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Chapter I

INTRODUCTION

Part A: ABOUT THE INDUSTRY


EVOLUTION OF REAL ESTATE The concept of Real Estate grew gradually back in the times of Nomads. Our ancestors abandoned the hunter-gatherer lifestyle gradually over the period from 30,000 B.C. to 15,000 B.C. This change was far from global, and hunter-gatherer societies still survive in some areas of the world today, but it did mark a transition toward an agrarian society. Real estate evolved through stages described herein: 1. Staking Claim: -Fertile plains were staked out and settled in a mightmakes-right manner. Eventually, a system of tribal leaders developed, and those who had the approval of the tribe would disperse lands, settle disputes and require a payment from all his subjects. 2. The Original Protection Racket: - The passionate farmers, however, soon found that they could not name everyone in their tribe anymore. In return for the sacrifice of familiarity, people living in these small societies gained the safety of numbers. A well-fed army easily repelled any desperate raiders. 3. All Hail the King: - This system of labor-for-protection developed into two separate systems in most countries: taxes and tenancy. Royal families spread their wealth to friends, signing away titles and deeds to lands that allowed the holders to collect the revenues (rent) produced by the peasants

living there. On top of this rent, all the people within a ruler's realm were generally required to pay a tax. 4. The King is dead: - Many aristocracies were eventually displaced usually by displacing an aristocrat's head from the body - with supposed meritocracies - a system where the best and brightest lead a nation. Title lands were broken into smaller parcels and sold on a free market. 5. The age of Machines: - Education and specialization into new fields of labor opened up by the mechanization of industry. The peasants now became middle class, blue collar, white collar, and a handful of other things. They owned houses, cars, and eventually, radios and televisions, and alike. 6. Magic mortgages: - After the industrial revolution, however, the wealth of the world increased to the point where banks opened themselves to "higher-risk" mortgage loans to common people. This allowed individuals to own their own homes and, if they so desired, to become landlords themselves. REAL ESTATE INDUSTRY IN INDIA Real estate sector in India has exhibited trend towards greater organization and transparency, accompanied by various regulatory reforms. These reforms include:

i.

Government of India support to repeal of the Urban Land Ceiling Act, with nine states having already repealed the Act.

ii.

Modifications in the Rent Control Act to provide greater protection to homeowners wishing to rent out their properties.

iii. iv.

Rationalization of property taxes in a number of states. The proposed computerization of land records. Let us discuss evolution and growth of real estate in India.

Evolution: In the past, this sector was not even beheld with Industrial

Status. This sector was characterized by low-quality construction and lack of transparency. At present, this sector has been defined with industrial status. Multiple sources of funding such as Debt, PE, VC, etc are available. Nowadays Government also keeps an eye on this sector to ensure the proper quality as promised by the industry players. Due to several resolutions passed by state and central governments, positive reforms like transparency and well-defined products are being witnessed in this growing industry.
Growth & Development: The expanding industrial sector has created a

surge in demand for office-buildings and dwellings. The industrial sector grew at the rate of 10.8 percent in 2006-07 out of which a growth of 11.8 percent was seen by the manufacturing sector. And the liberalization policies of government have decreased the need for permissions and licenses before taking up mega construction projects. Opening the doors to foreign investments is a further step in this direction. The government has allowed

FDI in the real estate sector since 2002. The major demand drivers for the real estate projects are Residential, Retail, Office space, Hotel chains, special economic zones (SEZs) and infrastructures. Indian real estate industry is growing with a compounded growth rate (CAGR) of more than 30%on the back of robust economic performance of the country. Meaning of Real Estate: The word Real is derived from the Latin word Res which means Matter or thing. Also termed as Real Property or sometimes even, Realty, the term Real estate refers to land and fixtures thereon together, which is distinguished from personal property (clothes, furniture etc). Real estate is also referred to the ownership of land and its appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof. Definition of real estate: According to Campbell R Harvey, A piece of land and whatever physical property is on it. A piece of land, including the air above it and the ground below it, and any building or structure on it. Real estatecan include business and/or residential properties, and are generally sold either by a realtor or directly by the individual who owns the property (for sale by owner).

SALIENT FEATURES OF REAL ESTATE:


i. Real Estate: A Tangible Asset: - Real estate can be defined as the land and its permanent improvements. Improvements on the land include any fixed structures such as buildings, fences, walls, and decks. ii. Real Estate: A Bundle of Rights: - Real estate can also be viewed as a bundle of intangible rights associated with the ownership and use of the site and improvements. These rights are to the services, or benefits, that real estate provides its users. iii. Real Estate: An Industry and Profession: - The term real estate frequently is also used to refer to the industry activities associated with evaluating, producing, acquiring, managing, and selling real property assets. Real estate professions vary widely and include (1) real estate brokerage, leasing, and property management services; (2) appraisal and consulting services; (3) site selection, acquisition, construction and alike. iv. Real Estate: Heterogeneous Product: - Real estate tends to be heterogeneous, meaning that each property has unique features such as design, age etc. v. Real Estate: Immobile Product: - Real estate is immobile. Although it is sometimes physically possible to move a building from one location to another, this is generally not financially feasible.

vi.

Real Estate: Lower liquidity: - There can be a substantial lag between the time you decide to sell a property and when it actually is sold - usually a couple months at least.

TYPES OF REAL ESTATE: The Real Estate property can be broadly


categorised into following 3 types: A. Vacant land: - The vacant land is the main property to be dealt in Real Estate business. Farm and ranch specialists have long been quite successful in this business. B. Residential properties: - It occupies the major portion of the real estate business. It can be further categorised into following: i.

Attached / multi-unit dwellings: These can be in the form of


(1) Apartment (An individual unit in a multi-unit building) (2) Multi-family house (multi-story detached buildings, where each floor is a separate apartment or unit) (3) Terraced house (single or multi-unit buildings in a continuous row with shared walls ) 4) Condominium (Building or complex, similar to apartments, owned by individuals) and (5) Cooperative (A type of multiple ownership in which the residents of

a multi-unit housing complex own shares in the cooperative corporation) ii.

Semi-detached dwellings: These are in the form of Duplex ( Two


units with one shared wall)

iii.

Single-family detached home: It is the small houses owned by a


family independently.

iv.

Portable dwellings: These properties are temporary which can be


moved. They are: (1) Mobile homes (Potentially a full-time residence which can be (might not in practice be) movable on wheels) (2) Houseboats (A floating home) (3) Tents (Very temporary, with roof and walls consisting only of fabric-like material)

However in India, the residential properties can be grouped as follows:


Housing Societies (CGHS) Condominiums Builder flats (flats constructed by any builder with the motto of

selling to individuals)
Chawls (4 to 5 stories with about 10 to 20 tenements, referred to

as kholis)
Havelis ( a private mansion)

Lal Dora (part of the land which was supposed to have been an

extension of the village habitation, where the villagers used to have their support systems, live-stock, etc) C. Commercial properties: - Commercial property can be empty land zoned for commercial use, or an existing business building or buildings. Commercial property valuation requires a more complex method, taking into account the income potential of the property, historical revenue, cash flow with owner perks removed and much more.

SWOT ANALYSIS OF REAL ESTATE INDUSTRIES:


Strengths: The major strengths of the Real Estate sector are as follows: a) Employment and training opportunities in the sector. b) Projects in the feasible location of nation. c) Good structured National networks enhance the strength. d) Sufficient availability of Natural resources and raw material. Weaknesses: The weaknesses of the Real Estate sector are: a) Lack of well defined procedures for the management of project. b) Huge amount of investment is another factor that hampers this industry. c) Distance between the several projects reduces business efficiency. d) Lack of appropriate manpower with proper skills and training. Opportunities: The Real Estate has several opportunities such as: a) Provide sector housing boom and commercial buildings demand.

b) Public sector projects along through Private sector projects pave way for new opportunities. c) Due to easy financing through loans and other schemes of financial institutions, this sector is entering into new avenues. d) New alliances and joint ventures open up new opportunities even in abroad. Threats: Several external factors pose various threats. They are: a) Long term market instability and uncertainty creates major threat. b) Political instability and security issues are also potential problems. c) Entry of new players in the industry. d) Natural calamities and weather conditions are always source of great threats.

PART B: ABOUT THE STUDY


FINANCIAL STATEMENT ANALYSIS Meaning of Finance: - In simple words, Arrangement of funds is called finance. All organizations need finance for operating its different activities. So, we can say finance is just like blood for survival the business in changing economic environment. Fund, money, saving, cash, reserves and assets are the basics of finance. Meaning of Business Finance: - Business finance is the business activity which is concerned with acquisition and conservation of capital funds in meeting financial needs and overall objectives of business enterprise. Raising and managing of funds by business organizations is referred to as business finance. Meaning of Financial management: - Financial management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to financial resource of the enterprise. IMPORTANCE OF FINANCIAL MANAGEMENT: Sound financial planning is necessary for the smooth functioning of an enterprise. Money is to an enterprise, what oil is to an engine.

