Annual report - Sobha Developers - 2008-2009

SHOBHA DEVELOPERS LIMITED

ANNUAL REPORT 2008-2009

DIRECTOR'S REPORT

To
The Members,

The Directors have pleasure in presenting the Thirteenth Annual Report on
the business and operations of the Company together with the Audited
Accounts for the financial year ended March 31, 2009.

Financial Highlights (Rs. in Million)

Particulars 2008-09 2007-08

Net sales and other income 9,917.05 14,362.77

Profit before interest, depreciation 2,867.70 3,674.11
and tax

Finance charges 1,052.14 614.92

Depreciation 360.33 350.40

Profit before tax 1,455.23 2,708.79

Provision for tax-current 374.00 453.00

- fringe benefit 4.00 5.50

- deferred (20.00) (33.02)

Wealth tax 0.45 0.30

Net profit after tax 1,096.78 2,283.01

Add: Balance of profit brought 2,418.74 1,249.73
forward

Profit available for appropriation 3,515.52 3,532.74

Appropriations -

Proposed dividend 85.29 555.00
(Includes tax on dividend)

Transfer to General Reserve - 250.00

Transfer to Debenture Redemption 171.00 309.00

Reserve

Balance carried to Balance Sheet 3,259.23 2,418.74

Result of operations

The Financial year 2008-09 has been challenging due to sudden changes in
the global and Indian economy resulting in kind of economic downturn where
sales decreased along with pressureon the profit margins.

The Company's total income has decreased from Rs. 14,362.77 million to
Rs.9,917.05 million, a decrease of 30.95 0/o over the last financial year.
The profit after tax has come down from Rs 2,283.01 million to Rs.1,096.78
million resulting in a decrease of 51.95 0/o.

The decrease in profit has been accentuated by lesser sales coupled with
increase in financing costand reduction in the profit margins.

Dividend

Your Directors have recommended dividend of Re.1 for every equity share of
Rs. 10 each resulting in a dividend rate of 100/o for the financial year
2008-09.

Business

The Company's main operations consist of:

1. Development and construction of residential and commercial projects.

2. Contractual projects

The summary of the projects completed and ongoing as on March 31, 2009 has
been detailed in the Management Discussion Analysis Report.

Subsidiaries

There are no subsidiaries of the Company within the meaning of Section 4 of
the Companies Act, 1956 except investments as detailed in the financial
statements forming part of the Annual Report.

Investments

During the year under review, the Company along with Pan Atlantic
Investments Limited has invested in the development of the 1000/0 FDI
compliant project in Hosahalli, Bangalore through a Special Purpose Vehicle
company, Sobha Developers (Pune) Private Limited. The Company holds 190/0
of the equity share capital in Sobha Developers (Pune) Private Limited.

Human resources

During the year, the Company has rationalized the workforce consequent to
the downturn in the economy. However the Company continues to develop and
retain the best available talent. Training and motivational programs are
being continuously imparted to all the employees working throughout the
organization. TheCompany strives to implement the best HR practices so as
to ensure that talent retention is ensured atall levels.

Employee relations continued to be cordial and harmonious at all levelsand
in all divisionsoftheCompany.

Quality

The Department of Quality and Safety holds the responsibility to monitor
all quality and safety works in the various projects of the Company and to
introduce latest construction technology so as to enable the delivery of
the Company's projects at par with relevant specifications, norms and
standards.

The department focuses on construction qualityand safetyaspects,
infrastructure execution, on civil maintenance works, on geotechnical
aspects, drawing detail development and on importing/implementing new tools
and material for process upgradation.

Corporate governance

Your Company believes in adhering to the highest standards of Corporate
Governance and has been benchmarking its policies with the best corporate
practices. A detailed report on Corporate Governance and a Certificate from
the Practicing Company Secretary regarding compliance with conditions of
Corporate Governance has been furnished in theAnnual Report.

Directors

There are six directors on the Board of Directors of the Company.

During the year under review, Mr. N.S. Raghavan and Mrs. Sobha Menon have
resigned from the Board of Directors effective from January 31, 2009.

The Directors place on record their sincere appreciation to Mr. N.S.
Raghavan and Mrs. Sobha Menon for their valuable services and contribution
rendered to the Company.

By the terms of Articles 107, 108 and 109 of the Articles of Association,
Mr. Anup Shah and Dr. S.K. Gupta, Independent Directors, are liable to
retire by rotation at the ensuing Annual General Meeting and being
eligible, offer themselves for reappointment.

