MANAGEMENT DICUSSION AND ANALYSIS Macroeconomic Overview Over the last few years, the Indian economy which had been expanding by around 8%, witnessed a reversal in trend. The GDP growth rate declined, slipping below 5% in fiscal 2013-14, the lowest in over a decade. The growth trajectory was hampered by weak global cues and domestic challenges in the form of widening current account deficit, inflationary brssures, policy deadlocks, infrastructure bottlenecks etc. The decisive public mandate in the general elections of April - May 2014, renewed investor sentiments and generated optimism about an economic revival. The central government along with the central bank announced various legislative and policy reforms, aimed at stemming the slowdown and leading the economy back on the growth path. The efforts have resulted in marginal improvements on the macro-economic front, with the GDP growing at an estimated 7.4% in 2014-15. It is further expected to grow by around 8 - 8.5% in fiscal 2016. The nation will continue to benefit from low global commodity prices which has helped rein in inflation and encourage consumer spending. Focus on urbanization, smart city program and improvement in infrastructure along with implementation of policy reforms to iron out the regulatory issues in the area of taxes and approval related functions need to be prioritized by the government. This will encourage private sector investment, creating the platform to utilize the country's advantageous demographic potential and lay the foundations for real GDP growth to move to higher levels. Sector Overview Fiscal 2015 was a year of recovery and positive changes for the Indian economy. The real estate sector, however, continued to face challenges. Tight fiscal spend control by Government, combined with heightened real interest rates had an adverse impact on the savings ability of the population resulting in a continued slowdown in demand for housing and real estate for the second straight year. During the financial year, the slowdown in the real estate sector was more prominent in the NCR region, Kerala and the Western markets. Though the Bangalore market continued to be fairly resilient, the performance of the real estate sector on the whole has been subdued. Inflation, high real interest rates, high risk weight-age for loans to companies operating in the sector, non-availability of right priced working capital fund, employment growth, time lag during the approval process while launching a project, higher statutory levies, non-availability of skilled manpower, uncertainty of title continue to remain as challenges being faced by the Sector as a whole. As long as the government's action plans focus on a progressive economy, we believe that the industry operations will revive in the near future. We hope that the government will focus on policies that will reduce the burden on real estate builders by accelerating the approval process, reducing the interest costs and taxes levied and controlling the inflationary brssure on inputs. Several factors still continue to act as strong drivers for long term sustainable real estate demand like latent demand for homes, continued economic growth, trend towards nuclear families, young working population, rising disposable incomes, increased urbanisation, inherent desire to own a home etc. Outlook of our Markets A. Real Estate In the real estate vertical, Sobha has a brsence in 9 cities spanning 5 States. The Company has added 5 new markets, viz. NCR, Chennai, Mysore, Cochin and Calicut during the last 5 financial years. The Company continues to operate in its existing markets whilst exploring avenues and opportunities for further diversification of its market brsence. Bangalore Bangalore, often referred to as the IT capital or Silicon Valley of India is the backbone of Karnataka's economy and one of the top five contributors to the GDP of the nation. It is the centre of information technology and development and calls itself home to major IT/ITES companies. It has the distinction of being one of the most populous and urbanized cities in India. Headquartered here, the Company has been brsent in the Bangalore market since its inception in 1995. During the year, the Company delivered 7 projects aggregating to 3.01 million square feet of total developable area and 2.17 million square feet of super built-up area. Overall, it has delivered 82 projects aggregating 26.42 million square feet of total developable area and 20.51 million square feet of super built-up area. Presently, the Company has 24 ongoing projects aggregating to 26.81 million square feet of total developable area and 19.37 million square feet of super built-up area. It further proposes to launch about 3.92 million square feet of super built-up area in the financial year 2015-16. Gurgaon - NCR The National Capital Region (NCR) encompasses the entire National Capital Territory of Delhi and surrounding urban areas in adjoining states of Haryana, Uttar Pradesh and Rajasthan. It is the largest agglomeration in India, making it one the most significant contributors to the GDP. The Company ventured into the Gurgaon-NCR market in the year 2011-12 with the project International City. Presently, the Company has 8 ongoing projects within International City development, aggregating to 6.88 million square feet of total developable area and 4.43 million square feet of super built-up area. Chennai Chennai, also known as the automobile capital of India, is the fourth largest city in the country. It is a prominent manufacturing centre and a thriving IT & financial services hub and among the top five contributors to the GDP. It is also the fourth-most populous metropolitan area in the country. The Company ventured into the Chennai market in the year 2011-12 with the project Sobha Meritta. Presently, the Company has 4 ongoing projects aggregating to 2.37 million square feet of total developable area and 1.73 million square feet of super built-up area. It further proposes to launch about 2.11 million square feet of super built-up area in the financial year 2015-16. Calicut Calicut, once called as the City of Spices, is the second largest city in Kerala. It is one of the prominent trade hubs of the State and a major business and commercial centre. It is a part of the second largest urban agglomeration in Kerala. The Company ventured into the Calicut market in the year 2013-14 with the project Sobha Bela Encosta, a Super Luxury Villa Development. Presently, the Company has 2 ongoing projects aggregating to 1.82 million square feet of total developable area and 1.08 million square feet of super built-up area. Cochin Cochin, often referred to as the commercial capital of Kerala, is one of the major port cities in the country. Construction, shipbuilding, shipping, seafood and spices exports, manufacturing, chemical industries, tourism and banking form majority of city's business sector. It is one of the rapidly growing Tier-II cities in the country. The Company ventured into the Cochin market in year 2013-14 with the project Sobha Isle. Presently, the Company has 3 ongoing projects aggregating to 1.33 million square feet of total developable area and 1.09 million square feet of super built-up area. It further proposes to launch about 3.29 million square feet of super built-up area in the financial year 2015-16. Pune Pune, the cultural capital of Maharashtra, is the second largest city