Bengaluru is under a lockdown, which will hamper customers’ movement in terms of physically visiting the property and it contributes 70% plus of my new space.
As real estate developers gradually emerge out of the lockdown amid fears of the Covid-19 situation persisting, Bengaluru-based Sobha expects housing sales to get better in July-September. Vice-chairman and managing director JC Sharma, in an interview with Rishi Ranjan Kala, said while Bengaluru’s growth story is intact and accounts for a major share of Sobha’s housing sales, the company will expand into Hyderabad and Thiruvananthapuram in the next one year. Edited excerpts:
How did Sobha manage operations during April-June?
When the lockdown began, we understood that the problem is far deeper and serious. So, we planned for the worst. Our focus was on how to continue sales. We worked hard on the inquiries we got. Our track record also held us in good stead. Even in April, we were able to sell a good number of apartments. For instance, we worked on streamlining processes with banks, HFCs, loan approval or how to get the agreement signed. May onwards, as the lockdown eased, it helped us organise campaigns and our marketing teams became more aggressive. June turned out to be an almost normal month, and in April-June we clocked `488 crore of new sales.
How do you see the sales momentum in Q2FY21?
Sales would be better in Q2FY21 than in Q1. Mentally we are prepared to work in this environment. Bengaluru is under a lockdown, which will hamper customers’ movement in terms of physically visiting the property and it contributes 70% plus of my new space. But as I said before, our teams are on it. July seems to be a good month (except for lockdown). The belief is that Q2 will be better than Q1FY21 as April was a washout and things only started getting normal May onwards.
How do you plan to run the business in these uncertain times?
We are focusing on two things. First on how to keep our sales momentum going. Another is on liquidity. We knew this is a time when cash flows are critical. We work within our cash flows. Sobha also worked on aspects like cost, construction plan, marketing, etc. We managed Q1FY21 in such a way that we were able to bring down our debt and that, too, in 45 days of available work.
Your debt of Rs 3,023 crore in March 2020 is higher compared with March 2019 (Rs 2,434 crore). How do you plan to contain it?
Among our peers, we have one of the lowest debt at the size and scale as well as the available land bank. Had it not been the pandemic, we would have been working on bringing our debt burden down to Rs 2,400-2,500 crore. But looking at the current environment where labour, supply chain and construction are an issue, we need to defer certain things. Broadly, the direction is that this year too, we keep debt under control, keep liquidity in our operations and remain profitable. Also, we keep selling more to gain share in a contracted market.
Are you not relying too much on Bengaluru to push sales?
Bengaluru is still untapped. It will remain one of the best real estate markets for at least for one or two decades as the IT-ITeS penetration is huge. The IT sector is the major driver of this transformation. Places such as Gurgaon, Hyderabad and Chennai are also growing on the back of the IT sector’s growth.
Which other cities are you planning to enter?
We have a unique backward integration business model. So, we can produce a building in any part of India. We have completed building for our clients in other parts of India. The desire is to slowly and steadily get into other cities. We will be entering Hyderabad, Hosur and Thiruvananthapuram in the next three-four quarters.
What are your views on correction in housing prices?
Developers do not have the bandwidth to reduce and remain viable, but they also need cash flow. On the issue of prices coming down, I have my doubts. Until and unless cost of raw material, land, cement, etc comes down. Diesel prices have gone up in the last one month and it has had a huge multiplier impact on items. It is not going to be easy to bring down costs in such an environment.