Sobha Ltd Management Discussions.

Markets and Operating Environment

Macroeconomic Overview

Financial year 2019-20 was exciting, challenging and turned volatile towards the end of 4th quarter. While major economies slowed down with US-China trade strains, the Middle East geopolitical turmoil followed by plummeting crude oil prices, the world witnessed a fresh health challenge in the form of COVID-19 virus. This brought the entire world to a grinding halt, sending both demand and supply side shock waves apart from its unprecedented health implications.

Major research houses and analysts are of the opinion that global economies are headed for a significant shift in economic activities resulting in considerable loss to GDPs growth. India being a developing nation is heavily influenced by activities around the globe. A GDP contraction estimate ranging from 5 to 10 per cent during the FY 2020-21 will leave a permanent mark on the performance of an emerging economy like ours.

Fiscal 2021 will determine the endurance and way forward for all the sectors across the globe. Nations are spending about 10 per cent of their GDP for handholding ailing industries and related support infrastructure impacted by demand-supply constraints witnessed due to this unprecedented health hazard. However, gradual opening up of economic activities in a phased manner is expected to show a positive impact and businesses should be able to shoulder and ease the stress on their operational and financial performances.

Sector Overview

In the Union Budget for fiscal year 2020-21, the Finance Minister of India laid down the foundation for increasing consumption while ensuring that the governments investment is deployed to build infrastructure leading to a USD 5 trillion economy by Fiscal 2024-25. Further, the Government of India announced a series of measures for supporting all sections of society with a view to cushioning the impact and threats posed by the COVID-19 pandemic.

Construction, being the second largest employment generator after agriculture, has seen a lot of structural reforms over the last decade. The government has been responding positively to the concerns and demands of the industry. This is evident in the relief measures announced which include those for the sector as well. These have facilitated organized players in the listed space to consolidate and improve their performance parameters in the years to come. The challenges faced by the real estate sector during these troubled times have been efficiently handled by industry leaders in an appropriate and timely manner. The way forward for the industry is aligning its activities to a changing environment. Use of technology, optimum utilization of available digital tools and platforms and innovation and designing of custom made tools should cater to the changing needs and challenges thrown up by the unforeseen circumstances like what we are witnessing today.

Outlook of our Markets A. Real Estate

SOBHA, constantly ranked number one in India in the real estate space, 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. While we are present in the major cities in India, we are also exploring new markets pan-India. The real estate sector in India has faced several challenges and is about to take off to a new horizon in the coming years. In line with expectations, SOBHA delivered a record operational and financial performance during financial year 2019-20. The Company also witnessed a strong performance in its contracts and manufacturing verticals with highest ever cash inflows; operating margins have also improved during the year. SOBHAs unique backward integrated model, strong brand name and unmatched execution capabilities, help us deliver all our projects on time. The Company currently has on-going real estate projects aggregating 39.36 million square feet of developable area and 27.41 million square feet of saleable area and on-going contractual projects aggregating 9.44 million square feet under various stages of construction.

As on 31st March, 2020, the Company had delivered overall 109.74 million square feet of developable area. Since its inception, the Company has completed real estate projects measuring 58.74 million square feet of developable area and 44.62 million square feet of super built-up area.

During the year, the Company completed construction activities to the extent of 3.98 million square feet of total developable area and 2.74 million square feet of super built-up area.

Bangalore

SOBHA Limited based in Bangalore had the citys sales volume to the tune of 73 per cent (approximate). Bangalore is home to and headquarters of some of the largest IT firms in the world. Being the tech hub and often referred to as the Silicon Valley of the East, Bangalore plays a crucial role in contributing to the state and Centres GDP. With a lot of professionals moving to cities as part of urban migration and seeking job opportunities in large cities like Bangalore, demand for housing has increased considerably. This has always been a key factor while planning, designing and launching new projects in select pockets of cities like Bangalore. During FY 2019-20, the Companys focus was finishing the work that was near completion.

