SOBHA DEVELOPERS Play It Wise Think About It

Things do not seem to be going ahead too well for this South India based realtor. It is not an isolated company which is facing tough times as for the whole sector, fall in demand, tight liquidity, high interest rates on home loans; all together have played havoc with even the biggest in the industry. Many realty companies have frozen earlier announced projects, some even canceling them and all of them now going slow on completion schedules.

Trouble had started brewing in Sobha since the start of this fiscal. It’s just that things got tighter in second quarter ended 30th September 2008. Its net sales, on a YoY, dropped 8%. Interest outgo shot up by a whopping 115% and this indicates the liquidity crunch the company is facing. This had a cascading affect on the profitability, with PBT slipping 14% and PAT by 13% at Rs.49 crore. OPM was down from 17.26% to 16.32% and NPM was down from 8.91% to 7.94%. What is noteworthy here is that with effect from April 01, 2008 the company has changed its accounting policy for revenue recognition for sale of undivided share of the land (group housing) on the basis of certain minimum levels of collection of dues from the customer and / or agreements for sale being executed rather than criteria relating to the project recasting a significant level of completion, to align it with revenue recognition policy for sale of villa plots. This has resulted in additional revenue recognition for Q2FY09 at Rs.16.3 crore and higher PBT of Rs.9.90 crore.


The company currently has about 12 million sq ft under construction. As of September 30, 2008, the company has completed 44 residential/commercial in-house projects and 124 contractual projects covering about 14.93 million sq ft. The company has approximately 10.84 million sq ft under construction for Infosys. It has 30 residential/commercial ongoing projects.

Interestingly, the company has literally stopped buying any more land. Its cost for land acquisition for current Q2 was down at Rs.5.30 crore, down from Rs.74.50 crore in Q1FY09 and certainly a far cry from the staggering Rs.156.14 crore it spent in Q1FY08.

On 18th November, Sobha Developers pledged 43 lakh shares or 5.90% stake to Switzerland-based Bank Sarasin and with this its total pledged shares with Sarasin stands at 13.72%. This is as per the agreement but it also indicates the deep liquidity issues facing the company. After this news, the stock, not surprisingly touched a new low at Rs.87.
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