiently managed in previous financial years because of which the gearing ratio has come down. Every investment avenue is evaluated on the basis of the risks and rewards attached to it. The Company takes strategic decisions with respect to land acquisition. Effective methodologies are in place for managing the land portfolio. Requisite due diligence is carried out before acquiring land or entering into partnerships for joint ventures or joint development. SOBHA has adopted a standard process for ensuring product quality. Technology related to the industry is upgraded periodically by comparing it to global standards. This helps in minimizing implementation risks. The in-house Quality, Safety, and Technology Department is in-charge of addressing quality issues of the products. Vendors supplying key materials have longstanding relationships with SOBHA. Since the Company is a backward integrated organization, key inputs are sourced in-house, reducing dependency on external suppliers. Comparatively, the attrition rate in the Company is below the industry/sector average. To minimize attrition and for retaining talent, SOBHA has adopted effective and employee friendly policies. SOBHA is confident that with the economic and sector specific reforms introduced by the government in the recent past, the outlook for long-term demand for the real estate sector in India is stable and positive. The emergence of Tier-II and Tier-III cities, urbanization, large-scale employment opportunities in Tier-II cities, and larger numbers of nuclear families will contribute to a substantial increase in demand for real estate and corporate space in the future. The dedicated and strong in-house Legal Department at SOBHA along with outside experts, ensures the minimization of legal and regulatory risks. The Company is a member of trade associations like CREDAI and is active in making joint representations to the government and regulators on common issues faced by the sector.

SOBHAS foray into new geographies is based on a thorough analysis of prevailing market conditions and the regulatory environment. Several contractual projects have been successfully executed in the cities and hence, there is a good understanding of the local factors at play. The Company also engages locally available manpower resources.

RISK INTERACTION

The risks faced by a company are not mutually exclusive.

The following table depicts the interplay of various risks:

Risk Growth Economic Purchasing Power Customer Preference One Customer Dependency Availability of loans Interest Rate Availability of land Regulatory Approvals Project Implementation Inflation Manpower Competition
Economic Growth ? ? - ? ? - - - ? ? -
Purchasing Power ? ? - ? ? - - - ? ? ?
Customer Preference ? ? ? - ? ? - - ? - ?
One Customer Dependency ? - ? - - - - ? - - ?
Availability of Loans ? - - - ? - - ? ? - -
Interest Rate ? ? ? - ? - - ? ? - -
Availability of Land - ? ? - - - ? - - - ?
Regulatory Approvals - - - - - - ? ? - - -
Project Implementation ? - - ? ? ? - ? ? ? ?
Inflation ? ? ? - ? ? - - ? - -
Manpower ? ? - - - - - - ? - ?
Competition ? ? ? ? - - ? - ? - ?

VARIOUS RISKS FACED BY SOBHA AND THEIR LIKELIHOOD AND IMPACT

The Company has a Risk Management Committee for evaluating the risk of each category. The committee assists in identifying and assessing risks so that appropriate mitigation mechanisms can be devised. The Audit Committee reviews and advises the management on all categories of risks that the Company faces, the exposure in each category, and the acceptable and appropriate levels of these exposures. It also monitors the steps taken by the management to control such exposures and ensures that the overall risk exposure is within the Companys risk capacity and risk appetite. The Companys Board of Directors is also apprised of the risks faced by the Company and timely risk management measures taken for mitigating them.

OPERATIONAL AND FINANCIAL ANALYSIS

As we close a rather turbulent financial year, it gives us immense pleasure to record one of our best operational and financial performance during financial year 2020-21. The Corona virus induced pandemic dented prospects and had a lasting impact on almost all the industries. Prospects of life, living, and growth were challenged as we crawled through the first quarter of FY-21. However, the situation eased during the second half of the financial year with demand and supply, labour material availability, and most importantly the introduction of multiple vaccines for Covid-19. Despite all the challenges at the macro level, SOBHA achieved the best ever sales volume during Q4 of FY-21 and improved on price realization in the successive quarters. During FY 2020-21, the Company achieved the highest ever sale value in its history for any financial year. This development is significant and gives SOBHA a direction that the demand story of the housing sector is here to stay, and we can hope for better performance in the coming years. It is also worth noting price realization which is improving over several quarters in the same light.