1)

2)

Financial administration provides complete co-ordination between various functional areas such as marketing, production etc. to achieve the organisational goals.

3)

Financial administration provides scientific analysis of all facts and figures through various financial tools, such as different financial statements, budgets etc., which helps in taking constructive decisions.

4)

The financial managers play a very important role in the success of business organisation by advising the top management the solutions of the various financial problems as experts. They present important details regarding financial position and the performance of various functions of the company.

5)

The performance of the firm can be measured by its financial results, i.e., by its size of earnings which can be done by comparing risk and profitability.

Meaning of Financial statements: -A written report which quantitatively describes the financial health of a company. A written report of the financial condition of a firm is called Financial statement. Financial statements include the balance sheet, income statement, statement of changes in net worth and statement of cash flow. Meaning of Financial statement analysis: -Financial statement analysis is defined as the process of identifying financial strengths and weaknesses of the

firm by properly establishing relationship between the items of the balance sheet and the profit and loss account. Financial statement analysis converts the mass of data into useful information which is always in scarce. OBJECTIVES OF FINANCIAL STATEMENT ANALYSIS: - The main objectives are: Prepare and interpret financial statements in comparative and common-size form.
ii.

i.

Compute and interpret financial ratios that would be most useful to a common stock holder.

iii.

Compute and interpret financial ratios that would be most useful to a shortterm creditor

iv.

Compute and interpret financial ratios that would be most useful to long term creditors.

TECHNIQUES OF FINANCIAL STATEMENT ANALYSIS: - All the


tools of analysis can be categorized under the following mentioned 3 broad techniques. 1) Cross-sectional analysis: It is also known as inter-firm comparison. This analysis helps in analyzing financial characteristics of an enterprise with financial characteristics of another similar enterprise in that accounting period.

2) Time series analysis: It is also called as intra-firm comparison. According to this method, the relationship between different items of financial statement is established, comparisons are made and results obtained. 3) Cross-sectional cum time series analysis: This analysis is intended to compare the financial characteristics of two or more enterprises for a defined accounting period. It is possible to extend such a comparison over the year. This approach is most effective in analysing of financial statements.

TOOLS OF FINANCIAL STATEMENT ANALYSIS:1) Comparative financial statements: - In brief, comparative study of financial statements is the comparison of the financial statements of the business with the previous years financial statements. Practically, two financial statements (balance sheet and income statement) are prepared in comparative form for analysis purposes. 2) Common size statements: The common size statements (Balance Sheet and Income Statement) are shown in analytical percentages. The figures of these statements are shown as percentages of total assets, total liabilities and total sales respectively. 3) Trend percentage analysis (TPA): The trend analysis is a technique of studying several financial statements over a series of years. In this analysis

the trend percentages are calculated for each item by taking the figure of that item for the base year taken as 100. 4) Fund flow statement: Fund flow statement is a financial statement that shows the flow of funds, i.e. change in the working capital due to several transactions of the business firm. This statement provides the use and application of funds of any enterprise during any particular period of time. 5) Cash flow statement: Cash flow statement is a financial statementthat shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. 6) Ratio analysis: Ratio analysis is the one of the powerful tools of analysis and interpretation of financial statements. Ratio analysis helps to analyse the past performance of a company and to make future projections.

RATIO ANALYSIS
Meaning of Ratio: - A ratio can be defined as the indicated quotient of two mathematical expressions. Ratio is thus, the numerical or an arithmetical relationship between two figures, it is expressed where one figure is divided by another. A ratio can be used as yardstick for evaluating the financial position and performance of a concern, because the absolute accounting data cannot provide meaning and interpretation.

Meaning of Ratio analysis: - It concentrates on the inter-relationship among the figures appearing in the financial statements. Ratio analysis is the accounting tool that helps in evaluating various aspects of the companys performance as per the view point of various stake- holders. For example, share-holders might be interested in companys profitability where as the creditors may be interested in companys solvency.

IMPORTANCE OF ACCOUNTING RATIOS:


1) Accounting ratios reveal the financial position of the concern which helps institutions in lending and making investment decisions. 2) Accounting ratios simplify, summarize and systematize the accounting figures in order to make them more understandable and in lucid form. They highlight the inter-relationship which exists between various segments of the business as expressed by accounting statements. 3) Accounting ratio helps in assessing the operational efficiency of a concern. It diagnoses the financial health by evaluating liquidity, solvency, profitability etc. 4) If accounting ratios are calculated for a number of years, then a trend is established. This trend helps in setting up future plans and forecasting. 5) Accounting ratios are of great assistance in locating the weak spots in the business even though the overall performance may be efficient. 6) Accounting ratios are used to compare one department with another of the same firm in order to evaluate the performance of various departments.

LIMITATIONS OF ACCOUNTING RATIOS:


1) Accounting ratios can give false results based on false data. Sometimes, the information given in the financial statements is effected by window dressing, i.e., showing positions better than what actually is. 2) Ratios are an attempt to make an analysis of the past financial statements. They cant provide idea of probable happenings in future. 3) Comparison will become difficult if the two concerns follow the different methods of providing depreciation or valuing stock. Comparison of financial statements may be misleading by using ratios of such firms. 4) Changes in price levels make comparison for various years difficult. This adds another limitation to ratio analysis. 5) Ratio analysis is only a beginning and gives just a fraction of information needed for decision making. Therefore, to have a comprehensive analysis of financial statements, ratios should be used along with other methods of analysis. 6) Accounting ratios may be worked for any two insignificant and unrelated figures as ratio of sales and investment in government securities. Such ratios may be misleading.

CLASSIFICATION OF RATIOS:
I.

Classification on the basis of nature of accounting statement:


i. Balance sheet Ratios: - These deal with the relationship between two Balance sheet items, e.g. current ratio, liquid ratio etc.

ii.

Profit and Loss Account Ratios: - These ratios show the relationship between any two P /L account terms, e.g. gross profit ratio, net profit ratio etc.

iii.

Composite ratios: - This type of ratios find out the relationship between items appearing in different financial statements such as one item from P/L account and other from Balance sheet, e.g. Return on Equity, capital turnover ratio etc.

II. i.

Classification on the basis of objectives:


Liquidity ratios (short-term solvency): - In order to highlight the relative strength of the concerns in meeting their current obligations to maintain sound liquidity and to pinpoint the difficulties if any in it, then liquidity ratios are calculated. These ratios are used to measure the firms ability to meet short term obligations. a) Current Ratio: - This ratio measures the solvency of the company in the short term. Current asset are those assets which can be converted into cash in one year. Current liabilities and provisions are those liabilities that are payable in one year. A current ratio of 2:1 indicates a highly solvent position. A very current ratio will have an adverse impact on profitability of the organization. A high current ratio may be due to the piling up of inventory, inefficiency in collection of debtors, high balance in cash and bank accounts without proper investments. Current ratio = Current assets Current liabilities & provisions

b) Quick ratio or liquid ratio:- Quick ratio is used as a measure of the companys ability to meet its current obligations. Since bank overdraft is secured by the inventories, the other current assets must be sufficient to meet the other current liabilities. A quick ratio of 1:1indicates highly solvent position. This ratio is also called as acid test ratio. Quick ratio = Quick assets Current liabilities & provisions

c) Absolute liquid ratio (super quick ratio): - It is ratio of absolute liquid assets to quick liabilities. However, for calculations purposes, it is taken as ratio of absolute liquid assets to liquid liabilities. The ideal absolute ratio is taken as 1:2 or 0.5. Absolute liquid ratio = Cash & Cash equivalent Current liabilities & provisions

ii.