During the year 2019-20, the Company completed SOBHA Clovelly in Bangalore. Homes at SOBHA Clovelly are meant for a sophisticated and specialized clientele which has experienced the best quality in the world and who dream of the same in their homes. Located in Banashankari, these 137 homes are a perfect blend of nature and design. Situated on 3.23 acres, SOBHA Clovelly has 3-bedroom homes and 4-bedroom duplex penthouses. These unique apartments also have an array of amenities that help the occupants lead a heathy life in a natural way. These include a multifunction hall, a table tennis court, pool table, badminton hall, gymnasium, yoga room, swimming pool and a kids play area. The projects saleable area is 0.53 million square feet.

The Company has completed SOBHA Silicon Oasis Wings 7 & 8 and also 17 Row Houses. Total area developed during FY 2020 under this project was 0.35 million square feet. This project is a unique resort themed residential development offering luxury apartments and row houses in Bangalore.

Our series of offerings in the affordable segment started with the launch of "SOBHA Dream Acres" in Bangalore. The project was launched in FY 2014-15 with a total developable area of 10.65 million square feet. This is one of the largest residential projects meeting the needs and aspirations of home buyers. The project uses a unique pre-cast technology which is capable of producing 20,000 square feet of pre-cast elements a day, which helps us reduce the time spent on construction so we can deliver products ahead of schedule. During FY 2019-20, we completed a total developable area of 1.07 million square feet and 0.88 square feet of saleable area.

Presently, the Company has on-going projects aggregating 17.41 million square feet of total developable area and 12.72 million square feet of super built-up area.

Gurugram - NCR

SOBHA started its operations in the Gurugram-NCR market in FY 2011-12 with the launch of International City. After positive feedback for the 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 SOBHA City, the Company is currently working on 4.31 million square feet of developable area and 3.24 million square feet of super built-up area. Under the International City project the Company is working on 6.81 million square feet of developable area and 3.25 million square feet of super built-up area.

In total, the Company has on-going projects aggregating 11.12 million square feet of total developable area and 6.47 million square feet of super built-up area, which will be developed and delivered in phases.

Chennai

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

During the year, the Company launched SOBHA Blossom, a plotted development on an area spread across 6.96 acres. This is our second plotted development in Chennai with a total developable area of 0.30 million square feet and total saleable are of 0.18 million square feet. These 118 well-laid out plots effectively cater to customers varying needs. What adds to the pleasure of SOBHA Blossom is that it takes care of world-class amenities and infrastructure while customers can take the time to build their homes as per their preferences and requirements. This project is just 300 metres from the 400 feet outer ring road (ORR).

Presently, the Company has 3 ongoing projects, aggregating 2.14 million square feet of total developable area and 1.48 million square feet of super built-up area.

Calicut

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

Presently, the Company has 2 on-going projects 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. It is a major port city which is rapidly growing and home to a number of technology and industrial campuses such as Info Park, Cochin Special Economic Zone and KINFRA Export Promotion Industrial Park, Smart City at Kakkanad and Cyber City. The Company moved to the Kochi market in 2013-14 with the launch of SOBHA Isle.

Presently, the Company has 2 on-going projects, aggregating 5.02 million square feet of total developable area and 4.10 million square feet of super built-up area.

Thrissur

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

Presently, the Company has 2 on-going projects, SOBHA Lake Edge and SOBHA Silver Estate aggregating 0.60 million square feet of total developable area and 0.42 million square feet of super built-up area.

Coimbatore

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

During FY 2019-20 the Company launched SOBHA Verdure, a row house project with a total developable area of 0.14 million square feet and a total saleable area of 0.10 million square feet. This project is part of the sprawling 132-acre Harishree Gardens in Coimbatore. SOBHA Verdure is our latest offering consisting of 44 exquisite row houses. Nestled in the pristine greenery of the Western Ghats in the picturesque city of Coimbatore, SOBHA Verdure gives an opportunity to live an idyllic life away from the hustle-bustle of the city. SOBHA Verdure is an exemplary project where nature and modern architecture come together harmoniously to provide a healthy, wholesome and sustainable lifestyle for connoisseurs.