in the state after Mumbai. The city is a centre of education and academic research, an automotive hub and home to several major IT companies. It is a rapidly emerging business centre. The Company ventured into the Pune market in the year 2007-08 with the project Sobha Carnation, a Super Luxury multi-storied apartment. Overall, it has delivered 2 projects aggregating 0.69 million square feet of total developable area and 0.53 million square feet of super built-up area. Presently, the Company has 3 ongoing projects aggregating to 0.93 million square feet of total developable area and 0.73 million square feet of super built-up area. Thrissur Thrissur, known as the cultural capital of Kerala, is the revenue district of the State. It has a prominent NRI base. The Company ventured into the Thrissur market in the year 2007-08 with the project Sobha City, first Integrated Township in Kerala. Overall, it has delivered 8 projects within Sobha City, Township development aggregating to 1.83 million square feet of total developable area and 1.50 million square feet of super built-up area. Presently, the Company has 2 ongoing projects aggregating to 0.91 million square feet of total developable area and 0.75 million square feet of super built-up area. Coimbatore Coimbatore, also known as the textile city, is one of the prominent cities in Tamil Nadu. One of the fastest growing tier-II cities in India, Coimbatore is a major textile, industrial, commercial, educational and manufacturing hub of the State. It is known for the entrebrneurship spirit of its residents. The Company ventured into the Coimbatore market in the year 1998-99 with the plotted development project Sobha Harishree Gardens and launched its Coimbatore Coimbatore, also known as the textile city, is one of the prominent cities in Tamil Nadu. One of the fastest growing tier-II cities in India, Coimbatore is a major textile, industrial, commercial, educational and manufacturing hub of the State. It is known for the entrebrneurship spirit of its residents. The Company ventured into the Coimbatore market in the year 1998-99 with the plotted development project Sobha Harishree Gardens and launched its Presently, the Company has 2 ongoing projects aggregating to 0.75 million square feet of total developable area and 0.50 million square feet of super built-up area. It further proposes to launch about 0.21 million square feet of super built-up area in the financial year 2015-16. Mysore Mysore, the erstwhile state capital and known as the heritage city, is the third largest city in the State of Karnataka. It is the abode of retired professionals and visiting tourists. Its close proximity to Bangalore makes it one of the brferred Tier-II cities for industrial and commercial development. The Company entered the Mysore market in the year 2011-12 with the plotted development project Sobha Garden. During the year, the Company delivered one project aggregating to 0.27 million square feet of total developable area and 0.14 million square feet of super built-up area. Overall, it has delivered 2 projects aggregating 0.71 million square feet of total developable area and 0.35 million square feet of super built-up area. Presently, the Company proposes to launch 0.33 million square feet of super built-up area in the financial year 2015-16. Having regard to the slowdown in the real estate market, the Company's sales performance during the financial year was lesser than anticipated. The Company was also hampered by approval delays in Kerala and Chennai, which limited its ability to launch new projects and provide a catalyst to the sales momentum. The Company achieved 3.28 million square feet of new sales area valued at Rs. 20.95 billion at an average price realization of Rs. 6,389 per square feet. During the financial year, the Company launched 8 projects with a Total Super Built-up Area of 10.55 million square feet. The Company has made a strategic foray into a new product segment named 'Sobha Dream Series'. The first project under the banner, 'Sobha Dream Acres' - Aspirational Homes at Bangalore, has started driving the volumes growth and also contributed significantly to Q4'15 operational performance in fiscal 2015. The project has generated a positive response from the customers and the Company intends to carry the sales momentum forward With a better inventory mix and new launches planned in Bangalore, Chennai, Cochin and NCR market in coming quarters, the Company is confident of improving its sales performance in FY 15-16. Our prime focus will remain on the core residential business to generate positive cash flows through faster execution and monetization of receivables and to ensure appropriate investment in the best available opportunities so that projects can be launched and converted to cash flows within a minimum possible timeframe. B. Commercial During fiscal 2015, the Company completed the commercial mall in Sobha City project, Thrissur. It has a total developable area of 0.44 million square feet with a total leasable area of 0.34 million square feet. We had also initially sold 0.80 million square feet. So far, we have leased 70% of area to various reputed brands. The mall will be operational during the second quarter of fiscal 2016. The St. Mark's Road Project at Bangalore has a total developable area of 0.38 million square feet with a leasable area of 0.20 million square feet. The construction of the Project is progressing as per schedule. The Company, through one of its subsidiaries, is undertaking the development of a Modern Agricultural Market Complex in Byatarayanapura, Bangalore for APMC and an office space and retail mall on lease basis for the Company. The Company has made necessary applications for obtaining the approvals for the Project. C. Contractual In the contractual vertical, Sobha has a brsence in 24 cities spanning 13 States. The Company has a diverse client base for contractual operations catering to brmium clients. The Company has delivered overall 36.90 million square feet, out of which 30.56 million square feet of area has been delivered to Infosys, its single largest client. It has 9.31 million square feet of area under execution. While the Company values this longstanding relationship, it also recognises the need to sbrad its client base and reduce its risk-portfolio. The share of contractual orders from non-Infosys clients has increased to 32% and during the financial year, the Company received orders worth Rs. 2.93 billion from such other clients. Regulatory Environment The Real Estate and Construction Industry continues to one of the most highly regulated sectors in India. It is also one of the highest tax paying sectors. The Sector is awaiting the enactment of The Real Estate (Regulation and Development) Bill, 2013. The new law is expected to bring in greater transparency and would be beneficial for the end customers. While transition to the new regime may be onerous for small and medium players, it should be fairly smooth and seamless for large developers whose current practices are in line with the new requirements. Further, various operational parameters for implementation of the law have to be brscribed by respective state governments. As it is an evolving piece of legislation, the benefits from this regulation will be realised over a period of time. During the year, the Government has liberalised the norms for FDI investment in Housing and Construction