Capital structure Ratios (Long term Solvency ratios): - Also known as Gearing ratios or Leverage ratios, these ratios are used to analyse the long-term solvency of the firm. In other words, long term creditors like debenture-holders; financial institutions etc are interested in their loan amount as well as the ability of the firm to meet interest costs. a) Debt equity ratio: - This ratio measures the relative claims of long term creditors on one hand and owners on the other hand, on the assets

of the company. The ratio of 1:1 is generally acceptable. The lower this ratio, the safer is for the firm. Debt equity ratio = Long term debts Share-holders fund b) Proprietary ratio: - It measures the relationship between shareholders funds to total assets. This ratio shows the extent to which shareholders own the business and thus indicates the general financial strength of the business. Proprietary Ratio = Share-holders fund Total assets c) Interest coverage ratio (Fixed charges cover): - This ratio indicates whether the business earns sufficient profit to pay periodically the interest charges. This ratio standard value should be 6 or 7 times. Interest coverage Ratio = Earnings before interest & tax Fixed interest charges

d) Debt to Total funds Ratio: - This ratio shows the proportion of funds supplied by outsiders in the total funds employed in the business. This ratio serves the purpose of indicating the possibility of raising additional funds. Debt to Total Funds = Total debts Total funds

e) Capital gearing Ratio: - It is the ratio between fixed interest bearing securities such as preference share capital, debentures etc and equity share capital. A company is low-geared, if this ratio is less than one. A highly geared company has the advantage of Trading on Equity. Capital gearing Ratio = Fixed income securities Equity share-holders fund iii. Turnover Ratios ( Activity ratios): - Turnover ratios indicate the efficiency with which assets and resources of the firm are being utilised. In short, this will indicate position of assets usage. These ratios are usually calculated on the basis of sales or cost of sales and are expressed in number of times rather than as a percentage. The greater the ratio more will be the efficiency of asset usage and vice-versa. a) Inventory or Stock turnover ratio: - Inventory turnover or stock turnover ratio is the ratio which indicates the number of times the stock is turned over (i.e., sold) during a year. Stock turnover ratio = Cost of goods sold Average stock

b) Debtors turnover ratio: -Debtors turnover ratio is the ratio which indicates the relationship between debtors and sales. Debtors turnover ratio = Credit sales Average debtor
Average stock

c) Debt or Average collection period: - Debt collection period ratio is the ratio which indicates the average time taken by the firm to collect debts. In short, it is the ratio which indicates the average collection period or the average period of credit allowed to debtors or the average age of debtors. Debt collection period = No. of days in a year Debtors turnover ratio
Average debtor Average stock

Alternatively, it is also computed as: Debt collection period = Average debtors Credit sales
Average debtor Average stock

x 365

d) Fixed assets turnover ratio: - This ratio indicates the efficiency with which the firm is utilising its investments in fixed assets such as plant and machinery, etc. A high ratio indicates efficient utilisation of the fixed assets and vice versa. Fixed assets turnover = Sales (or Cost of Sales) Net Fixed assets
Average stock

e) Working capital turnover ratio: - This ratio indicates the efficiency or inefficiency in the utilisation of working capital to make sales. A

high value of this ratio is always considered preferable from organisational point of view. Working capital turnover ratio = Sales (or Cost of sales) Net working capital
Average stock

f) Capital turnover ratio: - This ratio shows the efficiency of capital employed in the business by computing how many times capital employed is turned-over in a stated period. Higher the ratio, greater the profit. A lower turnover ratio should be taken to mean that sufficient sales are not made and profits are lower. Capital turnover ratio = Cost of sales Capital employed

iv.

Profitability Ratios: - Profitability ratio is the overall measure of companies with regard to efficient and effective utilization of resources at their command. These ratios are calculated to enlighten the end results of business activities which are sole criterion of the overall efficiency of a business concern. a) Gross profit ratio: - The gross profit represent the excess of sales proceeds during the period under observation over their cost, before taking into account administration and selling and distribution and financing charges. A low gross profit margin indicates a higher cost of goods sold due to higher cost of production.

Gross profit ratio =

Gross profit Net sales


Average debtor Average stock

x 100

b) Net profit ratio: - This net profit ratio is the overall measure of a firms ability to turn each rupee of sales into profit. A firm with a high net profit ratio is in a advantageous position to survive in the face of rising cost of production and falling selling prices. Net profit ratio = Net profit Net sales
Average debtor Average stock

x 100

c) Return on Investment (ROI): - It measures the overall profitability of the firm. It is ascertained by comparing profit earned and capital employed to earn it. The ratio is expressed as a percentage. This ration is dependent upon two factors, viz. (1) net profit ratio and (2) capital turnover ratio. The higher the ROI, the more efficient the management is considered to be in using the funds available. Return on Investment = Earnings before interest & taxes x 100 Capital employed
Average debtor Average stock

d) Return on Equity (ROE): - It is also known as Return on shareholders fund. This ratio is a very effective measure of the profitability of an enterprise. It measures the return on the total equity of the shareholders.

Return on Equity =

Net profit after interest & taxes Shareholders fund

x 100

e) Earnings per share (EPS): - This ratio measures the earnings per equity share, i.e. it measures the profitability of the firm on a per share basis. Earnings per share = Profit after taxes preference dividend No. of Equity shares

Chapter II

RESEARCH DESIGN

TITLE OF THE STUDY:A Project Report on A study on Financial Statement Analysis of Sobha Developers Ltd, Bangalore.

STATEMENT OF THE PROBLEM:To study the financial position of Sobha Developers Ltd. by analyzing the financial statements.

OBJECTIVES OF THE STUDY:i. To analyze the ratios of Sobha Developers Ltd. as a whole. ii. To provide an easy way to compare present performance with past. iii. To study in detail the reasons for ups and downs in financial position, by studying variations in individual ratios.

SCOPE AND IMPORTANCE OF THE STUDY:The study will help in analyzing the several accounting ratios for a period of five years i.e. from 2006-07 to 2010-11 of Sobha Developers Ltd. Ratios may prescribe practical standards, as they are several in numbers for each element of study. The study helps us in finding out how well the organization is managing them. The study has got importance because t h e a b s o l u t e a c c o u n t i n g d a t a c a n n o t p r o v i d e me a n i n g f u l i n t e r p r e t a t i o n . Thus, financial statement

analysis through ratio analysis will help the management to analyze the performance of the firm and to make further projections. Comparison of the past data with the present will give a good picture of the financial fluctuations of the firm.

LIMITATIONS OF THE STUDY:i. 6 weeks being a very short time, I have done a study that I feel to be comprehensive and possible in this time. However, some other details of methods of analysis could definitely be found which I have missed out there. ii. The study has been restricted to the Annual reports and discussions with officials. No active participation in day to day work was allowed. iii. iv. v. The study is general. Inter firm comparison is not possible. Limitations of historical accounts.

METHODOLOGY OF THE STUDY:Data collection:The data collection is one of the important aspects in the research design because, it is the way that how we can get answer to the research questions. Data Details:-

Data relating to Short-term solvency, Long term solvency, Turnover and Profitability is required for the study i.e. about the sources of funds and application of funds, balance sheet and profit and loss account for calculating various ratios. The data is collected in two ways: i. ii. Primary Data Secondary Data

Primary Data:The primary data collection is one of the key tools used by the researcher for data collection. It is the first hand information collected by the researcher from the respondents directly. Primary data is collected through direct communication with the officials of the company.

Secondary Data:The secondary data is another form of data collection, where the data is collected from the existing records, company manual, annual reports and from previously carried out research work and also through the company website.

Sources of data collection:Almost all the details are collected from secondary sources only. Primary data includes the discussion with the concerned officials which has also helped to

verify and evaluate the variations. Secondary data includes, the annual reports, financial reports of the company, company website etc.

RESEARCH INSTRUMENTS:The tool used to analyse the financial statement of Sobha Developers Ltd is Ratio analysis and it includes following category of ratios: i. ii. iii. iv. Liquidity ratios Capital structure ratios Turnover ratios Profitability ratios

Chapter III
COMPANY PROFILE

HISTORY AND BACKGROUND Sobha Developers Ltd, a Rs. 15 billion company, is one of the largest and only backward integrated real estate player in the country. With three decades of experience in creating resplendent interiors of palaces and masterpieces in the Middle-East, Mr. PNC MENON founded Sobha Developers Ltd in 1995 with a clear vision to transform the way people perceive quality in the real estate sector in India. Since inception the company has always strived for benchmark quality, customer centric approach, robust engineering, in-house research, uncompromising business ethics, timeless values and transparency in all spheres of business conduct, which have contributed in making it a preferred real estate brand in India. In 2006 Sobha went public through its initial public offering in 2006, an event that created history when the issue got oversubscribed a record 126 times. Sobha is primarily focused on residential and contractual projects. Some of Sobhas prestigious clients include Infosys, Taj Group, DELL, Mico, ITC, HCL HP, Timken, Biocon, Institute of Public Enterprises (IPE), Bosch, Hotel Leela Ventures and others. As of 30 September 2011, Sobha has completed 73 Real Estate projects and 198 Contractual projects covering total Super Built-up area of 43.34 million sq. ft. and total developed area of 47.37 million sq. ft. The Company currently has 45 ongoing Real Estate projects in 6 cities across India aggregating to 16.16 million

sq. ft. and 39 Contractual projects aggregating to 9.03 million sq. ft. under various stages of construction. Sobha has made a foot print in 21 cities and 11 states across India.Sobha is a process driven organization where each activity is extensively detailed. Sobha is one of the first companies in the industry to obtain the ISO 9001 certification and has also received the OHSAS 18001:2007 and ISO 14001:2004 certifications for Environmental, Health and Safety

Management System.The backward integration model of Sobha ensures that the Company has all the competencies and in-house resources to deliver a project from conceptualization to completion.