Brief resumes of the Directors proposed to be re-appointed, their expertise
in specific functional areas and names of the companies in which they hold
directorship/membership/chairmanship of the Board Committees, as stipulated
under clause 49 of the listing Agreement with the Stock Exchanges have been
provided as an annexure to the Notice convening theAnnual General Meeting.

Reclassification of share capital

During the year under review, the authorized share capital of the Company
was reclassified to 150,000,000 (one hundred and fifty million only) Equity
Shares of Rs. 10/- (Rupees ten each) and 5,000,000 (Five million only)
Preference Shares of Rs. 100/-(Rupees one hundred each).aggregating to
Rs.2,000,000,000/- (Rupees two thousand million only). The approval of the
members was obtained in the extraordinary general meeting of the Company
held on September 22, 2008.

Rights issue

The Board of Directors at its meeting held on August 19, 2008, had resolved
to augment the long term resources of the Company by way of a rights issue.
The approval of the members was obtained vide a special resolution passed
in the extraordinary general meeting held on September 22, 2008.

The Company received an amount of Rs. 475 million from the promoters of the
Company as an advance towards share subscription.

However, due to adverse market conditions, the Company had not proceeded
with the same.

The Company had obtained approval from the Reserve Bank of India for
extension of time for repatriation of the said money till September 30,
2009.

Debentures and commercial paper

During the year under review, the Company has issued Redeemable Non
Convertible Debentures amounting to Rs. 1,950 million and redeemed
Redeemable Non Convertible Debentures amounting to Rs. 2,819.90 million.
The Company has not issued any Commercial Paper during the financial year.
The Company has during the year under report extinguished Commercial Paper
amounting to Rs. 2,000 million.

Fixed deposits

During the year under review, your company has not accepted or renewed
anyfixed Deposit from the public.

Auditors

The Auditors, M/s S.R.Batliboi &Associates, Chartered Accountants, retire
at the ensuing Annual General Meeting and have confirmed their
eligibilityand willingness to accept office, if reappointed.

The Auditors have made certain observations in their report and the Board
would like to bring your attention as follows:

1.Paragraph 4 of the Auditors Report:

The Company had obtained approvals from the members in the extraordinary
general meeting held on September 22, 2008. The promoters had brought in
Rs. 475 million as advance share subscription amount. The Company has not
proceeded with the Rights Issue due to the adverse market conditions, and
intends to repay the amount so received from the promoters within the
extended time allowed bythe Reserve Bankof India.

2. Paragraph 5 of the Auditors Report:

The Company based on legal opinion from a reputed law firm had entered into
certain transaction. How ever Registrar of Companies has directed that the
prior permission of Central Government was required a/s 297 of the
Companies Act, 1956. The Company proposes to seek for condonation of delay
a/s 621 A of the Companies Act, 1956. These transactions have been done on
arms length basis in the normal course of business. The Directors feel the
above transaction were not prejudicial to the interest of the Company.

3. Clause iii(a) and iii(b) of the Annexure referred to in Paragraph 3 of
the Audit Report:

The transactions in the nature of loans referred above were undertaken by
the Companywhen the status of the Companywas a Private Company. These
transactions were done within the framework of applicable laws and in the
normal course of business. These transactions are not prejudicial to the
interests of the Company. The Company has been making adequate disclosures
for these transactions at appropriate places.

4. Clause iv of the Annexure referred to in Paragraph 3 of the Audit
Report:

The Company is in process of implementing a new ERP Suite which commenced
during the year 2008 which covers the entire operations of the Company
spread over 10 cities involving projects under implementation aggregating
to more than 15 million sft., of construction. The Board of Directors are
confident of solving the integration issues and through this process
ensuring a proper internal control system commensurating with the size and
operations of the business will beachieved.

5. Clause ix (a) and (b) of the Annexure referred to in Paragraph 3 of
theAudit Report:

Due to the general downturn in the economy, the Company had to appropriate
the available cash flows to the ongoing projects of the Company resulting
in delays in the payment of certain statutory dues during thefinancialyear.

6. Clause xi of the Annexure referred to in Paragraph 3 of the Audit
Report:

Due to a slowdown in the market in which your Company is operating the
Company had requested its lenders to reschedule or roll over its near term
obligations. The Company had made these requests much before the due dates
of repayment and in accordance with the applicable monetary policies
initiated by the Reserve Bank of India. These rollover has been consented
by the lenders.

Corporate social responsibilityand community service

Your Company is a responsible corporate citizen and is committed to
corporate social responsibility. A separate section titled 'Corporate
Social Responsibility Statement' forms the part of the Annual Report.

