Sales continued to be sluggish for Bengaluru-based real estate major Sobha Developers in Q1FY17 with the rise in revenues of 24% year-on-year to R570 crore, coming from land monetization and an improvement in the contractual revenues. The company reported 0.8 million sq ft of sales during the April to June period, marginally lower than last year.
Since last year, Bengaluru has proved to be a dull market for the company; sales in q1FY16, were down by over 20% y-o-y sending profits to a 12- quarter low. Analysts have pointed out that Sobha is getting the short end of the stick because of its over dependence on the Bangalore market and its trademark luxury apartments, a segment practically devoid of meaningful demand at the moment.
Also the company does not have an exposure in the commercial segment, which has witnessed healthy absorption rates, especially in Bangalore.
However, the management attributed much of the soft performance to “some kind of a reluctance in the minds of the customers.” Interest rates in the last couple of years have decreased by more than 200 basis points, there are lucrative schemes being offered both by banks and developers but home buyers are still not biting as they believe prices will not escalate even if they don’t decline, said J C Sharma, vice chairman and managing director of Sobha Developers.
Typically Sobha’s luxury projects were typically priced over R1.5 crore whereas sector analysts said a ticket size of sub R1 crore is where the sales traction is.
To be sure, Sobha tweaked its strategy and launched Dream Acres, a mid segment project. But it is proving tough to drive overall performance solely based on one project.
Time and again, it has been pointed out that Sobha can reduce its dependence on Bengaluru but the other markets that it is present in is going through their unique problems; permissions have been on a slow pace in Chennai post the flood havoc in the city, NCR is the weakest performing market in terms of sales and Kochi has traditionally been a difficult one, with demand hinging heavily on investor interest.
One analyst report stated there are hence, “limited signs of material revival in the near term”. During the quarter, Sobha launched projects in Bengaluru, NCR and Kochi. One report pointed out that the company’s FY17 guidance of selling 3.5 million sq ft is in line with this run-rate, which is indicative of caution and doesn’t give too much comfort on a material turnaround in the company’s growth.