VISION, MISSION AND PHILOSOPHY

Vision - Transform the way people perceive 'Quality'

Mission - No Short Cuts to Quality

Philosophy - Passion at Work

OBJECTIVES
i. Sobha Developers Ltd was founded with a clear vision to transform the way people perceive quality in the real estate sector in India.

ii. iii. iv.

Cent percent customer oriented service is what they emphasis on. No short cuts to quality and Professionalism at work at its best. The company is very particular about the value added services and amenities in its projects.

BOARD OF DIRECTORS Mr. P N C Menon - Founder Chairman: A first generation entrepreneur, Mr. Menon began his professional career by setting up an interior decoration firm in the Sultanate of Oman in 1976. He founded Sobha Developers Ltd in Bangalore in 1995. He has received Life Time Achievement Award in 2006 by Society Interiors Magazine and Global India Splendour Award in 2007. He was also awarded the prestigious Pravasi Bharatiya Samman Puraskar by the President of India, Ms. Prathiba Patil in 2009. He was nominated to the Prime Ministers Advisory Council of Overseas Indians. Mr. Ravi Menon - Vice Chairman: He joined the Company in 2004 after his graduation in Civil engineering from Purdue University, USA. He has spearheaded the growth of the organization during the last five years from a Rs.4650 million company to a Rs.15 billion company and continues to drive the organization into a leadership position in the real estate. Mr. J. C. Sharma - Managing Director: He is a qualified chartered accountant and company secretary and has over 25 years of experience in

diversified industries. He has been associated with Sobha since June 2001 and currently bears overall responsibility for finances, land acquisition and legal functions. Mr. RamaKrishnan P - Deputy Managing Director: He joined Sobha on March 15, 2007 and has over 27 years of experience in techno-commercial skill development, system design, etc. His current responsibilities in the company include heading the Kerala operations, Contractual Projects and the Manufacturing Facilities. Mr. R. V. S. Rao Director: Mr. R. V. S. Rao is an independent Director at Sobha. Mr. Rao has over 36 years of experience in the areas of banking and finance. Dr. S. K. Gupta Director: Dr. S. K. Gupta is an independent Director at Sobha. He is a Metallurgical engineer and has over 49 years of experience in the field of metallurgy, engineering and management in the steel domain.

Mr. Anup Shah Director: Mr. Anup Shah is an independent Director at Sobha and has over 24 years of experience in the field of law, specifically real estate law.

Mr. Meleveetil Damodaran Director: Mr. Meleveetil Damodaran is an independent Director at Sobha and a member of the premier Indian Administrative Service (IAS), Manipur- Tripura cadre. He has worked as chairman of SEBI and He is chairman of Taskforce on Corporate governance of FICCI (Federation of Indian chamber of Commerce and Industry).

FUTURE PLANS OF THE COMPANY In the year 2011-12, Sobha plans to launch about 11 Million sq. ft. In addition to launches in the four existing cities of our operations in Bangalore, Coimbatore, Thrissur and Pune. Sobha Developers Ltd plan to enter into three new territories of Mysore, NCR and Chennai. Some of the new launches in the last fiscal year are: Sobha Garden, Mysore: Launched on 14th May 2011, Sobha Garden is a gated plot community spread over 9.98 acres of land on the BangaloreMysore Road, Mysore. The community hosts 83 high end residential plots of varied sizes ranging between 2324.16 sq. ft. to 4649 sq. ft. Sobha City, Bangalore: Reflecting a Mediterranean lifestyle, Sobha City which was launched on 24th June 2011 spread across 36 acres of land with 1537 units is located at Thanisandra main road, near Hebbal in North Bangalore. The 2,3 & 4 BHK project has been classified into luxury segment called Mykonos and Casa Serenita, super-luxury called Casa Paradiso and row houses named Aristos. International City, Delhi NCR: International City being developed by Sobha Developers Ltd in association with Chintels Group and QVC Realty Co. situated in Gurgaon in the vicinity of the IGI Airport is a perfect blend of cosmopolitan sophistication, magnificent space planning, top-notch amenities and flawless execution. International City is an upscale community living

spread across 150 acres and consists of super luxury villas of 400 sq. yd. and row houses of 270 sq. yd. Sobha Garnet, Pune: Sobha Garnet, a magnificent project located off NIBM road at Kondhwa in Pune is spread across 7.5 acres and offers 3 and 4 BHK super luxury apartments ranging from 2030 sq. ft. - 2598 sq. ft. The 43 apartments project is located in close radius of Katraj Ghats and is designed with a panoramic insight which gives an extended invitation to factors such as plentiful light, ventilation, open spaces and green areas in Devanahalli, the heart of North Bangalore. Apart from the above mentioned projects, other projects are also being conceived and planned in various cities across the country.

BRANCHES/DIVISONS: i. Sobha interiors: Set up in 1999, Sobha Developers Ltd Limited Division Interiors more than exemplifies Sobha's thrust on backward integration.Its work is at par with the best in the world and conforms to international standards. It is a reiteration of the Sobha philosophy of using only international quality products and construction technology in all its projects and products. This divison caters the need of following segments:

Building industry Doors and Door frames (Veneered, Solid wood, masonite skin, laminated doors and solid wood door frames) Hospitality Fitted and loose furniture for hotels and serviced apartments guest rooms and common areas. Commercial Interiors / Office Fit-outs Paneling, partition, discussion tables, office workstations, reception desks, lift cladding, etc. Home Furniture Modular kitchen, wardrobes, sofas, dining table and exclusive chairs, etc. Contracts Large scale corporate interiors for offices & hospitals. ii. Sobha glazing & metal works: Sobha Glazing and Metal Works (SGM) has technical collaboration with Schuco International KG and is authorized to market their Aluminum Doors, Window & glazing systems in the country. Till date, this strategic division of the Sobha Group has successfully executed a plethora of projects for various prestigious organisations. The products range of SGM includes Aluminum Doors, Windows, Structural Glazing, Aluminum composite Panel and SS Cladding, architectural metal works and Pre-Engineered buildings. iii. Sobha concrete products:The Concrete Products Division (CPD) of Sobha Developers Ltd. is a continuation of the Sobha Group's journey of excellence. Set up in Jigani Industrial Area, Bangalore, with the same philosophy, vision, and business ethos, CPD manufactures Concrete Blocks, Pavers, Kerbs, Water Drainage Channels, Paving Slabs and related landscape

products of international quality in large scale volumes. State-of-the-art manufacturing processes, optimum mix of ingredients, exact required curing period and proper drying make Sobha concrete products real value for money. iv. Sobha Restoplus - Spring Mattress(Retail division)- Sobha has diversified into the field of interior designing comprising of a retail division of Spring Mattresses. These spring mattresses from the house of Sobha are laden with the comfort of flower beds. While the imported springs brim with coziness beyond compare, the super fine upholstery and design breathes fragrant luxury. Customization is also done to cater special customers needs.

MAJOR COMPETITORS:

DLF Prestige Estates Ltd Purvankara Ltd Nitesh Estates Ltd Mantri Developers Brigade Group Unitech Ltd

ORGANIZATION CHART:
Management council

Regional director
Kerala

Regional director
Tamil nadu/Pune

Central region
Bangalore/mysore

Regional director
N.C.R.

Administration Architecture Civil contracts Planning Concrete division Process & IT Corporate legal cell

Estimation Facility mgmt Mattress division Finance Plant & Machinery Human resources Internal audit

Legal & land purchase Mechanical-Electrical Env.design& execution Commercial space sales Glazing & metal works Corporate communication Structure & design Customer relation mgmt Projects (Real estate) Vendor development

Sobha academy Sobha home stores Strategy Technical staff Quality maintenance Quantity audit Quality safety Value engineering Purchase Sales & marketing

Cost audit

Interior division

Customer care cell Secretarial

Internal design Infrastructure exec.

FUNCTIONAL CHART OF FINANCE DEPARTMENT

Managing director CEO (Factories) Chief Financial officer Regional Director

Main Accounts

Sales Accounts

Division Accounts

Regional Accounts

Real Estate Accounts

Metal & Glazing

Interiors & Mattress

Concrete Division

Pune

Trichure

Chennai

Delhi

Corporate Taxation Final Accounts Purchase Accounts Banking (Receipts & Payments) Payroll Contract Billing Project Finance Common Overheads

Chapter IV

DATA ANALYSIS AND INTERPRETATION

TABLE-1 Table showing current ratios of Sobha Developers Ltd from the year 2006-07 to 2010-11. Current assets Current Ratio = Current liabilities & provisions

(In millions)

YEAR 2006-07 2007-08 2008-09 2009-10 2010-11

Current assets 17198.82 30737.70 33211.99 36459.21 36807.48

Current liabilities 5659.79 5670.39 5385.43 6529.37 7708.94

Current ratio 3.04 5.42 5.09 5.58 4.77

Analysis: The table shows the increasing trend of current ratios till 2009-10 and then it decreases. The current ratio of Sobha Developers Ltd ltd has always been above the standard level i.e. 2:1. The ratios have been somewhat steady and the year 2009-10 has the highest current ratio at 5.58 where as lowest in 2006-07 at 3.04.