Awards

Your Directors are glad to report the awards received during the financial
year 2008-09 bythe Company:

i. Builders Association of India, Pune Centre has awarded the 'Best of the
Best' Award for the Employee Care Centre (ECC), Infosys Technologies
Limited, Hinjewadi, Pune under the Well Built Structure Competition, 2008.

ii. Construction World recognized the Company as one of India's 'Top 10
Builders' at the Construction World Architect 8r Builder Awards, 2008 in
Mumbai.

iii. Mr P.N.C. Menon, Chairman, received the 'Pravasi Bharatiya Samman
Puraskar' from the Government of India.

ISO 14001 and OHSAS 18001

During the year, the Company was certified Environmental Management System
ISO 14001:2004 and Occupational Health and Safety Assessment Series OHSAS
18001:2007 compliant by Bureau Veritas Certification India Private Limited.

Code of conduct compliance

Pursuant to Clause 49 of the Listing Agreement entered with the Bombay
Stock Exchange Limited and the National Stock Exchange of India Limited,
the declaration signed by the Managing Director affirming compliance with
the Code of Conduct the by Director's and senior management personnel, for
the financial year 2008-09 is annexed and forms part of the Directors and
Corporate Governance Report.

Disclosure of employees

As required under Section 217(2A) of the CompaniesAct, 1956 read with the
Companies (Particulars of Employees) Rules, 1975 as amended, the names and
other details have been furnished in an Annexure to this Report.

Conservation of energy, research and development, technology absorption,
foreign exchange earnings and outgo:

By the terms of Section 217 (1) (e) of the CompaniesAct, 1956 read with the
Companies (Disclosure of Particulars in the Report of Board of Directors)
Rules, 1988, the particulars of conservation of energy, technology
absorption, foreign exchange earnings and outgo are
setoutasanAnnexuretothis Report.

Additional information to shareholders

Your Company provides the latest information on Company projects, matters
of interest to investors, financials etc on its
websitewww.sobhadevelopers.com

Cautionary statement

Statements made in the Report, including those stated under the caption
'Management Discussion and Analysis' describing the Company's plans,
projections and expectations may constitute 'forward looking statement'
within the meaning of applicable laws and regulations. Actual results may
differ materially from those either expressed or implied.

Acknowledgments

Your Directors would like to place on record their sincere thanks to the
Company's clients, vendors, investors and bankers for their continued
support to the Company during the year. The Directors wish to place on
record their appreciation of the contributions made by employees at all
levels.

We thank the government of India, state governments and other government
agencies for their support and look forward to their continued support in
future.

For and on behalf of the Board of Directors

Ravi Menon J.C. Sharma
Vice Chairman Managing Director

Place: Bengaluru
Date : May 18, 2009

Annexure to directors report

i. Conservation of energy

(a) Energy conservation measures taken

1. Energy efficient lighting system in place e.g. CFL/FTL fittings are
being used in all offices/sites.

2. Energy efficient lighting system is designed for the residential
projects.

3. Parallel operations of lifts is being carried out to achieve energy
conservation.

4. VFD's/ VAV and variable load chillers are selected for the new office
building.

5. Green energy (Solar energy) utilization for lighting common areas in the
residential projects.

6. Effective preventive and predictive maintenance system is in place for
maintaining all energy intensive equipments i.e. DG Sets for energy
generation, cranes, hoists, loaders, excavators, trucks and other transport
vehicles.

7. Fuel metering system is in place to track the consumption of fuel.

8. Designing buildings which use the natural light as the main source of
lighting.

(b) Additional investmentsand proposals, if any, being implemented for
reduction in consumption of energy

The Company thrives to construct energy efficient structures which use
natural lighting in their residential and contractual projects.

(c) Impact of measures at (a) and (b) above for reduction of energy
consumption and consequent impact on the cost of production of goods

As the Company is primarily engaged in the construction and development of
residential and contractual projects, the impact of the measures at (a) and
(b) above for reduction of energy consumption cannot be quantified.