Sector. Easing requirements pertaining to minimum capitalisation, minimum area of development and exit of investors is a welcome measure and may result in the development of several smaller projects with participation from foreign investors. The Company anticipates tax reforms especially the introduction of GST to rationalize the tax impact and avoid multiple taxation impact thereby providing relief to the end customers as well. As the Indian economy recovers its growth momentum, we remain positive about the markets in which we operate and maintain an optimistic outlook on a long term basis Execution and delivery are the key underlying strengths of the Company. This was amply demonstrated during the financial year 201415. Despite a general slowdown in the real estate market and consequent weaker demand, the pace of execution of Company's projects continued unabated. I. Overall Execution Since its inception in 1995, the Company has executed 364 projects aggregating to 70.54 million square feet of area developed. The Company has been steadily launching real estate projects and executing new contractual projects wherein significant project level investments are being continuously made. These ongoing projects are excluded from the purview of overall execution since on an average, a real estate project take around 3 to 4 years for completion II. Completed Projects During the financial year 2014-15, the Company has completed a total of 25 projects in its Real Estate and Contractual vertical, measuring 7.61 million square feet of developed area and 6.41 million square feet of Super Built-up area. a. Real Estate In fiscal 2015, the Company has completed 10 Real Estate projects measuring 4.36 million square feet of developed area and 3.16 million square feet of Super Built-up area sbrad across 3 cities. b. Contractual During the financial year 2014-15, the Company has completed 15 Contractual projects measuring 3.25 million square feet of area developed sbrad across 11 cities. Overall, the Company has completed 262 contractual projects measuring 36.90 million square feet of area developed. III. Ongoing Projects The Company has 75 ongoing projects measuring 51.12 million square feet of developable area and 38.98 million square feet of super built-up area. a. Real Estate The Company currently has 48 ongoing real estate projects aggregating to 41.81 million square feet of developable area and 29.67 million square feet of super built-up area sbrad across 8 cities b. Contractual The Company has 27 ongoing contractual projects aggregating to 9.31 million square feet of developable area sbrad across 9 cities. Environment, health and safety aspects are as important as the quality of the products that SOBHA delivers. A healthy environment means good working conditions in an atmosphere which is both productive and safe for the people working in it. Environment The focus at SOBHA has been on taking up sustainable initiatives. Not only on our construction sites but also in our manufacturing facilities every attempt is made to keep the carbon footprint low by following the best industry practices. For its efforts, SOBHA has been recognised with the ISO 9001, ISO 14001 and OHSAS 18001 certifications for its quality, safety and environment management systems respectively, making it one of the few construction companies to get this backing. By default, our environmental friendly initiatives have qualified us for an IGBC gold rating. We have got the IGBC platinum rating for our project SOBHA Turquoise, Coimbatore and a LEED provisional certificate for SOBHA Forest View. Our environmental-friendly initiatives include rainwater harvesting facilities, sewage treatment plants and organic waste converters in all our projects. These activities are discussed in detail below. Rainwater harvesting Rainwater harvesting has emerged as one of the most viable options to meet the increasing water requirements of an expanding population. Rainwater harvesting also helps restore depleted aquifers thereby enhancing sustainable water yields in surrounding areas. SOBHA's rainwater harvesting efforts include harvesting rainwater through collection tanks for roof-based runoffs and recharge pits for land-based runoffs. The land-based runoffs augment depleting groundwater resources and also save potable water from municipal supply or groundwater. With primary treatment of sedimentation and filtration, treated rainwater can be used to meet various domestic and non-domestic needs. SOBHA's rainwater facilities have led to nearly 60 per cent reduction in the total water requirements during the monsoon season. During FY 2014-15, SOBHA successfully completed the construction of roof rainwater collection tanks of volume 0.213 MLD and about 122 recharge pits in various projects pan-India. Sewage treatment plant The sewage treatment plant (STP) has been designed to treat the waste water generated in buildings. The use of the sewage treatment plant ensures that water is available for secondary uses. The generated waste water is treated up to the secondary level and is used for flushing of toilets, landscaping and for other secondary uses thereby helping in water conservation. This also helps reduce fresh water consumption and fresh water costs. STP uses a hybrid technology - the Activated Sludge Process (ASP) combined with the Ultra Filtration (UF) technology for enhancing the quality of the final treated sewage to conform to the applicable Pollution Control Board standards. In addition, all SOBHA construction site have mobile STPs which treat the sewage at the source of generation. During FY 2014-15, we successfully installed STP with a total capacity of 0.69 MLD in various project all over the country. From the existing STPs, 6.72 MLD of sewage was treated and about 3.696 MLD of treated sewage was reused for flushing and gardening purposes in the project brmises. This contributed towards sustaining water resources in the areas in which SOBHA operates. Organic waste converter An effective system of solid waste management is formulated at all SOBHA projects during the operational phase as a brrequisite. The aim is to design and follow a combrhensive Integrated Solid Waste Management (ISWM) system which is both environmentally and economically sustainable The integrated solid waste management system operates on the 4R principles -- Reduce, Reuse, Recycle and Recover the basic components of waste. In this system, waste is segregated at household levels as biodegradable and inorganic waste. Waste from plant/ animal origins or manmade food falls under the organic waste category. Organic waste can be treated and used in the form of manure. Organic waste also helps in faster bioconversion of waste into organic manure. The treated organic waste is used for landscaping and gardening.The inorganic portion is handed over to authorised waste recyclers for further processing. SOBHA has successfully installed OWCs in all its projects all over India. These had a total processing capacity of 1.10 MT during the last financial year. Also from the existing OWCs, about 2.421 MT of garbage was processed; the composted quantity was about 0.4785 MT. This was used as manure within the project brmises. Health and Safety At SOBHA we believe that satisfied employees contribute to the growth and prosperity of the company. Therefore, as a company SOBHA is highly focused on employee-friendly initiatives