GRAPH-1 Graph showing Current ratios of Sobha Developers Ltd.

CURRENT RATIOS
6 5 4
5.58

5.42

5.09

3 2 1 0 2006-07

3.04

2007-08

2008-09

2009-10

2010-11

(YEARS)

Inference: From the above graph, we can see that the Current ratio is more than satisfactory which indicates idleness of the funds. The ratios are almost 2-3 times more than the normal ratio value. However the Real estate business needs more of current assets for the fulfillment of its day to day needs.

4.77

TABLE-2 Table showing liquid ratios of Sobha Developers Ltd from the year 2006-07 to 2010-11. Liquid assets Liquid ratio = Current liabilities & provisions

(In millions)

YEAR 2006-07 2007-08 2008-09 2009-10 2010-11

Liquid assets 13420.87 22859.13 22720.05 25357.85 26122.90

Current liabilities 5659.79 5670.39 5385.43 6529.37 7708.94

Liquid ratio 2.37 4.03 4.22 3.88 3.39

Analysis: The above table indicates increasing trend for the first 3 years and then decreasing trend in the next 2 years and 2008-09 having the highest ratio. Each of the years, the liquid ratio is almost 3-4 times higher than the standard ratio, i.e. 1:1. The highest ratio was in 2008-09 at 4.22 and lowest in 2006-07 at 2.37.

GRAPH - 2 Graph showing liquid ratios of Sobha Developers Ltd.

LIQUID RATIOS
4.5 4 3.5 3 2.5
4.03 4.22 3.39

2
2.37

1.5 1 0.5 0

2006-07

2007-08

2008-09

2009-10

3.88

2010-11

(YEARS)

Inference: The above graph shows that the company is having more of liquid assets than required since the liquid ratios have higher values. The company is able to meet its current obligations very easily. However the company is trying to reduce the amount of quick assets, which can be seen from the decreasing trend of graph.

TABLE-3 Table showing Absolute liquid ratios of Sobha Developers Ltd from the year 2006-07 to 2010-11. Absolute Liquid Ratio = Cash & Cash Equivalents Current liabilities & provisions

(In millions)

YEAR 2006-07 2007-08 2008-09 2009-10 2010-11

Cash & Cash Equivalents 683.56 125.94 210.51 825.65 288.46

Current liabilities 5659.79 5670.39 5385.43 6529.37 7708.94

Absolute liquid ratio 0.12 0.02 0.04 0.13 0.04

Analysis: The above table indicates that company maintains very less amount of absolute liquid assets compared to its current liabilities. The absolute liquid ratio is in fluctuating condition, as we can see a sudden decrease in 2007-08 to 0.02 from 0.12 in 2006-07 and again sudden rise in 2009-10 to 0.13 from 0.04 in 2008-09 and again decrease in 2010-11. The highest ratio was in 2009-10, i.e. 0.13 and lowest in 2007-08, i.e. 0.02.

GRAPH - 3 Graph showing Absolute liquid ratios of Sobha Developers Ltd.

ABSOLUTE LIQUID RATIOS


0.14 0.12 0.1 0.08 0.06 0.04
0.04
0.12 0.13

0 2006-07 2007-08 2008-09 2009-10 2010-11

0.02

0.02

(YEARS)

Inference: Higher is the absolute liquid ratio, higher is the cash liquidity and vice-versa. From the above graph, it can be inferred that the company is not having any steady policy of maintaining a certain amount of near cash assets. Thats why the graph shows rising and falling trend.

0.04

TABLE-4 Table showing Debt-Equity ratios of Sobha Developers Ltd from the year 2006-07 to 2010-11. Debt-Equity ratio = Long-term Debt Shareholders Fund

(In millions)

Year 2006-07 2007-08 2008-09 2009-10 2010-11

Long term debt 5452.27 14380.88 18783.39 14740.35 12418.37

Shareholders fund Debt-Equity ratio 8155.43 9883.44 10894.93 17329.08 18831.85 0.67 1.45 1.72 0.85 0.66

Analysis: The table shows a fluctuating debt-equity ratio from the year 2006-07 to 2010-11 and highest being in 2008-09, i.e. 1.72 and lowest in 2010-11, i.e. 0.66. Though the Long-term debt is on a fluctuating mode but the shareholders fund has been steadily increasing in the past 5 years. This indicates that the company is not having more burdens of its long-term obligations.

GRAPH- 4 Graph showing Debt-Equity ratios of Sobha Developers Ltd.

DEBT-EQUITY RATIOS
1.8 1.6 1.4 1.2
1.72

1
1.45

0.8 0.6
0.67

0.2 0 2006-07 2007-08 2008-09 2009-10 2010-11

(YEARS)

Inference: The graph shows increasing debt-equity ratio for the first 3 years and then decreasing trend in the next 2 years. The higher value of this ratio represents greater claim by the owners on the assets of the company in comparison with the claim of the long-term creditors. The company is having good position but it needs to increase the owners equity and make the ratio reach near to 1, so that the company will attain even better position in terms of its long-term solvency.

0.66

0.4

0.85

TABLE-5 Table showing Proprietors ratios of Sobha Developers Ltd from the year 2006-07 to 2010-11. Proprietors Ratio = Shareholders Fund Total Assets

(In millions)

Year 2006-07 2007-08 2008-09 2009-10 2010-11

Share-holders fund 8155.43 9883.44 10894.93 17329.08 18831.85

Total assets 19674.32 33192.33 35852.14 38598.80 38959.16

Proprietors ratio 0.41 0.30 0.30 0.45 0.48

Analysis: The proprietors ratio of Sobha Developers Ltd is steadily increasing except 2007-08, where it has decreased to 0.30 from the previous years 0.41. The highest is in the last year, i.e. 2010-11 when the ratio reached 0.48. The table shows increase in both shareholders fund and total assets of the company.

GRAPH 5 Graph showing Proprietors ratios of Sobha Developers Ltd

PROPRIETORS RATIOS
0.5 0.45 0.4 0.35 0.3
0.41 0.45

0.25 0.2 0.15 0.1 0.05 0 2006-07 2007-08 2008-09

0.3

0.3

2009-10

2010-11

(YEARS)

Inference: The graph shows a U trend of the proprietors ratio that can be said as first decreasing and then increasing. The company is on the road to attaining a longterm stability, since the claim of owners on the total assets of the company is increasing. However the company should slow down this trend in the future because higher ratio will disable the company to take advantage of trading on equity.

0.48

TABLE-6 Table showing Interest Coverage ratios of Sobha Developers Ltd from the year 2006-07 to 2010-11. Interest coverage ratio = Earnings before interest & tax (EBIT) Fixed interest charges

(In millions)

Year 2006-07 2007-08 2008-09 2009-10 2010-11

EBIT 2352 3324 2507 2102 2865

Fixed Interest charges 486 615 1052 499 429

Interest coverage ratio 4.84 5.40 2.38 4.21 6.68

Analysis: The table represents a mixed trend with sudden rise or fall of interest coverage ratio in the last 5 years. The year 2010-11 shows the highest ratio of 6.68 times which reaches the satisfactory level of 6 times but the lowest is in 2008-09 at 2.38 times which is not up to the mark. We can observe that the ratio has improved not due to the increase in EBIT but due to significant decrease in Interest charges.

GRAPH - 6 Graph showing Interest Coverage ratios of Sobha Developers Ltd.

INTEREST COVERAGE RATIOS


7 6 5 4
5.4

3
4.84

1
0 2006-07 2007-08

2008-09

2.38

(YEARS)

2009-10

4.21

2010-11

Inference: The higher ratio indicates better position of the company to pay its interest obligations out of the profit. The graph reflects that the company is trying to improve its position and it has reached to the standard level of 6 times in the last year, i.e. 2010-11. The company is performing well to pay back the interest to its creditors.

6.68

TABLE-7 Table showing Debts to Total Fund ratios of Sobha Developers Ltd from the year 2006-07 to 2010-11. Debts to Total Fund ratio = Total Debts Total funds

(In millions)

YEAR 2006-07 2007-08 2008-09 2009-10 2010-11

Total debts 11496.56 23300.89 24957.21 21269.72 20127.31

Total funds 19674.32 33184.33 35852.14 38598.80 38959.16

Debt-total fund ratio 0.58 0.70 0.69 0.55 0.52

Analysis: The total funds of the Sobha Developers Ltd have been increasing in the past 5 years but the total debts have increased till 2008-09 and then decreased but the Debt to total funds ratio has first increased and then decreased, which we can observe from the above table. The ratio is highest in 2007-08 at 0.70 where as lowest in 2010-11 at 0.52. The fluctuating picture is due to the recession seen in the economy but the company has done really well by reducing its debt burden.