Apart from these new launches, the Company has 2 other on-going projects, SOBHA Elan with 0.42 million square feet of developable area and 0.34 million square feet of super built-up area, and SOBHA West Hill with 0.05 million square feet of developable area and 0.03 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 apartments.

During 2019-20 the Company launched SOBHA Nesara, ultra-premium 3, 3.5 and 4 BHK residences spread over 3 acres with a total developable area 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 and a bounty of birdlife thus providing healthier lifestyle.

Mysore

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

We completed SOBHA Meadows aggregating 0.25 million square feet of total developable area and 0.13 million square feet of saleable area during FY 2019-20. As of March 2020 the Company did not have any on-going projects.

GIFT City Gujarat

Gujarat International Finance-Tec City (GIFT) – A Global Financial Hub, GIFT City 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._The objective behind setting up GIFT City is tapping into Indias huge potential for proving financial services by offering world-class infrastructure and facilities to leading global financial institutions and companies.

Currently we have one on-going project in the affordable segment - SOBHA Dream Heritage - with a developable area of 0.71 million square feet and a super built-up area of 0.52 million square feet.

SALES PERFORMANCE

The Company achieved 4.07 million square feet of new sales area which is the highest since its inception. The total value including joint development share at

Rs. 28,806 million at an average price realization of

Rs. 7,075 per square feet. SOBHAs share of sales value is at Rs. 23,827 million. Despite a challenging environment, the Companys performance in sales volume was in line with projections.

Despite commercial products, SOBHAs prime focus remains on its residential business for generating positive cash flows through speedy delivery and revenue realization and ensuring appropriate investments using the best available opportunities.

B. Commercial

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

As of March 2020, the Company had two commercial malls in this business vertical. The first is the "SOBHA City" Mall in Thrissur. It commenced operations in December 2015 onwards. It has a total developable area of 0.44 million square feet with a total leasable area of 0.34 million square feet. SOBHA initially sold 0.61 million square feet.

The second offering in this vertical is the One 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 the "One SOBHA" mall in Bangalore signifies our entry into the citys commercial shopping space. Located in the heart of Bangalore, this commercial development will

PROJECTS AND WORK DONE

SOBHA, with its unique backward integration model, quality products, customer satisfaction and timely delivery has set a benchmark in the industry and garnered customer loyalty over the years. Steady performance continued during financial year 2019-20 too when we completed and handed over 5.86 million square feet of developable area.

I. Overall Execution

Overall, SOBHA has completed 109.74 million square feet of area since it started operations in 1995. The Company has steadily launched new real estate projects and executed new contractual projects wherein significant project level investments are being made on a regular basis. These on-going projects are excluded from the purview of overall execution since, on average, a real estate project takes around 3 to 4 years to complete.

II. Completed Projects

Financial year 2019-20 witnessed the overall completion of 5.86 million square feet of developable area and 4.61 million square feet of super built-up area both in the Real Estate and Contractual verticals.

a. Real Estate

SOBHA completed 3.98 million square feet of developable area and 2.72 million square feet of super built-up area during 2019-20. As of March 2020, the Company had delivered 1.07 million square feet of developable area in the SOBHA Dream Acres project. The remaining phases of development are in progress and are ahead of schedule. Construction of these projects are carried out using the pre-cast technology.

During the financial year, the Company completed SOBHA Clovelly in Bangalore. Homes at SOBHA Clovelly are meant for its sophisticated and specialized clientele which has experienced the best in the world and who dream of getting the same quality in their home. Located in Banashankari, these 137 homes are a perfect blend of nature and design. Situated on 3.23 acres, Sobha Clovelly has 3-bed homes and 4-bed duplex penthouses. These unique apartments also have an array of amenities that help their occupants lead a heathy life in natural way. They include a multifunction hall, a table tennis court, pool table, badminton hall, gymnasium, yoga room, swimming pool and a kids play area. The projects developable area is 0.53 million square feet.