and policies. These include a host of health and safety initiatives that are targeted at employees and the project workforces. SOBHA is also committed to implementing environment-friendly initiatives and ensuring the health and safety of individuals and of the society at large. Hence, all our construction sites are given special safety instructions and strict compliance to these is ensured. Apart from complying with the requirements laid down by various statutory and regulatory authorities, SOBHA has also voluntarily undertaken a number of environment and people friendly practices. Safety related training is also conducted for the sales and marketing teams at SOBHA with the purpose of achieving the company's objective of developing the best safety practices. Highlights of the safety activities and achievements during FY 2014-15 include: • An external audit for 'Second Surveillance' as per ISO 14001:2004/BS OHSAS 18001:2007 standard(s) was planned and completed. • There were two zero accident months in FY 2014-2015 (November 2014 and December 2014). • Sobha Indraprastha successfully completed 2 million safe man hours. • A Karnataka High Court judge and the Deputy Labour Commissioner of Karnataka and their teams visited a few of SOBHA projects to validate the legal requirements. They covered MCC, safety training room, mockup flat and labour camp and concluded that all these complied with the legal requirements. During the visit they validated the project emergency plan as well. • The Assistant Director of Factories, Bangalore, and an official team of 10 officials from regional labour institute (Central), Chennai visited the SOBHA Indraprastha and Global Mall site and conducted a survey of the construction sites, MCC and labour camps on implementation on safety and health under the BOCW Act. They apbrciated the best practices being used. • Successfully completed EMS & OHSAS re-certification audit by the BV team. Among the other initiatives taken and the policies implemented were: • Developed safety training videos for transferring knowledge about safety and the measures taken at all levels for SOBHA in-house projects. • Organised a blood donation camp at SICG. Blood donation of 140 units was done in a single day. The Rotary team apbrciated the participation and enthusiasm of the donors and rated this as one of the best blood camps that it had held with a single van. • Conducted monthly safety meetings at the head office to review safety standards and happenings at the project sites. Testing done on safety nets to evaluate the quality of safety materials being used at the sites. • A special audit was conducted at all the project sites to check site safety and labour camps. • A safety circle meeting was conducted at all the projects on a weekly basis to review the site's safety status. • Special training on the implementation of HIRA Aspect & Impact was given by QST HoD/Safety Manager at all the project sites. • Demarcation of safety zones at sites introduced. • Emergency evacuation drills conducted at night in labour camps in addition to other drills during the day time. • Introduced and started implementing new checklists, work permits and procedures for Blasting Activity, External Vehicle Checklist, Safety belt Checklist and Ambulance Checklist. • Special training provided to the execution team on ISO, QMS and OHSAS audit brparations. All these efforts bore fruit and SOBHA received the '3 star rating' award from the Confederation of Indian Industry (CII) Southern Region at the 8th Edition of 'Excellence Award in Environment, Health & Safety (EHS)'. The company also received the 7th Viswakarma Award -- 'Achievement Award for Construction Health, Safety & Environment' from CIDC. As in other spheres, SOBHA is not sitting on what it has achieved so far when it comes to protecting and improving the environment, safety and health aspects in the company. A way forward was marked during the year. Hazards were identified, an analysis was done on the risks involved and solutions identified to reduce/avoid the hazards. These include: • Gaps were found between the manpower hoist and the walls. These will have to be closed by sbrading/extending the safety nets till the walls, using jacks. • Due to space constraints in the staircase, it is not easy to use the stairs during an emergency. This will be overcomed by restricting the width of the staging in the staircase thereby providing a pathway for workers to pass through. • Tower crane hooks were not clearly visible for the signal man both during the day and at night. 3D reflector stickers for the hooks for easy and clear visibility will be introduced to address this issue. Some of the other steps which will be taken to maintain the highest safety standards include: • RCCB checkers will be installed at all projects to monitor electrical readings so as to avoid damage to RCCB and to avoid electrical shocks. • The pathway for man movement will be bifurcated and barricaded from vehicular movement. RESEARCH DEVELOPMENT Given that SOBHA believes in providing the best products on time and at appropriate prices it has to lay a lot of emphasis on research and development so that its products not only meet all international standards but they are also efficiently constructed and delivered to consumers. To achieve this, SOBHA remains abreast of all technological advancements across the globe and adapts the relevant ones to its work. Further it encourages its employees to develop new technologies to improve on every little detail that goes in the construction of user and environment friendly buildings. Its construction activities and best practices are standardised and followed across all the projects. Over the years SOBHA has also mastered the art of selecting the right method of construction, the right machines to use and the right kind of materials to source making R&D initiatives a significant part of its business process. SOBHA makes extensive use of an in-house virtual application, Idea Space to identify the new best practices. It also invites ideas from employees on different areas of its operations using Idea Space. Broadly speaking these ideas cover four parameters: quality, feasibility, safety and customer orientation. On the basis of entries received, models which can lead to an improved business performance are implemented across locations. They are also showcased at Genesis, an exhibition of in-house innovations that the Company organises twice every year to celebrate creativity and innovation. The technology and innovation based initiatives at SOBHA can be categorised into three segments: 1. Central innovations 2. Divisional innovations 3. Project specific innovations 1. Central Innovations R&D innovations that impact Company-wide activities fall in this category. Some of the initiatives taken under this category during FY 2014-15 are: Training Videos - Quality and Safety Twenty-three activity training videos and 10 safety training videos for transferring the knowledge to all levels through training at all our in-house projects were developed during the year. • Introduction of Physical Measurement Technique Tools Software This innovation covers a small though significant part of SOBHA's construction activity. The software has been used to measure and analyse the quality of an elevator ride and also the vibration and sound aspects. • Epoxy Flooring for Basements Epoxy flooring adds colour and beauty to the concrete floor in basements. It is applied to the concrete for protection and for enhancing the aesthetic appeal of the floor. Its other features are that it provides strong adhesion, is long lasting and rust and water proof. It is also heat resistant (no hot tire pick-up) and also resistant to salt and acid making it very suitable for basement floors. • Online audit management system This is a web based data management system which manages reports in such a manner that all the parties involved in the process can access all relevant data online. It also has the facility to intimate the concerned people when data or reports are pending thereby making the process of audit management more efficient and transparent. Using this data management system also means that there is no need for continuous follow up of reports making the process more streamlined. The online audit management system can be used in all SOBHA offices and projects. 