The ongoing pandemic and its 2nd wave with multiple mutants has gripped the globe with an unprecedented impact on life and living please see comment at the beginning. However, this situation has opened up avenues for professionally managed businesses. Business houses with a strong presence in the industry or sector that they are in have shown resilience during this tough macro-operational environment. Industry consolidation is happening at a rapid pace which augurs well for large listed players with the ability to tap the potential market space across geographies. However, caution needs to be exercised in view of the ongoing second wave of the pandemic which has sent stronger shock waves across industries. Despite the second wave of the pandemic, intermittent lockdowns across the country, and restrictions on movement of goods, labour etc. SOBHA was able to deliver on all its project execution commitments. Its continued focus on cash flow management and professional approach in this area resulted in efficient utilization of available resources and reduced the turnaround cycle which helped business operations greatly.

The Company is expected to do better in the coming financial years with customers showing confidence in the SOBHA brand, its exceptional execution capabilities, and reputation of quality products delivered on agreed timelines. This is also backed by the Companys strong new projects launch pipeline and expansion of operations into new cities as part of its geographic expansion plan. SOBHA believe that being a pioneer in the use of advanced operational methodologies, best practices in the sector, use of technology tools and greater digital presence, the Company should be able to perform better both financially and operationally in the coming years.

In this backdrop, SOBHAs financial and operational performance for 2020-21 is now presented.

Following are the key financial takeaways for fiscal year 2020 –21:

• Registered a income of 21,904 million

• 13,103 million revenue from real estate operations

• 7,995 million in revenue from contracts and manufacturing operations.

• PBT of 752 million

• PAT of 630 million

• Collections of 30,769 million

• Net operational cash flows at 6,390 million

• Total sales value of 31,372 million with SOBHAs share of 24,759 million

• Total average price realization at 7,817 per square foot

• Debt Equity ratio as on March 31, 2021 is 1.17

On operational parameters, the Company has:

• Developed 112.30 million square feet of total area since its inception

• Execution of 35.75 million square feet of total area in progress

• Execution presence of Real Estate and Contractual projects in 27 cities covering 14 states in India

• Completed total developable area of 2.56 million square feet in the real estate and Contracts domain in 2020-21

NEW SALES

SOBHA recorded considerable sales despite the challenging macro environment during 2020-21. The Covid-19 pandemic and its resulting impact on our lives has changed the way many businesses operate. This environment was used as an opportunity by the large players across the industry to ramp up their technological capabilities thereby reducing physical interactions. SOBHAs efforts in the digital marketing space gave fruitful results which are evident in its sales performance during 2020-21. During the financial year, the Company registered new sales SBA of 4.01 million square feet valued at 31,372 million at an average price realization of 7,817 per square foot.

The classification of new sales in terms of price band is as follows:

Sales Value in terms of Price Band

(Rs. in million)

2018-19 2019-20 2020-21
< 10 Million 6,549 9,896 5,984
10 to 20 Million 13,205 13,984 15,406
20 to 30 Million 7,364 3,489 6,430
Above 30 Million 4,107 1,437 3,552

Area Sold in terms of Price Band

[Rs. in million SqFt]

2018-19 2019-20 2020-21
< 10 Million 1.18 1.68 1.03
10 to 20 Million 1.75 1.88 1.96
20 to 30 Million 0.72 0.36 0.67
Above 30 Million 0.38 0.15 0.35

SOBHAS CUSTOMERS:

The product-mix offered by the Company has been well accepted by its customers. The Company, on an ongoing basis, analyses its customer base and the analysis revealed that its customer profile has a healthy mix, comprising IT/ITES professionals, non-IT professionals, entrepreneurs, and professionals. About 65 per cent of its customers are in the salaried category, which includes 49 per cent from IT/ITES and 16 per cent from non-IT industries. In addition, 4 per cent of the Companys customers are from the business and entrepreneur category.

* Others include agriculturists, government employees etc.

SOBHA operates a representative office in Dubai and a branch office in Singapore to market its products among the NRI/NR community. However, resident Indians continue to dominate its overall customer profile.