Graph 7 Graph showing Debts to total funds ratios of Sobha Developers Ltd.

0.8 0.7 0.6 0.5

DEBT TO TOTAL FUNDS RATIOS

0.55

0.2 0.1 0 2006-07 2007-08 2008-09

(YEARS)

2009-10

2010-11

Inference: The graph shows increasing picture for the first 2 years and then decreasing thereafter. The company is trying to reduce the ratio in order to make the creditors feel more secured about their claims. The company is maintaining a balance between the funds supplied by the outsiders as well as the owners. The owners fund is comparatively increasing more than the increase in outsiders fund. The company has done a commendable job by reducing its debts in the last 2 years when the whole economy has faced severe recession.

0.52

0.3

0.58

0.69

0.7

0.4

TABLE-8 Table showing Capital Gearing ratios of Sobha Developers Ltd from the year 2006-07 to 2010-11. Capital gearing ratio = Fixed income securities Equity shareholders fund

(In millions)

Year 2006-07 2007-08 2008-09 2009-10 2010-11

Fixed income Equity shareholders securities fund 2250 3500 2630 1000 750 8155.43 9883.44 10894.93 17329.08 18831.85

Capital gearing ratio 0.28 0.35 0.24 0.058 0.039

Analysis: Since the Fixed income securities have been decreasing and the shareholders fund increasing constantly, the ratio has also shown a constant reduction on a year-to-year basis in the last four years from 2007-08 to 2010-11. The highest value stood at 0.28 in the year 2006-07 where as the lowest value, as seen from the above table, is 0.039 in the last year, i.e. 2010-11.

GRAPH - 8 Graph showing Capital Gearing ratios of Sobha Developers Ltd.

CAPITAL GEARING RATIOS


0.35 0.3 0.25 0.2 0.15 0.1
0.058 0.28

0.35

0 2006-07 2007-08 2008-09 2009-10

2010-11

(YEARS)

Inference: The graph shows that the company is more relying on the owners equity than on the Fixed income securities. The ratio itself is having a lower value but the company is still decreasing it by reducing the fixed income securities. This indicates that the company might be using some other sources for outsiders fund like Bank loan, Term loan etc rather than fixed income securities like Debentures, Preference shares etc.

0.039

0.05

0.24

TABLE-9 Table showing Inventory Turnover ratios of Sobha Developers Ltd from the year 2006-07 to 2010-11. Inventory turnover ratio = Cost of goods sold Average inventory

(In millions)

Year 2006-07 2007-08 2008-09 2009-10 2010-11

Cost of goods sold 7027 7605 4436 6428 8531

Average inventory 3221.40 5828.26 9185.26 10796.65 10892.97

Inventory turnover ratio 2.18 1.30 0.48 0.59 0.78

Analysis: The above table presents lower inventory turnover ratio of Sobha developers Ltd as compared to the standard values. The ratio has been decreasing through the initial four years from the highest value of 2.18 in 2006-07 to the minimum value of 0.59 in the year 2009-10 and then it shows a slight increase in the last year, i.e. 2010-11. The average inventory has gone up because of the new projects being conceived and thereby increasing the purchases.

GRAPH - 9 Graph showing Inventory turnover ratios of Sobha Developers Ltd.

INVENTORY TURNOVER RATIOS


2.5

1.5
2.18

0 2006-07 2007-08 2008-09

0.48

(YEARS)

2009-10

0.59

2010-11

Inference: The above graph shows the fluctuating picture of inventory management of the company. Though there is increase in 2010-11 but still the rise is not up to the mark. The low inventory turnover ratio describes that the company is taking more time to turn its inventory into final products and then into sales. The reason may be the nature of the business, i.e. real estate where there is huge time duration between the conversion of inventory into final product and its relative sales. Even more purchases are done when the company moves on the road of expansion by taking up more new projects.

0.78

0.5

1.3

TABLE-10 Table showing Debtors Turnover ratios of Sobha Developers Ltd from the year 2006-07 to 2010-11. Debtors turnover ratio = Net credit sales or (sales) Average debtors

(In millions)

Year 2006-07 2007-08 2008-09 2009-10 2010-11

Net sales 11865 14226 9679 11072 14484

Average debtors 1191.31 3515.63 4502.43 3991.56 4340.74

Debtors turnover ratio 9.96 4.05 2.15 2.77 3.34

Analysis: The characteristics of both Sales and Debtors are same, i.e. fluctuating and so is reflected by the debtors turnover ratio also. In the table given above, we can see that the ratio is highest in the year 2006-07 having 9.96times where as the lowest is 2.15 in the year 2008-09. The ratio has shown a sign of improvement in 200910 to 2.77times where it has risen after a series of fall in the previous years.

Graph 10 Graph showing Debtors turnover ratios of Sobha Developers Ltd.

DEBTORS TURNOVER RATIOS


10 9 8 7 6
9.96

5
4 3

1 0 2006-07 2007-08

2008-09

2.15

2009-10

2.77

2010-11

(YEARS)

Inference: The graph shows sudden fall of the debtors turnover ratio in the year 2007-08 and a slight rise in 2009-10 after continuous fall. The lower ratios indicate slow debt collection being done by the company because the time for the final transfer of property to the customers is more and the company is not having any bad debts due to slow but safe ways of collecting debts.

3.34

4.05

TABLE-11 Table showing average collection period of Sobha Developers Ltd from the year 2006-07 to 2010-11. Average collection period =
No. of days in a year

Debtors turnover ratio

YEAR 2006-07 2007-08 2008-09 2009-10 2010-11

No. of days in year 365 365 365 365 365

Debtors turnover ratio 9.96 4.05 2.15 2.77 3.34

Avg. collection period 36.65 90.12 169.77 131.77 109.28

Analysis: As mentioned in the previous table representing Debtors turnover ratio, this table shows the clear picture of debt collection period of Sobha developers Ltd. As we can see average collection period has been increasing for the initial four years from 2006-07 to 2009-10 and then decreasing in the last year 2009-10 and 201011. The highest collection period was 161.77days in 2008-09 while the lowest was 36.65days in 2006-07.

GRAPH - 11 Graph showing Average collection period of Sobha Developers Ltd.

AVERAGE COLLECTION PERID


180 160 140

120
169.77

100 80
90.12

131.77

60 40

20
0

2006-07

36.65

2007-08

2008-09

2009-10

2010-11

(YEARS)

Inference: The above graph depicts an inefficient debt collection being done by the company. As we can see rise and then fall in the graph, it shows that the company is enhancing its debt management by decreasing its debt collection period. Since interest is payable on outstanding dues and the hand-over of property happens after the realization of the full amount, the debt collection period becomes more but the companys interest is well protected through this way.

109.28

TABLE-12 Table showing Fixed Assets Turnover ratios of Sobha Developers Ltd from the year 2006-07 to 2010-11. Fixed assets turnover ratio = Cost of sales Net Fixed assets

(In millions)

YEAR 2006-07 2007-08 2008-09 2009-10 2010-11

Cost of sales 7054.21 7724.56 4503.70 6536.65 8632.21

Net fixed assets 1947.83 2141.99 2247.84 2061.11 2040.78

Fixed assets turnover ratio 3.62 3.61 2.00 3.17 4.23

Analysis: There has been decrease and then increase in the fixed assets turnover ratio of Sobha Developers Ltd in the last five years. The lowest stood at 2 times in the year 2008-09 and highest at 4.23 times in 2010-11.

GRAPH - 12 Graph showing Fixed assets turnover ratios of Sobha Developers Ltd.

FIXED ASSETS TURNOVER RATIOS


4.5 4

3.5
3 2.5
3.62 3.61 4.23

2
1.5 1 0.5 0

2006-07

2007-08

2008-09

(YEARS)

2009-10

3.17

2010-11

Inference: As the graph depicts, the ratio has shown improvements in years 2009-10 and 2010-11. The higher value implies effective utilization of fixed assets for the purpose of making sales. The company is making good use of its fixed assets and is also improving the ratio through which it can ensure better utilization.

TABLE-13 Table showing working capital turnover ratios of Sobha Developers Ltd from the year 2006-07 to 2010-11. Working capital turnover ratio = Cost of sales Net working capital

(In millions)

YEAR 2006-07 2007-08 2008-09 2009-10 2010-11

Cost of sales Net working capital 7054.21 7724.56 4503.70 6536.65 8632.21 11539.03 25067.31 27376.56 29929.84 29098.54

WC turnover ratio 0.61 0.31 0.17 0.22 0.30

Analysis: Cost of sales has shown fluctuating behavior where as the working capital has increased every year which can be observed in the table no. 13. The working capital turnover ratio has continuously decreased from 2006-07 to 2008-09 but it has improved slightly in the years 2009-10 and 2010-11. The highest and lowest values are 0.61 (2006-07) and 0.17 (2008-09) respectively.

