Sumit Woods Ltd Management Discussions.

The following managements discussion and analysis ("MD&A") is intended to assist readers in understanding Sumit Woods Limited (the "Company" or "Sumit Group"), its business environment, strategies, performance, and outlook and the risks applicable to Sumit Group. It should be read in conjunction with our consolidated financial statements and accompanying notes (the "financial statements") for the year ended 31st March, 2020.

The global economies are facing a synchronized slowdown, resulting from a variety of factors affecting the world. The outbreak of coronavirus 2019 (COVID19) has globally disrupted peoples lives, interrupted businesses and jeopardized decades of development progress. According to The World Economic Outlook (WEO) update, global economic growth has been downgraded to 2.4% in 2019, which is its slowest pace since the global financial crisis of 2008. The decline in growth is the outcome of rising trade tensions between large economies, rising uncertainty surrounding trade and geopolitical issues; along with individual macroeconomic problems such as low productivity growth in emerging economies and aging population in advanced economies. To add to the existing issues, the pandemic outbreak has worsened the economic environment. The crisis is the result of the needed containment measures that forced policymakers to take extreme steps in the form of huge fiscal stimuli to encourage economic activity. With considerable uncertainty around the world due to the pandemic, its macroeconomic fallout, and the associated impact on financial and commodity markets, the World Economic Outlook has estimated global growth to decline by 5.2% in 2020 before recovering by 4.2% in 2021.

INDIAN ECONOMY

Real Estate is a multiplier and many industries are directly or indirectly connected to it. Cement, Steel and many industries rely on Real Estate. Its one of the highest Job creator for India.

When Real estate is bought, Government earns around 28% of what a Buyer pays in form of direct or indirect tax. Real Estate sector alone can change the economy of our country. Post lockdown, the biggest challenge for the real estate sector would be restarting the construction work as a great percentage of migrant labourers have gone back to their hometown and would take time to come back.

The Indian economy decelerated sharply in the fourth quarter at 3.1%, lowest in almost 17 years, after growing at 4.1% in Q3 FY20. As per the Central Statistics Office (CSO), GDP growth for FY20 stood at an 11-year low of 4.2% lower than the government projection of 5.0% in both first and second advance estimates. The countrys fiscal deficit worsened to 4.59% of GDP, much beyond the targeted 3.8% of GDP and expected to worsen further with the dip in tax collection and revenue shortage due to the subsequent effects of lockdown on the economy. The core sector contracted by a record 38% in April as the lockdown hit all eight infrastructure sectors. According to the CSO, countrys factory output growth contracted to 0.7% in FY20, as against expansion of 3.8% in FY19. Consumer durables output, an indicator of urban demand, contracted by 8.4% in FY20, compared with a growth of 5.5% in FY19.

With the lockdown scenario, consumption and investments are expected to be severely impacted in the first quarter. The gross fixed capital formation is likely to decline with rising risk perception and uncertainty around the pandemic. RBI has cut the repo rate by 40 bps to 4.0% in May 2020, which is the lowest ever and rolled out a range of measures to preserve financial stability and counter the economic impact of COVID19.

REAL ESTATE SECTOR

The Indian real estate sector has been trying to get back on its feet and come to terms with multiple reforms and changes brought in by demonetization, RERA, GST, IBC, NBFC crisis and the subvention scheme ban. While it was a tough task for the sector to align itself with these new regulations, the measures have been instrumental to bring transparency, accountability and fiscal discipline over the last few years.

Prior to COVID19, the real estate sector was expected to grow to USD 650 billion and contribute around 13% of Indias GDP by 2025 (from around 6-7% in 2017), according to ANAROCK Research. Current coronavirus outbreak is expected to derail the sectors growth momentum in the short term due to its impact on the overall slowing economy. According to industry estimates, 90% of the workforce employed in real estate and construction sector is engaged in the core construction activities, while the rest 10% is involved in other ancillary activities. Since majority of the workers are immigrants, labor shortage could possibly pose a major challenge for the sector post COVID19 lockdown.

According to the property research firm Knight Frank, the total sales volume in the top eight cities increased by a modest 1% in CY2019 to 245,861 units as the sector continued to be impacted by the prolonged crisis in the NBFC sector. While certain measures such as the consecutive rate cuts by the RBI, the reduction of GST rates to 1% for affordable housing and 5% for others and the setting up of an Alternative Investment Fund (AIF) have helped home-buyer sentiments, theyve had little impact on the sales for the sector.