The Company also completed SOBHA Silicon Oasis Wings 7 & 8 and also 17 Row Houses. Total area developed during financial year 2020 under this project was 0.35 million square feet. This project is a unique resort themed residential development offering luxury apartments and row houses in Bangalore.

During the year, we also completed SOBHA Meadows, Mysuru. This plotted development is spread over 5.92 acres of land near the Electronic City in Mysuru. The total developable area of the project is 0.25 million square feet. It is close to IT companies and boasts of easy connectivity to Bengaluru. These premium plots come with well-paved roads, parks, street lighting, underground sleeve provision for televisions, telephones and optic fibre cabling.

We have also completed One SOBHA, Bangalore, a mix use project with a mall and office rental space. This project has a total developable area of 0.38 million square feet. Located in the heart of Bangalore on St. Marks Road, this commercial development will be a host to the topmost brands from retail, F&B, entertainment and fashion industries. One SOBHA is poised to become Bangalores next go to destination for shopping and recreation.

Since its inception, the Company has completed real estate projects measuring 58.74 million square feet of developable area and 44.58 million square feet of super built-up area.

b. Contractual

During financial year 2019-20, the Company completed 1.88 million square feet spread across 6 cities. Since the start of its operations, SOBHA has completed 51 million square feet of area for various clients in 27 cities across India. The Company has executed over 38.20 million square feet of area for its single and largest client Infosys.

III. On-going Projects

The Company is currently executing 48.80 million square feet of developable area and 36.85 million square feet of super built-up area.

a. Real Estate

SOBHA currently has on-going real estate projects aggregating 39.36 million square feet of developable area and 27.41 million square feet of super built-up area 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 for the people working in that environment. This 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 for the 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 and Control of Pollution) Act, 1974; amendment made in 1988 and the Rules made thereunder, the Air (Prevention and Control of Pollution) Act, 1981 and the Rules and Orders made thereafter, the Environment (Protection) Rules, 1986, Environmental Impact Assessment Notification, 2006, Hazardous Waste (Management, Handling and Transboundary Movement) Rules, 2008 and amendment thereafter, across all its projects wherever applicable. SOBHA also focuses on minimizing emissions and increasing the use of renewable resources both in its construction activities and operations phase at its manufacturing facilities where all attempts are made to keep the carbon footprint low by following the best industry practices. For achieving all this, SOBHA 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

We at SOBHA are practising 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 met 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 SOBHA 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 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 wastewater generated in its buildings. The treated water is used for secondary activities like flushing toilets, watering the landscape areas, cleaning the common area and at construction sites for dust suppression. The STPs help to reduce the 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 STP exhaust ducts to remove odour from the exhaust air and improving the airs quality. Air curtains are also provided at the STPsentrance 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

SOBHA 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 SOBHAs 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 SOBHA 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 at the SOBHA Academy to analyse water samples for physico-chemical parameters. As part of the Companys continued commitment to ensuring safe and healthy drinking water to labourers, staff and occupants, it set up a microbiological laboratory at SOBHA Academy during 2019-20. This laboratory is managed by qualified personnel and equipped with instruments like Laminar Flow, Biological Incubator, Electron Microscope, Digital Calorimeter and Autoclave which are essential for ascertaining the quality of the water from a microbiological point of view.

Health and Safety

Safety is integrated in SOBHAs 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 to day 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 form 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 from 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 Sobha with the first position in State level safety awards in construction category for Sobha Dream Acres. In addition to already existing practices, during 2019-20, the following activities were undertaken for Health and Safety:

Standardization for edge barricades and fall protection system - Standard Operating Procedures (SOPs) - released and implemented for all projects.

Methods and checklists improvised to make the activities more appropriate. Till date, 116 EHS checklists/records have been made to control activities and ensure that hazards are controlled using best safety practices.

Precast plant the eye anchor design reviewed for WC wall panels to ensure safety while lifting the elements.

An OHS Committee formed at every project site which has workmens representatives, contractors and supervisors who discuss and promote a safe work culture.