A comparative position of the customer base is provided below:

REAL ESTATE

Customer centricity is at the core of SOBHAs business strategy in addition to the Companys ability to consistently deliver quality products in the real estate space. The Companys real estate operations are currently spread across 9 cities. Performance of the real estate vertical:

Rs. in million

Particulars 2020-21 2019-20 2018-19
Revenue 13,103 22,801 22,653
Share of Revenue (%) 60.19 59.59 64.43

PROJECT LAUNCHES

During the year, the Company launched the following real estate projects –

• SOBHA Athena Bangalore, a luxury project measuring a total saleable area of 0.12 million square feet.

• SOBHA Windsor Bangalore, a luxury project measuring total saleable area of 1.35 million square feet.

• SOBHA Metropolis in Thrissur, measuring a total saleable area of 1.17 million square feet.

• SOBHA Chartered Woodpecker Bangalore, under the development management model measuring a total saleable area of 0.25 million square feet.

In total, SOBHA launched new projects to the tune of 2.89 million square feet during financial year 2020-21. During Q4 of FY 2020-21, the Company opened its first flagship retail showroom under the metercube brand with an area of 29,526 square feet at 1 SOBHA commercial space in Bengaluru.

CONTRACTING

During 2020-21, the revenue from contracting and manufacturing divisions was impacted by the ongoing Corona virus induced pandemic. Revenue from this vertical contributed around 25 per cent to the Companys topline. The Contracts vertical has been executing orders ranging from civil structures, finishes, MEP work, metal and glazing work, and interior furnishings for various reputed clients. With 5.64 million square feet of contractual orders under progress and unbilled contractual orders of approximately 20.69 billion pending to be executed as at March 31, 2021, the Contractual operations will continue to be a source of steady revenue.

Performance of the Contracts vertical:

Rs. in million

Particulars 2020-21 2019-20 2018-19
Revenue 5,325 10,181 8,331
Share of Revenue (%) 24.58 26.61 23.69

MANUFACTURING

SOBHA is pioneer in the real estate industry to integrate a self-reliant model of operations. The Company has the capabilities, skills, and resources to deliver a project from conceptualization to completion backed by this unique strength. It is known for its use of quality products and services required for the construction and development of a project and to meet desired quality and agreed delivery schedule. The construction material is manufactured in-house which helps to ensure that the products are superior in quality and the Company has a reduced dependence on external suppliers. The Company is ahead of the curve, with the Government of India pushing for self-reliant and self-sustained models of businesses and practices. The Company believes that this model has been one of the important factors in its successful execution track record without compromising on quality.

SOBHAs self-reliant model comprises of Glazing and Metal Works, Interiors and Furnishing Works and, Concrete Works, which supplements its core business of real estate and contracting. Each of these manufacturing divisions is a profit centre and is efficiently and professionally managed.

THE GLAZING AND METAL WORKS DIVISION

The Company owns one of the largest glazing and metal factories in India. The facility is spread over 7.3 acres of land with a 2,322 square metre (25,000 square feet) state-of-the-art manufacturing unit, with future expansion capability up to 11,148 square metres (120,000 square feet) space facility. The factory is equipped with advanced machineries like the CNC profile cutting machine, TIG welding machines, ACP routing machine, and milling machines. Apart from the Bangalore unit, the Company has established Glazing and Metal Works Divisions in Chennai and Sonepat. The products manufactured in these facilities include aluminium doors, windows, structural glazing, MS and SS metal fabrications, aluminium composite panels, SS cladding, architectural metal works, and pre-engineered buildings.

INTERIORS DIVISION

The Interiors and Furnishing Division is one of the largest wood working/joinery facilities in India. The division has two highly mechanized factories with total floor area of 2,55,000 square feet located at Bommasandra, Bangalore. The division is equipped with imported machinery from Spain, Italy, and Germany. The Company also has an Interiors Division in Alwar. The product range includes large scale corporate and residential interiors, solid wood veneer panelled doors and MDF panelled doors, customized joinery works like panelling, partitions, tables, loose furniture like chairs, sofas, and cots and modular kitchens.

CONCRETE PRODUCTS DIVISION

The Company has a fully automated Concrete Products Division which uses remote controlling systems. The manufacturing facility in Bangalore is spread over 32,000 square metres (8 acres) and manufactures concrete products of international quality. The unit has imported technologies from Germany (Masa Plant) and England. In addition, the Company has opened Concrete Products Divisions in Gurgaon and Pune also. The units are manufacturing ready-to-use products, including concrete blocks, pavers, kerb stones, water drainage channels, paving slabs, and related landscapes. The facility has a production capacity of 28,000 of blocks/ day or 20 million landscaping products.