MUMBAI REAL ESTATE

The Mumbai Metropolitan Region (MMR) faced a difficult year with sales dropping by 5% Year over Year (YoY) to 60,943 units in CY2019. The extent of decline has been lower in the affordable and mid-segment markets of MMR. The NBFC crisis along with looming economic slowdown has compounded the problem for real estate and the trend of strong growth in new launches in the MMR has also tapered. The launches grew by 7% YoY and stood at 79,810 units in CY2019. Developers continued to focus on right sized launches to cater to end-user demand. Affordable houses continued to dominate launches in MMR with 61% of the new launches in H2 2019 coming in the sub INR 75 lakh category. A decline in sales momentum and growth in launches led to rise in the unsold inventory levels, up 15% YoY to 145,301 units in CY2019.

Six (6) key emerging consumer trends in the Indian real estate sector during the Covid-19 times:

1. Home ownership is a new priority for millennial

Covid-19 has somewhat changed the way millennials are thinking now. Out of all participants that voted for real estate as best asset class for investment, at least 55% were in the age bracket of 25-35 years as against 42% in the previous survey. Interestingly, 68% of all these millennials are end-users. Undoubtedly, physical assets render highest sense of security especially during exigencies such as Covid-19 or when stock markets plummet to new lows and financial markets witness a turmoil.

2. Bengaluru, Hyderabad and MMR saw maximum bookings

At least 82% buyers that booked just before or during the Covid-19 lockdown period claimed to have booked their homes in these three cities. Developers focusing extensively on digital sales tools are at an upper edge in crisis such as Covid-19 because despite lockdown they were able to close sales. Interestingly, the ANAROCK Group also sold 240 homes worth Rs 214.6 crore during the lockdown 1.0 period.

3. Sense of security associated with physical assets & lower home loan rates key factors determining change

Out of all the participants who were previously in no mood to purchase a piece of property but have now changed their decision during the lockdown period, a whopping 92% cited two major reasons for this sudden change-sense of security that physical assets provide during such exigencies & lower home loan interest rates, which are currently at all-time low, ranging between 7.15% and 7.8%.

4. Covid-19 hasnt dented demand for affordable homes

It was widely anticipated that the affordable segment would be the worst affected in 2020 due to Covid-19 as concerns over its target audiences limited income and fear of unemployment continue to rise. However, it doesnt seem so. Similar to the previous survey, over 36% respondents prefer properties priced within sub Rs 45 lakh budget. It is also likely that in the current Covid-19 situation many buyers having higher budget previously would have actually reduced it. Many would not want to lock-in a large amount of money in such uncertain times. Instead, they would buy a more functional house based on their current needs only.

5. 62% buyers prefer to pay premium & opt for developers with least execution risk

A majority of respondents now largely favour risk-free investments. No wonder, demand for developers having least execution risk is at all-time high, even if the property is relatively higher priced. In the previous survey, just 52% preferred higher-priced property from branded developers over smaller ones that sold properties at lower price, but had high execution risk - thus recording a 10% jump during Covid- 19.

6. Over 34% investors now prefer RTM homes

In a significant trend seen during Covid-19, unlike before many respondents seeking property from investment perspective prefer ready-to-move-in (RTM) homes. As many as 34% prefer ready homes over under construction ones probably because construction activity is completely halted across the country, inevitably leading to project delays by several months. In comparison, last survey trends indicated that just 12% investors preferred ready homes then.

STATE OF COMPANYS FINANCIAL AFFAIR

Consolidated Financials

During the year under review, your Company"s consolidated total revenue stood at Rs.4,996.20 lakh as compared to Rs.5,668.71 lakh for the previous year, representing a decrease of 11.86%; profit before tax stood at Rs.823.16 lakh for the year under review as compared to Rs 853.19 lakh for the previous year representing an decrease of 3.52%; and the total comprehensive income stood at Rs. 601.27 lakh as compared to Rs.608.72 lakh for the previous year representing an decrease of 1.22%.

Standalone Financials

During the year under review, the total revenue stood at Rs.1,059.44 lakh as compared to Rs.2,091.29 lakh for the previous year representing decrease of 49.34%; profit before tax stood at Rs.363.23 lakh for the year under review as compared to Rs. 611.11 lakh for the previous year representing a decrease of 40.56%; and the total comprehensive income stood Rs 1.81 lakh for the year under review as compared to Rs 1.53 lakh previous year.

