Owing to a sluggish performance in Gurgaon and Pune, JC Sharma, vice chairperson and managing director, Sobha Developers says the real estate major will be unlikely to meet its FY14 guidance.
Speaking to CNBC-TV18’s Sonia Shenoy and Latha Venkatesh, Sharma says the company hopes its positive performance will continue in its core market- Southern India.
The company is aiming to launch three big projects in Bangalore in the next two quarters and two projects in Cochin and in Calicut in March and April.
The company’s Q3 EBITDA rose 8.8 percent to Rs 149 crore, but its operating profit margin fell 460 basis points to 27.4 percent on higher expenses year-on-year. Sharma, however, is bullish on margins coming around 28 percent in the next few quarters.
Below is the edited transcript of the interview to CNBC-TV18.
Latha: With this quarterly performance, will you be able to meet your FY14 guidance of 4.2 million square feet and Rs 2,600 crore sales in terms of value?
A: Our FY14 guidance was for 4.2 million square feet of volume sales and 2,600 crore in value sales. We do not think that we should be able to beat that but we are confident that we should be able to do better than what we achieved in FY12-13- Rs 2200 crore in value sales and 3.76 million square feet in volume sales.
As far as recognition of revenue is concerned, definitely, we should be able to do better than what we have done in FY12-13 vis-à-vis FY13-14.Latha: What is your pre sales trajectory for this quarter? You have been facing moderation in pre sales for the last few quarters because of launch delays only?
A: Our last quarter was not very good as far as new sales were concerned vis-à-vis this this year last month. It has started reasonably well, which gives us the confidence that the operational performance we had in the last quarter, was just a blip. The growth should continue as far as new sales are concerned.
Sonia: Your average realizations are close to Rs 6,800 square feet this time. Can you give us a sense of whether you see a significant price increase hereon or do you think the realisations will stand around these levels?
A: We do not foresee a significant price increase. Our financial performance needs to be viewed in the context where our ability to pass on the increase in our input cost stands restricted but still the inflationary pressure continues to remain very high. In that environment to maintain volume growth as well as maintain and sustain the margin, we believe it is quite commendable and we hope that going forward that thing should continue.
Sonia: This time the margins have slipped to 27 percent versus 30 percent plus earlier on. What is the main reason for that and will this margin pressure continue?
A: Our margins should be around 28 percent and at profit before tax (PBT) and profit after tax (PAT) level we are at 10 percent to 11 percent level and going forward, we believe that it should remain. One needs to recognise that we have not passed on the increase in the input cost in most of our projects but have still managed to maintain the basic operating margins above 35 percent in case of real estate and above 20 percent in case of context and our manufacturing division.
Latha: Have you faced further price in volume moderation in Gurgaon area as you had indicated last quarter. Have volumes dipped in the Gurgaon area?
A: We are operating in the southern market, northern market and in the western market, Pune. If one looks at our performance for the southern market for the first nine months of this financial year, we have achieved a value growth of 41 percent in the first nine months and volume growth of 13 percent in the first nine months.
It is because of this sluggish performance in our Gurgaon and Pune market, while there has been a value growth of about 13 percent overall, the volume growth has slipped and lower than the first nine months of the preceding financial year.
Going forward, we believe that in Gurgaon the last month has been the best ever month in the first 10 months of this financial year. If this trend continues then we do believe that the worst is over as far as the Gurgaon market is concerned and we hope that we will continue to do well in our core southern market, in this quarter as well as going forward.Q: How is the launch pipeline looking in the southern market? What are the big projects there?
A: We hope to launch three big projects in Bangalore alone in the next two quarters. One project has been launched last month, Silicon Overseas in Bangalore. It has met with good response. We also hope to launch two projects in Cochin and Calicut in the next two months and one more project in Bangalore as well. The overall pipeline of the new launches will be about 11 million square feet in the coming 12 months period.
Sonia: What kind of realisations are you hoping to achieve with these new projects?
A: We hope to achieve around 6,000 plus kind of sales price average. Sonia: What about your cash flow situation. Is there any improvement that you have seen this quarter?
A: The overall cash flow for the last quarter has been the best ever. We collected Rs 656 crore in the last three months and we had collected more than Rs 1,900 crore in the first nine months of this financial year. They have been our highest ever cash collections in our history.
We probably remain the only real estate company where we continue to meet all our operational cost, all our interest costs, all our taxes as well as dividends and still generate positive cash flows to meet our capex requirement and our further land purchases requirement, in the current environment too.
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