Sobha Developers has been showing a positive sales momentum and the company’s VC and MD JC Sharma expects the trend to continue in FY14. In fact, he believes the real estate market will grow in double digits in FY14.
He told CNBC-TV18 that the company will continue to generate positive cash flows and maintain margins at current levels of 29 percent.
He also informed that 90 percent of the growth comes from combining Bangalore, Gurgaon, Chennai, Trichur and Pune. Bangalore has been an outperformer on a consistent basis and last quarter was good for Chennai market. The only sad part is that Gurgaon residential market is showing some sign of slowdown.
Below is the verbatim transcript of his interview to CNBC-TV18
Q: Is FY14 going to be an on core of FY13? What’s your sense?
A: We hope so. The markets where we are operating today is the residential space.
We do believe that as far as real estate industry is concerned the micro environment still remains favorable to developers who have been executing the projects on timely basis.
Also to once who have been pricing their products in accordance to the requirement of the customers as well trying to protect the margins vis-à-vis the inflationary cost.
Q: In which cities are you witnessing this kind of improvement in demand especially the Rs 670 crore that you have been able to report in terms of presales in fourth quarter? Which are the main cities they have come from?
A: If one looks at it, almost 98-99 percent of this growth had come from the major five markets out of the seven where we are operating currently. That is Bangalore, Gurgaon, Chennai, Trichur and Pune - in that order.
The last quarter had been particularly good for Chennai market and Gurgaon market. Bangalore usually has been the consistent outperformer. It has also done very well.
Q: Can we expect this one million square feet run rate of sales per quarter to continue or in Q4 you saw some exceptional sales?
A: Q4 definitely has been our best of the quarters. It was an exceptional performance. We also need to reckon with tact, real estate basically does well in the second half of every financial year. Last two quarters have been particularly well for us.
Going forward, we do believe that on an annual basis, whatever we have achieved in the last quarter, one million kind of a thing. While, we have give our annual guidance only after our board meeting, but we hope that we should be able to sustain the momentum that we have achieved in this financial year.
Q: Since you have the finger on the pulse of many cities, would you say this order will remain more or less this way even in FY14 or do you see some order shifting?
A: I believe that all these cities should perform. We do hope that real estate market can grow on a double digit basis. It remains intact.
Hopefully, we should be doing this kind of a performance in all the markets where we are operating.
Q: You have got an improvement in realisations as well, not just in Q4 but for FY13. How much of it is because of a change in product mix and how much of it is because you can pass on higher cost for the same value project?
A: We have not launched many projects in the last financial year. We had launched hardly four projects - two in Bangalore and two in other cities. What we do normally is when we launch a large project, we are not releasing all the products at a time.
We are realising it on a phase wise basis. As and when we are releasing from the launched projects, in the new phase we re-evaluate the market conditions with inflationary impact and accordingly revise our prices.
We believe that the 6-8 percent kind of an inflationary cost, which is impacting all of us, we should be able to pass on even going forward.
Q: So is that the price rise that you have seen even in fourth quarter - six-eight percent?
A: Yes. That’s the annual price rise we are talking about.
Q: In the flats that you sold and year on year rise of six percent is what you would think has been the case?
A: Yes, you are right.
Q: What about margins? Are you noticing any improvement in your margins probably because of material cost coming down given this slowdown talk that we hear?
A: So far we haven’t seen the impact of material cost coming down. On balance, while we do realise that in last few weeks, cement prices have softened and steel prices remain more or less stable at around Rs 45,000 or so.
However, there has been generally no decline in trend. There are so many inputs we use especially the labour cost and other related costs - they are going by double digits, about 12-15 percent has been the hike in our labour costs.
So, something always gets compensated here and there. We cater for that. So, on balance, we do not hope that the margins should expand from where we currently are, but we try to manage and maintain the margins which we are enjoying currently.
Q: Could you tell us what the project pipeline currently stands at and how many million square feet perhaps and your key launches in FY14?
A: Currently, we have about 18-18.50 million square feet of project pipeline under construction. In this financial year we should be able to 10 million plus square feet of new launches as we move forward in these four quarters.
Q: What’s the debt situation? Have you reduced any debt? What is the debt and what is the annual interest outgo?
A: We have been able to reduce our debt from the last quarter. Our current rate of interest stands at around 13.4 percent. We do believe that we will continue to generate positive cash flows in times to come as well.
Q: Will you be making a foray into any other cities? Will you be looking at any other cities and can you give us some idea of whether there is de-growth, whether there is fall in demand or fall in prices or accumulated inventory in any of the other cities where you have taken interest.
A: We have taken interest in some of the southern cities - Hyderabad, Cochin and Calicut. We may also get into the NCR market besides in Gurgaon also. We do find that the Gurgaon especially for the apartments is showing some sign of slowdown.
There have been lower sales but on other markets, rather Hyderabad market, gives a signal that prices are rising and absorption rates have improved. The southern cities especially Chennai and Bangalore remain relatively insulated and continue to show better performance.
Q: Is the Bangalore market getting matured or do you think it can continue with this run rate in FY14 as well because the big kicker has actually come in, in the kind of growth that we have seen in Bangalore.
A: My personal belief is Bangalore market has lots of steam. While for this year it may go for next decade or so and will continue to show good amount of growth.