2. Divisional Innovations Divisional innovations are R&D activities pioneered by various divisions within SOBHA. The important initiatives undertaken by various departments at SOBHA during FY 2014-15 include: • Concrete Products Division SOBHA's Concrete Products Division follows strict safety and health measures and its products comply with environment regulations and help towards reducing the carbon footprint. Some of the innovations that the Division has introduced this year include: Pavers Earthen Series of Pavers This is a new way of adding more colour and vibrancy to pavers. The pavers can be used for making newer and more innovative designs and patterns in a range of colours. The pigments used for this are specifically imported from the UK. Cobble Stone Pavers These tumbled pavers are available in different colours and are smaller in size compared to other pavers. They are also available in different colours and add to the visual appeal of the pavers. Ideal for walkways the tumbled pavers use different colours to give them a unique touch and appeal. These pavers are also available in a shot blasted finish with a variety of tumbled patterns. Their use is limited only to the user's imagination. Kerb Stones The new kerb stones are ideal for adding elegance and perfection. These high quality concrete products are manufactured in technical collaboration with WEM, UK and can be used alongside driveways or to separate gardens/landscapes from utility areas and driveways at residences. These hydraulically brssed Kerb stones are specifically designed to suit all types of block paving and are available in both small and large sizes. Smart Dynamic Concrete This new innovation from the Concrete Products Division at SOBHA, takes engineering to a whole new dimension. The hallmark of the smart dynamic concrete is that it is composed and manufactured differently. Its use makes life easier for the construction team and also helps in finishing projects faster. GFRC GFRC cladding panels are generally manufactured by the 'hand spray' technique. The material is sprayed into a mould using special machinery. The innovative method used can produce high-performance materials from which panels with extremely thin, lightweight sections can be made. These can be used both as dust covers and also as panels. • Mattress Division Measuring firmness index for mattress spring This instrument replaces the manual testing of firmness in mattress springs. The manual method is not very accurate and is also labour intensive as the firmness is tested using bare hands. When firmness is checked using the equipment, a firmness index is obtained which is not only more dependable in terms of results but which can also help standardise the hardness/ firmness in the mattresses. Thus, consistent quality can be maintained for the mattresses. This will also help in making mattresses which have different levels of firmness/hardness. 3. Project specific innovations • Replacing wooden service doors with marble in bath tubs This innovation means replacing the wooden service doors with marble ones in bath tubs. Not only are these aesthetically more appealing but they can also be made using the waste marble pieces available at the sites. This is cost effective as marble is more durable than wood and the material used is already available as waste at the sites. • Cross shifting trolleys A trolley on a rail is fabricated with scrap material that is available at the sites. It is fitted on the ground and overlaps the fly zone of the two tower cranes. The crane which has vehicle access can handle the material/concrete and load it on to the trolley. The trolley can then be manually moved to the fly zone of the other tower crane and the material can be shifted. This is ideally suited for those sites where the tower cranes are very close to each other and the overlapping of the cranes is not done as per safety standards. Small sites which use two or more tower cranes and have limited vehicle access have trouble shifting material through the blind spots in the tower cranes. This problem can now be addressed by using the cross shifting trolley. The trolley thus helps in avoiding accidents due to the overlapping of tower cranes. A portable frame has been fabricated using scrap MS on the site and plywood and forex sheets. Earlier the cutting of tiles for fixing fittings and fixtures in toilets, kitchens and utilities, was done in a centralised location. The tile had to be marked for cutting and then taken to the cutting table. Once this was done the tiles were taken to the sites. This method was both time consuming and not very efficient. Since the portable hole cutter means that the tiles are marked and cut at the location, it leads to more efficiency in terms of improved speed, brcision and mobility. The process time has been reduced from 30 minutes to 2 minutes. Employees What cannot be stressed enough is that a Company's biggest strength is the people who work for it. This is even truer for SOBHA as it follows the principle of managing as many of its activities as it can in-house. This means that not only does it need to have adequate staff numbers but it also needs to have people with different skill sets to look after its various activities. Equally importantly, SOBHA also has to make sure that its staff members are not only well looked after financially but that they are also given ample opportunities to grow both professionally and personally. Employee Strength With 26 departments and three manufacturing divisions, SOBHA is one of the largest employers in the real estate sector. Over the years, SOBHA has also expanded its footprint and today it has a brsence in 24 cities in 13 states across India. The Company has a talented and dedicated workforce of 3,046 employees as on March 31, 2015. SOBHA places a lot of emphasis on talent, experience and being proactive. Any employee who displays willingness and aptitude for growth, is provided opportunities to achieve it. The Company has a young workforce with an average age of 31 years. Such a young team brings innovative and creative ideas, is motivated and is keen to work hard to achieve both personal goals and the Company's goals. At the same time, SOBHA also has enough senior employees who come with a wealth of knowledge and experience and who act as mentors to the young employees and help them and the Company move in the right direction. How It Works Unlike most other real estate