GRAPH - 13 Graph showing Working Capital turnover ratios of Sobha Developers Ltd.

WORKING CAPITAL TURNOVER RATIOS


0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2006-07 2007-08 2008-09 2009-10 2010-11
0.61

0.31

(YEARS)

Inference: Lower working capital ratio indicates excess of working capital which can be seen in this company during the period of 2007-10 as depicted by the above graph. The company is not utilizing its working capital to generate sales because of the nature of business where huge amount of capital remains invested in the current assets, mainly inventories. However the company is improving the working capital turnover ratio in the recent years.

0.17

0.22

0.3

TABLE-14 Table showing Capital turnover ratios of Sobha Developers Ltd from the year 2006-07 to 2010-11. Capital turnover ratio = Cost of sales Capital employed

(In millions)

Year 2006-07 2007-08 2008-09 2009-10 2010-11

Cost of sales Capital employed Capital turnover ratio 7054.21 7724.56 4503.70 6536.65 8632.21 13992.20 27513.94 30016.71 32069.43 31250.22 0.50 0.28 0.15 0.20 0.28

Analysis: The above table points out that Sobha Developers Ltd has highest capital turnover ratio in the year 2006-07 at 0.50 times and lowest in the year 2008-09 at 0.15 times. The cost of sales has fluctuated but the capital employed has increased and then decreased in the last year, i.e. 2010-11.

GRAPH -14 Graph showing Capital turnover ratios of Sobha Developers Ltd.

CAPTITAL TURNOVER RATIOS


0.5 0.45 0.4 0.35 0.3 0.25 0.2
0.28 0.5

0.15 0.1 0.05 0 2006-07

2007-08

2008-09

0.15

2009-10

0.2

2010-11

(YEARS)

Inference: Capital turnover ratio of Sobha Developers Ltd has shown improvements in the last two years but the progress needs to be continued in order to make effective utilization of the capital employed. Though the company has enough capital, the corresponding sales seem to be a little less. However the company is improving its sales on the aftermath of the global recession of 2008-09.

0.28

TABLE-15 Table showing Gross profit ratios of Sobha Developers Ltd from the year 2006-07 to 2010-11. Gross profit ratio = Gross profit Net sales x 100

(In millions)

Year 2006-07 2007-08 2008-09 2009-10 2010-11

Gross profit 4838 6621 5243 4644 5953

Net sales Gross profit ratio 11865 14226 9679 11072 14484 40.78 46.54 50.17 41.94 41.10

Analysis: From the above table we can observe that the gross profit of Sobha Developers Ltd has been in between 40%-50% for most of the fiscal years. The highest has been recorded in 2008-09 at 50.17% and lowest in 2006-07 at 40.68%.

GRAPH - 15 Graph showing Gross profit ratios of Sobha Developers Ltd.

GROSS PROFIT RATIOS


60 50 40

46.54

50.17

30
40.78

41.94

20 10 0

2006-07

2007-08

2008-09

2009-10

2010-11

(YEARS)

Inference: The graph shows that gross profit has increased and then decreased but it has not gone below 40% any year. However the company needs to be careful in its sales and direct expenses so that the gross profit need not dip below 40%. But the ratio is really satisfactory.

41.1

TABLE-16 Table showing Net profit ratios of Sobha Developers Ltd from the year 2006-07 to 2010-11. Net profit ratio = Net profit Net sales x 100

(In millions)

Year 2006-07 2007-08 2008-09 2009-10 2010-11

Net profit 1615 2283 1097 1367 1825

Net Sales 11865 14226 9679 11072 14484

Net profit ratio 13.61 16.05 11.33 12.35 12.60

Analysis: Sobha Developers Ltd has been successful to make a satisfactory sum of net profit every year, though the net profit ratio has first increased and then decreased during the past 5 years. From the above table we can observe that net profit ratio was highest in 2007-08 at 16.05% and lowest in 2008-09 at 11.33%.

GRAPH - 16 Graph showing Net profit ratios of Sobha Developers Ltd.

NET PROFIT RATIOS


18 16 14 12 10
13.61 16.05

8 6 4 2 0

12.35

2006-07

2007-08

2008-09

11.33

2009-10

2010-11

(YEARS)

Inference: The net profit remains almost same every year with slight variation which means the company is very much careful in generating profits and it can be inferred that the management is clear about its objectives. The company is improving its net profit ratio despite tough competition and the ratio is improving after the global recession. The company has really performed well even in the years of recession.

12.6

TABLE-17 Table showing Return on Investment (ROI) of Sobha Developers Ltd from the year 2006-07 to 2010-11. Return on Investment = Earnings before interest & taxes (EBIT) Total capital employed x 100

(In millions)

Year 2006-07 2007-08 2008-09 2009-10 2010-11

EBIT 2352 3324 2507 2102 2865

Capital employed 13992.20 27513.94 30016.71 32069.43 31250.22

ROI 16.81 12.08 8.35 6.55 9.17

Analysis: As observed from the above table, the return on investment has continuously shown a fall during the period of 2006-09 and then a slight rise in the previous year, i.e. 2010-11. The highest ROI is praiseworthy which stood at 16.81% in the year 2006-07 where as the lowest is recorded in 2009-10 at 6.55%. The overall efficiency of the company is not up to the mark but it is due to the recessionary trends of 2008-09 and we can also see that the company has improved after that period which is really positive.

GRAPH - 17 Graph showing Return on Investment of Sobha Developers Ltd.

RETURN ON INVESTMENT
18 16 14 12
16.81

10 8 6 4 2 0

12.08

8.35

2006-07

2007-08

2008-09

2009-10

6.55

2010-11

(YEARS)

Inference: The graph shows the fall of ROI from 2006-10 of Sobha Developers Ltd and then a slight rise in the year 2010-11. The companys performance in terms of profitability has gone down due to the recessionary trends in the economy but still there is sign of improvement in the last year which is really remarkable.

9.17

TABLE-18 Table showing Return on Proprietors Equity (ROE) of Sobha Developers Ltd from the year 2006-07 to 2010-11. Return on Equity = Net profit after interest & taxes (NPAT) Shareholders fund x 100

(In millions)

YEAR 2005-06 2006-07 2007-08 2008-09 2010-11

NPAT 1615 2283 1097 1367 1825

Shareholders fund 8155.43 9883.44 10894.93 17329.08 18831.85

ROE 19.80 23.10 10.07 7.89 9.69

Analysis: As observed from the above table, the return on equity of Sobha Developers Ltd shows a fluctuating picture in the last 5 years, highest being in the year 2006-07 at 23.10% and lowest in 2008-09 at 7.87%. Though shareholders fund has increased on year-to-year basis but NPAT has been fluctuating.

GRAPH - 18 Graph showing Return on Proprietors Equity of Sobha Developers Ltd.

RETURN ON PROPRIETRS EQUITY


25

20

15
19.8 23.1

10

10.07

0 2006-07 2007-08 2008-09 2009-10 2010-11

(YEARS)

Inference: The above graph shows that the company has been able to maintain its ROE every year inspite of the global recession of 2008-09. ROE has decreased suddenly in the year 2008-09 and again the company is trying to increase its ROE in 2010-11. This shows that the companys NPAT has gone down and consequently the ROE but still the company has improved on the aftermath of economic downturn.

7.89

9.69

TABLE-19 Table showing Earnings per Share of Sobha Developers Ltd from the year 2006-07 to 2010-11. Earnings per Share (EPS) = NPAT Preference Dividend No. of Equity shares

(In millions)

Year 2006-07 2007-08 2008-09 2009-10 2010-11

NPAT 1615 2283 1097 1367 1825

Preference No. of Equity shares Dividend (Rs. 10 each fully paid) Nil Nil Nil Nil Nil 72901733 72901733 72901733 98063868 98063868

EPS (in Rs) 24.26 31.32 15.04 14.91 18.61

Analysis: The above table reflects fluctuating NPAT and accordingly Earning per share has also decreased and then increased in the last 5 years. The highest EPS was observed in 2007-08 at Rs. 31.32 and the lowest in 2009-10 at Rs. 14.91. The last year, i.e. 2010-11 has shown slight improvement in EPS. Despite of increase in no. of equity shares, the company has maintained its EPS intact.

GRAPH- 19 Graph showing Earnings per share of Sobha Developers Ltd.

EARNINGS PER SHARE


35 30 25 20 15 10 5 0 2006-07 2007-08 2008-09 2009-10 2010-11
31.32

24.26

15.04

(YEARS)

Inference: As depicted by the above graph, though the EPS of Sobha Developers Ltd has been satisfactory but it has been in fluctuating mode. The company has been able to maintain its EPS through-out the last 5 years even though the whole world economy moved through the fires of recession.