Challenges

While the management of your Company is confident of creating and exploiting the opportunities, it also finds the following challenges:

Unanticipated delays in project approvals;

Availability of accomplished and trained labour force;

Increased cost of manpower;

Rising cost of construction;

Growth in auxiliary infrastructure facilities; and Over regulated environment.

COMPANY STRENGTHS

Your Company continues to capitalize on the market opportunities by leveraging its key strengths. These include:

Brand Reputation: Enjoys higher recall and influences the buying decision of the customer given our hold on market being more than three decades. Strong customer satisfaction further results in higher premium realisations.

Execution: Possesses a successful track record of quality execution of projects within a period of three year since commencement of any project with contemporary architecture which fulfils the requirement of micro market and potential buyers.

Strong cash flows: Has built a business model that ensures continuous cash flows from their investment and development properties ensuring a steady cash flow even during the adverse business cycles as 90% of our inventory is sold before the completion of projects.

Significant leveraging opportunity: Follows conservative debt practice coupled with enough cash balance which provides a significant leveraging opportunity for further expansions.

Outsourcing: Operates an outsourcing model of appointing renowned architects / contractors that allows scalability and emphasizes contemporary design and quality construction - a key factor of success.

Transparency: As your company "s motto states ^Creating Value Building Trusts" which reflects our strong culture of corporate governance and ensures transparency and high levels of business ethics.

Highly qualified execution team: Employs experienced, capable and highly qualified design and project management teams who oversee and execute all aspects of project development.

Strong Financing: Your company have had a good relations with various NBFCs and Bankers for funding of projects in the near past and the company is able to maintain the same status given the current industry scenario.

Focus Points on future growth:

Focus is on middle, upper middle class group and aspirational class in alignment with the governments aspect to provide housing for all;

Focusing more on project acquisition through joint ventures and development management model with view to achieve asset light model;

Focusing on timely completion of project by adopting new technologies in the field of constructions; and

Your company focuses on various opportunities in Mumbai and Goa in the field of Re- development and development which will ensure robust growth in revenue and profitability of company.

RISKS AND CONCERNS Market price fluctuation

The performance of your Company may be affected by the sales and rental realisations of its projects. These prices are driven by prevailing market conditions, the nature and location of the projects, and other factors such as brand and reputation and the design of the projects. Your Company follows a prudent business model and tries to ensure steady cash flow even during adverse pricing scenario.

Sales volume

The volume of bookings depends on the ability to design projects that will meet customer preferences, getting various approvals in time, general market factors, project launch and customer trust in entering into sale agreements well in advance of receiving possession of the projects. Your Company sells its projects in phases from the time it launches the project, based on the type and scale of the project and depending on market conditions.

Execution

Execution depends on several factors which include labour availability, raw material prices, receipt of approvals and regulatory clearances, access to utilities such as electricity and water, weather conditions and the absence of contingencies such as litigation. Your Company manages the adversities with cautious approach, meticulous planning and by engaging established and reputed contractors. As your Company imports various materials, at times execution is also dependent upon timely shipment and clearance of the material.

Land / Development rights - costs and availability

The cost of land forms a substantial part of the project cost, particularly in Mumbai. It includes amounts paid for freehold rights, leasehold rights, fungible FSI, construction cost of area given to landlords in consideration for development rights, registration and stamp duty. Your Company acquires land / land development rights from the government and private parties. It ensures that the consideration paid for the land is as per the prevailing market conditions, reasonable and market timed. Your Company also enters into MOUs and makes advances for the land / land development rights prior to entering into definitive agreements. The ensuing negotiations may result in either a transaction for the acquisition of the land / land development rights or the Company getting a refund of the moneys advanced.

Financing costs

The acquisition of land and development rights needs substantial capital outflow. Inadequate funding resources and high interest costs may impact regular business and operations. Your Company has always tried to build sufficient reserves resulting out of operating cash flows to take advantage of any land acquisition or development opportunity.

CAUTIONARY STATEMENT

This management discussion and analysis contain forward looking statements that reflects your Companys current views with respect to future events and financial performance. The actual results may differ materially from those anticipated in the forward looking statements as a result of many factors.