Sales value will catch-up with sales volume: Sobha Ltd

Sobha Developers's third quarter earnings announced Friday disappointed on all parameters.

Net profit fell 46.6 percent year-on-year to Rs 32.1 crore and revenue dipped 1.7 percent to Rs 399 crore.

Speaking to CNBC-TV18, JC Sharma, VC and MD of Sobha said that it is a matter of time before sales value catches up with the sales volume.

Below is the verbatim transcript of JC Sharma’s interview with Nayantara Rai on CNBC-TV18. Q: If I look at your bottomline, your topline, your EBITDA margins is disappointing on all parameters and that too in the third quarter which is considered to be the festive season. It is the festive season that means real estate developers continue to have a bad run. What I want to ask you know is what’s the game plan? How do you plan now to bring buyers back in to the market to make sure that you can protect and increase your bottomline and topline? A: As far as the topline and the bottomline is concerned we do agree that at Rs 400 crore and at Rs 32 crore it is below even our own expectations. Unfortunately, the sales volumes which have been up for the first nine months in a very difficult market the revenue recognition from those sales numbers are not happening. We are having customers advances of more than Rs 1,008 crore lying as customers advances but due to the accounting standards what we follow where 25 percent of the construction needs to have been completed along with 25 percent of the sales on those projects should have happened along with 10 percent money should have come. Lots of money is lying where cashflows are better but unfortunately it is not getting reflected in our revenue. It is the matter of time that the sales value catches up with the sales volume. This doesn’t mean that we are happy but the EBITDA margins also if you look at 28 percent in the last quarter it has improved and for the whole of the nine months they are better. Coming back to your question of how do you bring back the customers the very strategy of getting into the compact luxury homes of 1,000 sq feet and 1,200 sq feet had been towards that direction. Today Sobha has more than 50 percent of its inventory offer for sale which is below Rs 1 crore. We believe that we are at the right spot and we have got products at all the places of all the value sizes to cater to almost every customer requirements. However, sentiments definitely need to improve upon. Lot of things are happening in disjointed manner; hopefully in couple of quarter times when things start improving we will be doing better. We have already created a platform for that by improving our sales volume. Q: Are you then saying that because you are sitting on customer advances of Rs 1,000 crore and only because of the accounting practices followed in India, you have not been able to show that in the books in your topline and bottomline that is only problem? Is that what you are saying? A: No, I said that unfortunately, where you are selling the most, those projects are not coming under revenue recognition. We are also doing projects where we could have recognised the revenue. So, if we are not selling one million sq ft a quarter, and achieving only 8-8.2 million sq ft a quarter this slowdown is more pronounced products above Rs one crore which we launched much earlier and where I could have recognised the revenue. So, that had impacted as well. But, it is being made up with sales numbers of those projects where you are getting the customer’s money, but you are not being able to recognise that.(Copy edited by Sidhartha Shukla, interview transcribed by Vrushali Sawant and Stanford Masters)