companies, SOBHA does not outsource the construction activity. The Company follows a backward integration model, which means that most of the activities involved in construction are carried out in-house. For this the Company has a design, structural and architectural studio and three manufacturing divisions for Glazing and Metal Works, Concrete Products and Interiors. Further, even the sales and customer relationship management functions of SOBHA are internally managed. For carrying out these specialised tasks, SOBHA needs people who are talented, skilled and resourceful. Hence, its focus is not only on getting such people but also retaining them. SOBHA concentrates on the following areas for achieving this: Recruitment, Training and Development SOBHA has a team of experienced people who recruit and induct the best talent that is available. The Company also follows a detailed and combrhensive recruitment process. Using all possible avenues at its disposal for selecting the right candidates, including the social media networks, prospective employees are screened under three broad categories: technical, functional and behavioural competencies. SOBHA also uses IQ and technical tests along with psychometric tests in the hiring process. Selected employees are made to go through an induction programme which includes a visit to SOBHA's manufacturing facilities. The induction programme is meant to give a broad overview of the Company and its activities and its processes and policies. At the same time, SOBHA also has an in-depth training and development module which is upgraded regularly on the basis of technological developments and new practices and methods that come up. The training is both on-site and off-site and is meant to hone the skills of employees so that they can meet the set quality standards effectively. SOBHA also has a technology manual which gives details of all procedures followed at the project sites for different functions involved in the construction business. Broadly the training process involves 1. Induction programmes for all new employees to acquaint them with the organisation structure, business units, departments and work processes 2. Twenty-four hours each of mandatory behavioural and technical training every year. 3. Reverse training at project sites. In this, employees become trainers and impart their knowledge and experience to others. 4. Workforce development training programmes to address the concerns of construction workers and contribute to their overall well-being. The Management Trainee Scheme This is a leadership development programme wherein talented civil engineers from reputed educational institutes are selected and groomed into future leaders. The intensive training sessions equip the trainees with necessary skill sets and knowledge to handle critical functions of project management and delivery. Internships SOBHA provides opportunities to interns where they are exposed to a professional work environment, world-class manufacturing facilities and to innovative and benchmark practices in construction and development. The Leadership, Development and Training Department is located at the SOBHA Academy, Bangalore. The Academy has 11 in-house trainers who conduct behavioural and technical training programmes throughout the year. Technical Training To ensure that all employees at all levels are trained, SOBHA also provides extensive technical training. The technical training includes that for tiling, water proofing, aluminium works, electrical and plumbing works. SOBHA has identified 28 distinct activities which form a part of executing a project. These activities need to be undertaken in a sequential order and need to use appropriate methodologies, techniques and tools. Hence, employees are given activity-specific training so that they can become familiar with the direction of the project's execution, reduce complexities and assure delivery on time by following international standards. Further, a novice trainee undergoes both theoretical and practical training for an average of four weeks. This is followed by eight weeks of on-the-job training under the supervision of skilled and experienced technicians. Then there is 12 weeks of brcision training. After all these training modules are complete, a technician's skills are tested for the proficiency attained. This is followed by nine months of execution training. After a technician's basic skill set reaches the desired proficiency level, he is trained to acquire higher and advanced skills. During 2014-15, SOBHA conducted 6,920 hours of technical training. Besides this, the Company also conducted 3,032 hours of training for technicians in various trades and 2,528 hours of training for technician supervisors. Behavioural Training This training module covers a wide range of subjects such as Interpersonal Skills, Time Management, Communication Skills, Etiquette & Mannerism, Team Building, Industrial Relations, Man Management, Motivation Skills, Interviewing Skills, Art of Success and Work Life Balance. This training provides employees with an opportunity to develop their talent and augment their skills thus contributing to their overall development. During the year, the Company conducted 24,088 hours of behavioural training for its employees. It also conducted adhoc programmes for 5,072 hours. Training an on-going exercise At SOBHA training is an on-going process and the Company assesses the efficiency and performance of its employees at regular intervals. These are tested against established targets and brvailing industry standards. SOBHA recognises high performance individuals and rewards them accordingly. Retaining Talent SOBHA considers retaining talent and minimising employee turnover as a real challenge. For this it follows a transparent, open and supportive work culture so that employees can participate and be involved at all levels of the Company's functioning. Employees are also given various platforms to exhibit their ideas and innovations. The Company also encourages employees to air their grievances and tries to address their genuine needs and concerns. Deserving employees are recognised and rewarded to boost their morale. Providing an employee friendly environment Providing an employee-friendly environment and policies also helps SOBHA in both attracting and retaining talent. For this, it has a number of employee specific initiatives: Employee achievement awards Celebrating its 20 year journey, the Company organised the first SOBHA Excellence Awards during the year. Out of all SOBHA employees from across India, the jury short-listed 38 professionals (almost the top 1 per cent of the entire strength) as nominees across different award categories through a stringent process of nomination, screening, selection and validation. Out of this remarkable group, the top 11 candidates were honoured with the coveted SOBHA Excellence Awards. A group of SOBHA's longest serving employees were also honoured for their Commendable Years in Service to the organization and a group of stalwarts was recognised with Sobha Special Awards. Team Building The Company fosters team building by encouraging and supporting outbound recreational programmes and excursions for employees. Creative club The club celebrates important occasions like Earth Day, World Plumbing Day and Earth Hour. It also celebrates festivals and is responsible for organising 'SOBHA Utsav', an