Sobha turns focus to commercial realty, aims to realign portfolio

From a predominantly residential property player, Sobha is now looking at realigning its portfolio. The plan is to add around three million sq ft of commercial real estate in the next two to three years.

Apart from a wish to double its revenue, the momentum in office leasing is another factor driving the new focus at the company. 

At present, Bengaluru-based Sobha has negligible presence in the latter segment. It now wants to emerge as a significant player in commercial real estate. Bengaluru, Chennai, Pune, Kochi, and the National Capital Region (NCR) are among the places it is looking at for project launches.

According to a recent report from real estate consultants JLL, office space absorption in India jumped 58 per cent in the first half of this calendar year, to 24 million sq ft. About 26 per cent of the total leased volume was from Bengaluru. 

“Our presence in the commercial space will be significant in the next four-five years. From next year onwards, we will see the real work. We are evaluating all the markets,” said J C Sharma, vice-chairman and managing director (MD). Definitely, there will be visibility.” 

Sobha has traditionally focused on the housing segment. “I hardly have any commercial real estate,” says Sharma. “Past events have given us debt control discipline. Now, we have plans to almost double our bottom line (profit) and top line (revenue). So, (to achieve this), most of the free cash generated will be used in the commercial segment.” 

REALTY WATCH

* Sobha, currently, has negligible commercial real estate portfolio

* The company wants to bet big on office leasing space in its bid to double its revenue and profits in coming years

* Cities such as Bengaluru, Chennai, Pune are in company’s radar

* The firm has plans to double its bottom line (profit) and top line (revenue)

Sobha explains that its current operating margin and cash flow allow it to bet highly on the office leasing segment. “We have been the most consistent in showing stable margin in the industry. If my volume goes up a little more, with more projects in the residential side, supported by significantly more numbers of projects in the commercial side, we will emerge as a relevant player in the (office leasing) space in coming times,” says the MD. 

There was a 23.4 per cent operating margin in the June quarter, the forst one in 2018-19, on a revenue base of Rs6.1 billion. Debt was nearly Rs22.6 billion, with a debt to equity ratio of 1.09 by the new accounting standard. “We are comfortable with a debt to equity ratio of 0.8 and will raise money to fund our new projects (while) keeping in mind this ratio,” said Sharma.

The company expects sales growth in high double-digits for this financial year, given the rise in demand seen in the sector. Its sales volume grew 22 per cent in the April-June quarter. Contractual revenue, 40 per cent of the total in the quarter, also has a good order book pipeline, Sharma said. Sobha’s total revenue was nearly Rs28.4 billion in 2017-18. It had completed projects for 5.8 mn sq ft in this period.