14.91

18.61

Chapter V

SUMMARY OF FINDINGS AND CONCLUSIONS

SUMMARY OF FINDINGS: i. The current ratio of Sobha Developers Ltd has always been above the standard level, the highest being 5.58 in 2009-10 and lowest at 3.04 in 2006-07. ii. The liquid ratio is almost 3-4 times higher than the standard ratio and the highest ratio was in 2008-09 and lowest in 2006-07. iii. The absolute liquid ratio shows fluctuation and the highest ratio was in 2009-10, i.e. 0.13 and lowest in 2007-08, i.e. 0.02. iv. The company has fluctuating debt-equity ratio from the year 2006-07 to 2010-11 and highest being in 2008-09, i.e. 1.72 and lowest in 2010-11, i.e. 0.66. v. The proprietors ratio of Sobha Developers Ltd is steadily increasing except 2007-08, where it has decreased to 0.30 (lowest) from the previous years 0.41 and the highest has been in 2010-11 when the ratio reached 0.48. vi. The year 2010-11 shows the highest Interest coverage ratio of 6.68 times which reaches the satisfactory level of 6 times but the lowest in 2008-09 at 2.38 times which do not show a good picture of the company. vii. Both the total debts and total funds of the Sobha Developers Ltd have been increasing in the past 5 years and the debt to total funds ratio was highest in 2007-08 at 0.70 where as lowest in 2010-11 at 0.52.

viii.

The highest value of capital gearing ratio stood at 0.28 in the year 2006-07 where as the lowest value was 0.039 in the last year, i.e. 2010-11. The ratio has also shown a constant reduction on a year-to-year basis in the last four years from 2007-08 to 2010-11.

ix.

The inventory turnover ratio has been decreasing through the initial four years from the highest value of 2.18 in 2006-07 to the minimum value of 0.59 in the year 2009-10and then it shows a slight increase in the last year, i.e. 2010-11.

x.

The debtors turnover ratio has a fluctuating behavior and the highest was in the year 2006-07 having 9.96times where as the lowest at 2.15times in the year 2008-09.

xi.

The highest average collection period was 161.77days in 2008-09 while the lowest was 36.65days in 2006-07.

xii.

Fluctuating fixed assets turnover ratio was observed in the last five years. The lowest stood at 2 times in the year 2008-09 and highest at 4.23 times in 2010-11.

xiii.

The working capital turnover ratio has continuously decreased from 200607 to 2008-09 but it has improved slightly in the years 2009-10 and 201011. The highest and lowest values are 0.61 (2006-07) and 0.17 (2008-09) respectively.

xiv.

The company has highest capital turnover ratio in the year 2006-07 at 0.50 times and lowest in the year 2008-09 at 0.15 times.

xv.

The highest gross profit ratio has been recorded in 2008-09 at 54.17% and lowest in 2006-07 at 40.68%.

xvi.

Sobha Developers Ltd has been successful to make a satisfactory sum of net profit every year and the net profit ratio was highest in 2007-08 at 16.05% and lowest in 2008-09 at 11.33%.

xvii.

The highest ROI was attained at 16.81% in the year 2006-07 where as the lowest was recorded in 2009-10 at 6.55%.

xviii.

The return on equity of Sobhadevelopers ltd has shown a fluctuating picture in the last 5 years, highest being in the year 2006-07 at 23.10% and lowest in 2008-09 at 7.87%.

xix.

The highest EPS was observed in 2007-08 at Rs. 31.32 and the lowest in 2009-10 at Rs. 14.91. The last year, i.e. 2010-11 has shown slight improvement in EPS.

CONCLUSION: Sobha Developers Ltd is one of the major players in real estate business in India. The company has been performing smoothly since its inception. Sobha Developers Ltd is known for its world-class technology and quality in the real estate sector. Sobha is an organization where quality meets excellence, technology meets aesthetics and passion meets perfection. The companys financial performance on year-to-year basis has been satisfactory in spite of

global economic downturn in the recent years. The company has continuously increased its owners equity fund and decreased its fixed interest bearing securities such as debentures, preference shares etc. On the basis of ratios calculated, we can say that the current ratios of the company are above standard values which reflect that the short-term solvency is healthy. The company is having better performance in meeting current obligations. The long-term solvency is also good because the company relies more on owners equity than on outsiders fund. The company is having better position in meeting its interest charges through its earnings. However, Sobha Developers Ltd is not up to the standard values in its turnover ratios and the performance is below the standard level. Inventory and debtors turnover ratios are problematic but this condition is due to the nature of real estate business where it takes more time to convert the inventory into final products and then sales. Capital turnover ratio is in good position. The profitability ratios have shown fluctuations through-out the last 5 years. The company has consistently maintained its profitability in better position despite of variations in external environmental factors like recession and inflation. Though the company is facing severe competition, the management has improved its position in terms of sales. Sobha Developers Ltd has provided better EPS to its shareholders in the last 5 year even though the whole economy struggled with the effects of global economic recession.

Chapter VI
RECCOMENDATIONS AND SUGGESTIONS

RECOMMENDATIONS AND SUGGESTIONS: Sobha Developers Ltd, being a real estate company, has its own mode of operation and management. Sobha Developers Ltd is one of the major players in the real estate industry in India and the only company with backward integration concept, whereby the company uses some of the materials manufactured by its own sub-divisions. On an overall note, the company is performing satisfactorily since its inception but as per my findings and analysis, there exists some areas where improvement can add more life to the current financial position of the company. The major recommendations and suggestions are listed herein: i. Being a real estate company, the amount of current assets and liabilities need to be more due to the requirements and thats why the short-term solvency is really very good and above the standard level. So, I feel the company should try to find the spots where it can reduce its net current assets in order to avoid the unnecessary blockage of capital for a long period of time. ii. Due to increasing shareholders fund and decreasing debts, the company is having good long-term solvency position. But I think, an ideal situation is such when the company makes optimum use of both debts and capital so that the company can decrease tax liability and burden of interest and also take advantage of trading on equity. Relying solely on debts or own capital only is no-way a good decision. So I suggest company to apply both of the

funds, i.e. external and internal in a better way to further improve its position. iii. The interest coverage ratio is a bit weak but the companys decision to reduce the debts during recessionary periods is commendable. However the company needs to increase its EBIT to improve its capacity to handle burden of interest. iv. The values of sales and cost of sales have been seeing ups and downs in the last 5 years, which shows inconsistent performance. Such condition might be due to the global economic recession of 2008 and 2009, but still the company needs to take care of it. A consistent figure always leaves better sense of security among the current and potential investors. v. The fixed assets, debtors and inventory turnover conditions are a bit below the standard level as per my findings and suggestions. Such lower ratio is actually due to the nature of real estate business. The company needs to improvise its operations to make use of these assets to carry out more and more sales. vi. The capital turnover, either working capital or capital, is in improving condition. The company should ensure that similar situation exists in future to make more sales by using its capitals. vii. Sobha Developers Ltd has become able to maintain a satisfactory profitability position despite the economic downturn which left fluctuating behavior. I feel the company should move slowly as it has done in the past

to avoid rapid rise or sudden fall in its profit positions. The company should go with a target to ensure optimum amount of gross and net profits. viii. The return on proprietors equity refers to the earning available to the shareholders of the company, which has been fluctuating. Though the shareholders fund has shown constant increase, the NPAT has been inconsistent. On individual year basis, Sobha Developers Ltd is having satisfactory position but for the overall period, the ROE is not up to the mark. Thus the company must ensure better use of the existing owners equity to increase its net income. The same suggestion can also be made valid for the ROI, which has been going through ups and downs. Improving ROE and ROI will help the company get new investors. ix. The EPS of Sobha Developers Ltd has been fluctuating as a result of fluctuating NPAT after preference dividends. Since the company is having no preference share capital, the company need not worry about the preference dividend. However the fluctuating EPS might create doubt among the equity shareholders, so the company needs to exhibit stable earnings per share on a year-to-year basis. This can be directly reflected through the companys performance in terms of earning and will also enhance the market capitalization in share market.

BIBLIOGRAPHY:
1. Text books and manuals: i. Management accounting, M.N. Arora ii. Cost and financial analysis, Narendra singh iii. Annual report of Sobha Developers Ltd of 2006, 2007, 2008, 2009 and 2010. 2. Websites: i. ii. iii. iv. v. vi. vii. viii. ix. x. www.sobhadevelopers.com www.investopedia.com www.cci.in www.assocham.org www.economywatch.com en.wikipedia.org www.duke.edu www.investorwords.com http://highered.mcgraw-hill.com http://realestate.about.com http://www.nos.org

xi.