annual cultural programme in which employees showcase their talent and creativity. Employee safety measures Fire-fighting and first aid training is imparted to employees on a regular basis. Safety Day is observed at all project sites every year when the construction workforce is briefed about the safety procedures to be followed. Sites which achieve zero accidents are rewarded. Employee communique SOBHA's in-house magazine 'Innerve' communicates news and developments in the organisation to all its employees. The magazine also carries articles written by the senior management, recognises high-performing employees and also carries contributions by employees. Risk Management In a highly competitive and increasingly globalised world every organisation has to live with the inevitability of facing risks. Be it decision making or carrying out the day-to-day operations, a company has to be ready and brpared for handling risks. This inevitability is as much -- if not more -- true of the construction and development sector. In this sector a company is exposed to risks at various levels, some of which are within its control while others are not, so a company has to have a risk management framework in place. Having a risk management framework helps a company to identify, assess and prioritise the risks so as to be able to deal with them effectively. Risk management also brpares a company to anticipate risks so that effective ways of dealing with them can be put in place. This helps in mitigating the impact of the risks and also finding ways of reducing their occurrence. Further, effective risk management helps a company not only tide over a risk but also to do so while optimising its performance while facing the risk. Broadly speaking risks can be classified into two categories: 1. Those which are beyond the control of a company. 2. Those which are within the control of a company. Risks which are beyond the control of a company include: Natural and man-made disasters Natural disasters include earthquakes, fires, droughts and floods and man-made disasters include acts of terrorism and military action. Risk Containment Strategy and Measures SOBHA takes adequate insurance cover for managing disaster-related risks. It also takes appropriate measures to ensure that the structural design of its buildings conforms to the applicable construction standards. Risks related to the sector Sales Market Risks Customers are the key to the success of any company, a real estate company being no exception. While owning a home is an aspiration for many in India, the decision to purchase a house can always be deferred. A decline in the real estate market may cause potential buyers to turn cautious and defer / delay their purchasing decisions Land Related Risks Land is a basic input for a construction company and its unavailability or shortage can lead to an increase in its prices. Such situations with the resultant increase in prices of land can have an adverse impact on the performance of a company. Further, the availability of land, its use, and development are subject to regulations by various local authorities. In India, the uncertainty of underlying land titles is also a major factor involving the risk of legal disputes and related costs. Further in India not only are the laws and regulations complicated, there is also a shortage of appropriate parcels of land. This makes the prices of land volatile. A drop in land prices may erode the book value carrying cost of land. This in turn could affect the profitability of a company. Interest rate risks Interest rates are subject to a number of factors primary among which are those that have to do with the government, monetary and tax policies, domestic/international economic and political conditions, and other factors beyond the control of a company. Changes in interest rates may increase the company's cost of borrowing and impact its profitability. Regulatory risks SOBHA is subject to extensive local, state and central laws and regulations governing the acquisition, construction and development of land, including those related to zoning, permitted land use, fire safety standards, height of buildings and access to water and other utilities. Legal risks SOBHA is involved in certain legal proceedings relating to the lands owned by it and claims in relation to taxation matters. Any adverse decision may have a significant effect on the company's business, prospects and financials. Political risks Changes in government policy, social and civil unrest and political developments in or affecting India could affect the company's business interests. Specific laws and policies affecting real estate, foreign investment and other matters affecting investment in the company's securities could also change. Risks related to the economy An economic slowdown Just as the risks associated with the construction sector are beyond the control of a company so also the risks that have to do with the economy as a whole. A downturn in the economy can lead to a decrease in sales or market rates for residential projects. Prospective customers may not be able to obtain housing finance. In extreme cases of an economic downturn a company may also run the risk of customer insolvencies though the registration of property happens only on receipt of entire dues from the customers. These factors could decrease the revenue generation from some or all of a company's residential businesses, adversely affecting its business and future growth. Uncertainties in global and national economic systems Uncertainties in the global and national economic systems, 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. The per capita income of the country has witnessed a steady growth and there has been a consequent increase in the purchasing power of customers. However, a downturn in the economy may see increased levels of unemployment and a decline in income levels. This may impact the operations of a company. In India, a real estate company's business is dependent on the easy availability of finance. An economic slowdown and rising inflation can result in funds drying up. Risks which are within the control of a company include: Customer risks A significant portion of sales from real estate operations is generated from Bengaluru, which is the base of SOBHA's operations. A decline in the Bengaluru real estate market, new competition or a shift in customer brferences may have an adverse effect on its business and operating results. Contractual business depends solely on orders received from corporate entities for their construction requirements. A substantial portion of revenues from contractual projects is generated from one major client operating in the information technology sector. If this client either reduces or stops providing SOBHA contractual projects, or if there is a slowdown in the IT sector, this could adversely affect its business. Borrowing risks The real estate sector is capital intensive and requires a significant expenditure for land acquisition and development. SOBHA is subject to the risks normally associated with debt financing and may be required to dedicate a portion of its cash flow towards repayment of its debt commitments. This may reduce the availability of funds for other business purposes such as working capital expenditure, financing of acquisitions and investments. It may not be possible to generate adequate cash flows to service