Revenue down 50%, Sobha Developers cuts workforce

The firms’ managing director J.C. Sharma said unlike the real estate sector, the income from our contractual business has been steady & we don’t really have to look out for customers

Sobha Developers Ltd, a leading realty firm in south India, has witnessed its monthly revenue reduce by more than half, from Rs. 120 crore to Rs. 50 crore. With sales down, Sobha has been forced to cut its 3,000-strong workforce by about 30%, to 2,170.

However, with revenue from the real estate sector going down, the company's other source of income, its contractual business, has been the saving grace. “Unlike the real estate sector, the income from our contractual business has been steady and we don’t really have to look out for customers,” said J.C. Sharma, managing director of the Bangalore-based company, which is expecting a Rs. 400 crore turnover from the contractual business by 2010 and has completed over 120 contractual projects for various corporate customers such as Infosys Technologies Ltd, Hewlett Packard and Dell Inc.

Sobha’s net profit fell by 88% to Rs. 7.5 crore and revenue by 49% to Rs. 181 crore in the December quarter against the same period a year ago. The developer is also in the last leg of restructuring its debt of Rs. 1900 crore. “We are restructuring over Rs. 1,000 crore and are in the final stage of getting approvals from various financial institutions,” said Sharma.

The company is also looking at various funding options ranging from equity dilution, private equity funding at project level as well as land sales. Mint had earlier reported that the developer would try to sell parts of its 3,000-acre land bank—the process seems to have started. It has managed to sell land worth Rs100 crore over the last few months.

Sales have not picked up even after developers such as Sobha are trying out various out-of-the-box marketing techniques such as its recent Home Mela. The two-day property exhibition that showcased 18 different properties of the company concluded with only six apartments being sold.

Sobha, which till now, focused on high-end and luxury apartments and villas is finally joining the affordable housing bandwagon. It is launching its first budget housing project in the next three-four months in Bangalore, though officials didn’t divulge pricing details.

“Contractual work in real estate has also been hit as most corporates have stalled expansion plans. Which is why we find lot of contractual business coming in for developers from industrial or education sectors. Like Sobha, we will find more developers going in for debt restructuring to pull down high interest rates on short term loans and converting them to long-term loans,” said Abhinav Bhandari, research analyst (construction and infrastructure) with Pioneer Invest Corp Ltd.