Performance of the Manufacturing vertical:

Rs. in million

Sales 2020-21 2019-20 2018-19
Glazing and Metal Works Division 1,452 2,194 1,575
Interiors Division 799 1,871 1,429
Concrete Products Division 411 486 434
Total 2,662 4,551 3,438
Share of Revenue (%) 12.23 11.92 9.78

CASH FLOWS

The cash flow summary for financial year 2020-21 under the direct cash flow method is as follows:

Rs. in million

Particulars 2020-21
Operational Cash inflow 30,769
Operational Cash outflow 24,379
Net Operational Cash inflow 6,390
Financial Out Flow (Interest and Taxes) 2,830
Net Operational Cash inflow after Financial outflow 3,560
Net Cash flow 2,269

The Company collected 30,769 million during the year from its real estate, contractual, and manufacturing activities. After expending on construction expenses for real estate, contractual, manufacturing activities, and overheads, etc. the net operating cash inflows are 6,390 million. The Company recorded a net positive cash flow of 2,269 million.

The Company utilized 2,733 million towards meeting its financial obligations and 97 million for income tax.

The Company spent 382 million towards land payments during the year. In addition, the Company incurred 150 million towards capex expenditure, 95 million as CSR contribution, and 664 million on dividend (including dividend tax).

DEBT

The Company seeks to maintain an optimum balance between low-cost debt and relatively higher cost equity. Debt financing is used for executing various projects - residential, commercial, and contractual. As on March 31, 2021, the Companys net debt was 28,525 million as compared to 30,232 million in the previous year. The debt-equity ratio stood at 1.17 at the close of the financial year.

BORROWING COST:

As of March 2021, the average borrowing cost stood at 9.04 per cent.

During the year, the Companys borrowings were rated by:

• CRISIL as ‘A+ (Stable)

• India Ratings and Research (Ind-Ra) as ‘IND AA-‘ (Stable)

NET WORTH

The Companys net worth as on March 31, 2021 was 24,277 million.

FIXED ASSETS

During financial year 2020-21, the gross addition to fixed assets was 370 million. This is about a 5 per cent addition year on year on account of investments in scaffolding items and additions to plant and machinery.

CURRENT ASSETS

During financial year 2020-21, the Companys current assets increased by 598 million as compared to the previous year.

CURRENT LIABILITIES

During financial year 2020-21, SOBHAs current liabilities increased by 842 million.

DIVIDEND

The Company aims to follow a consistent dividend pay-out while striving to achieve a trade-off between deployment of internal accruals for growth and the payment of dividend. The Company has been paying dividend in the range of 25 per cent- 35 per cent of its profits.

The Board of Directors has recommended a dividend of 3.50 per equity share for the year.

CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER CERTIFICATE

[AS PER REGULATION 17 AND PART B OF SCHEDULE II OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2015]

We certify that:

A. We have reviewed financial statements and the cash flow statement for the financial year ended March 31, 2021 and that to the best of our knowledge and belief: (1) these statements do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading; (2) these statements together present a true and fair view of the Companys affairs and are in compliance with existing accounting standards, applicable laws and regulations.

B. There are, to the best of our knowledge and belief, no transactions entered into by the Company during the year which are fraudulent, illegal or violative of the Companys code of conduct.

C. We accept responsibility for establishing and maintaining internal controls for financial reporting and that we have evaluated the effectiveness of internal control systems of the Company pertaining to financial reporting and we have disclosed to the auditors and the audit committee, deficiencies in the design or operation of such internal controls, if any, of which we are aware and the steps we have taken or propose to take to rectify these deficiencies.

D. We have indicated to the auditors and the Audit committee

(1) significant changes in internal control over financial reporting during the financial year ended March 31, 2021;

(2) significant changes in accounting policies during the financial year ended March 31, 2021 and that the same have been disclosed in the notes to the financial statements; and

(3) instances of significant fraud of which we have become aware and the involvement therein, if any, of the management or an employee having a significant role in the Companys internal control system over financial reporting.

Sd/- Sd/-
Place: Bangalore Subhash Mohan Bhat J C Sharma
Date: June 22, 2021 Chief Financial Officer Vice Chairman & Managing Director