principal and interest payments. In certain cases, lenders also have the right to recall a loan. Such an event could impact SOBHA's liquidity and credit rating. Liquidity risks Investments in the real estate sector are relatively illiquid. SOBHA may not be able to liquidate its assets promptly in response to economic, real estate market or other conditions. It may even be required to substantially reduce the price to ensure a quick sale. Credit risks SOBHA undertakes certain projects in collaboration with other parties. Credit risk arises when they 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 party's obligations. Project implementation risks Real estate projects are subject to a number of implementation risks such as regulatory delays, construction delays, material shortages, cost overruns, migratory labour, unavailability of skilled labour, accidents and quality control. SOBHA's operations may be unfavourably impacted if these risks are not effectively managed. Input cost risks Fluctuating input costs are a risk inherent to the real estate business. SOBHA's operations are subject to budget overruns due to a number of factors like increase in construction costs, repair and maintenance costs, sub-contracted service costs and labour costs. Increased operating expenses may affect profit margins as the prices of properties sold cannot be altered. Correspondingly, if the selling price of unsold properties is increased, the demand may be adversely affected. Supply chain risks If suppliers of raw materials curtail, discontinue or disrupt the supply of materials, SOBHA's ability to meet the material requirements for projects could be impaired. This could lead to disruption of construction schedules, and projects may not be completed on time. Like any other company, SOBHA's performance also depends to a large extent on the abilities of its employees. Employee attrition could have an adverse impact on its business. SOBHA's performance could also be affected if it is unable to identify, attract and retain key employees like engineers and architects. IT and system risks SOBHA uses an Enterprise Resource Planning system known as RConstruct for integrating its core and back-end activities like architecture, engineering, projects and costing. A breakdown of existing IT systems or a delay in implementation could disrupt its ability to track, record and analyse the work in progress; it can also result in loss of valuable data. Competition risks Real estate developers undertaking similar projects within the same regional markets as SOBHA are in direct competition with it. Due to the fragmented nature of the real estate development business, adequate information about competitors' projects may not be available and SOBHA could run the risk of underestimating the supply in the market. Diversification and investment risks Expansion into new geographies exposes SOBHA to risks such as a low level of familiarity with the development of properties in that area and attracting potential customers in a new market. Competitors may be better known in these markets and might enjoy better relationships with landowners and joint-venture partners. They could have early access to information regarding attractive land parcels and be better placed to acquire such land. Potential impairment of intangible assets arising out of acquisitions like goodwill can also place an additional financial burden on the company. Investments usually have a gestation period spanning several years. Associated risks include those relating to obtaining the requisite regulatory approvals for projects. Changing government policies may also impose restrictions on investments Risk Containment Strategy and Measures SOBHA's attempt has always been to produce high-value products for quality conscious and discerning customers. A majority of its customers are not dependent on external financing and are able to self-finance the purchase. Moreover, the company also has a dedicated and robust in-house sales and marketing team, which is entrusted with the task of generating enquiries for the products and translating them into sales. This reduces reliance on external agents and brokers. SOBHA has a Customer Relationship Management (CRM) department to exclusively interact with customers, resolve their queries, address their issues, streamline the purchase process and receive feedback. An online portal has been designed for customers where they can share their views and also check on the status of the project. The core responsibility of the CRM department is to ensure smooth and hassle-free transactions to the satisfaction of the customer. SOBHA has been steadily expanding its geographic brsence when it comes to the real estate domain. This diversification has reduced its dependence on a single market, Bengaluru, which at one point accounted for all the sales of the company. Bengaluru now contributes only 60 - 70 per cent of new sales. There has also been a conscious effort to enlarge the client base when it comes to the contractual projects' front. Enlarging the client base to include a big pool of corporates and institutions ensures that dependence on any one particular client has been reduced. Out of the projects currently under progress, 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 the last six financial years as a result of which the gearing ratio came down from 1.76 in 2008-09 to 0.76 in 2014-15. Effective methodologies are in place for managing the land portfolio. Extensive diligence is carried out before acquiring land or entering into partnerships for joint ventures or joint development. Employing well-governed processes ensures that project-level implementation risks are minimised. SOBHA has an in-house Quality, Safety and Technology department to address quality issues of the end product. SOBHA has long-standing relationships with suppliers for the purchase of key materials. It also follows a backward integration business model wherein the key inputs for the final product are sourced in-house, reducing the dependence on external suppliers. With a view to containing the risk of attrition and retaining personnel, effective policies are in place to keep them motivated. SOBHA owns the intellectual property associated with the ERP system and has an in-house IT department, which caters to the development and maintenance of IT systems, the ERP framework and associated IT-related issues. The outlook for long-term demand for real estate in India is stable and positive. The emergence of Tier-II and Tier-III cities, urbanisation, large-scale employment generation in cities, nuclear family setup among other opportunities, will contribute to a substantial increase in demand for real estate and corporate space in the future. SOBHA has a strong in-house legal department. It also engages experts to mitigate legal and regulatory risks. It is an active member of trade associations like CREDAI, CII and FICCI and is involved in making joint rebrsentations to the government and regulators on common issues faced by the sector. SOBHA'S foray into new geographies is based on a thorough analysis of the brvailing market conditions and regulatory environment. Several contractual projects have been successfully executed in the cities that it plans to enter and therefore, there is a good understanding of the local factors in play. The company also engages locally available manpower resources. |