Total energy consumption and energy consumption per unit of production:

2008-09 2007-08

Electricity

1. Purchased (Units in million) 13.34 11.68

Total Amount (Rs. in million) 70.61 61.82

Rate/Unit (Rs.) 5.29 5.29

2. Own Generation through Diesel 1.05 0.56
Genset (Units in million)

Total Amount (Rs. in million) 14.62 7.83

Rate/Unit (Rs.) 13.92 13.98

ii. Technology absorption

The Company uses German tools, water proofing techniques, European
standards for the construction activity of the Company. The Company uses
both indigenous and imported technologies for implementation in its
projects. The Company has derived the benefits in the form of cost
reduction, lesser customer complaints and increased quality of the end
products. Import of technology from the European countries is a continuous
feature and has been fullyabsorbed.

iii. Research and development (R & D)

Areas in which R&D has been carried out bythe company

1. Use of Pre fabrication to increase reliability.

2. The organization of the work with the help of scheduling, structuring of
workforce in tandem with job description and closing time gaps to ensure
efficiency.

3. More in depth planning of construction activities/ procedures which in
turn result in stable levels of quality.

4. Standardization of building element and parts introducing rules and
regulations based on national 8r international standards and internal
classifications.

5. Self compacting concretetrials and RMC research.

6. Advanced cracktreatment using glassfiber mesh.

7. Polyurethane grouting forstructural rehabilitation.

8. Piling technology (Design parametersand execution).

9. Dynamic cone penetrometer soil compaction test.

10. PCM (Project Closure and Maintenance) software development.

11. Safety statistics, accident tracking system and categorization as per
statutory requirements.

Benefits derived as a result of theabove R&D

The benefits derived from the above ensure that the final product delivered
bythe Company adheres to the world class standards.

Future plan of action

The success of R & D initiatives in the construction industry depends very
much on selecting the right method of construction, type of machines and
kind of materials. It also depends on integrating the planning and training
process within the Company and is understood asan ongoing process.

Expenditure on R&D

The R & D activity of the Company forms part of the project cost and cannot
be quantified separately.

iv. Foreign exchange earningsand outgo

(a) Activities relating to export; initiatives taken to increase exports;
development of new export markets for products an services; and export
plans:

The Company caters to the domestic market only and has not undertaken any
activities relating to export; initiatives to increase exports; development
of new export markets for products, services or formulated any export plans

(b) Total foreign exchange used and earned.

Total expenditure in foreign exchange : Rs. 3.40 million

Total income in foreign exchange : Nil

Forand on behalf of the Board of Directors

Ravi Menon J.C. Sharma
Vice Chairman Managing Director

Place: Bengaluru
Date : May 18, 2009

Management Discussion and Analysis

A. Economic scenario

a. Global economy

The world has witnessed the worst ever recession during the year, perhaps
worse than the Great Depression of the 30's. It has been reported that in
the past five quarters alone 40 percent of the world's wealth has been
eroded. According to the Asian Development Bank, the current economic
crisis has erased USD 50 trillion in global wealth. Age old banks and
financial institutions could not be saved despite mammoth efforts. The fall
of the U.S. banking sector, which is reported to have lost USD 1.8 trillion
sent shivers down the entire global banking system. Net shortfall after
receiving the original federal bailout funds was still a staggering USD 400
million. The economic deceleration has compelled employers to slash
salaries as well as resort to widespread retrenchment across industries,
shaking the financial security and soundness of families and thereby their
confidence. Fiscal deficit of countries has deepened without exception.
Some economists feel that the worst is not yet over and the slowdown is
likely to take a further toll on world economies while some are positive
that a revival is not too far away. Governments of various countries have
come out with maximum stimulus packages to cushion the impact of recession
and absorb some of the losses. The burning issue is also being addressed
collectively through forums like G-20 and IMF.

b. Indian economy

India has been no exception from the adverse effects of the global economic
recession. The major fallout of the recession in the developed countries
has been its impact on the inflow of capital to emerging nations including
India, which started drying up and resulting in net outflow of capital.
Industries and services sectors were denied the required funding for not
only growth but even for their day-to-day operations. Industrial growth
declined sharply and so did foreign trade. The worst hit industries have
been real estate and construction, IT/ITES sectors, traditional exports of
diamonds, textiles etc. However, Indian banking sector due to the
conservative and pragmatic policies of the government of India and the RBI
has not been so affected by recession as its counterparts in the developed
countries. Positive and timely measures initiated by the government and RBI
have resulted in controlling inflation well above expectations.
Availability of funds to the cash-strapped sectors has improved with a
complimentary decline in interest rates. Installation of a stable
government at the center and the continuity of reforms are expected to
certainly help the country to face the situation more effectively. It is
widely expected that India is in a much better position than many other
economies to achieve an early and fast recovery. The international Monetary
Fund has recently opined that 'the Indian economy, facing slowdown amid
global financial slowdown in expected to rebound by end of 2009'.

c. Real estate -global

The sub-prime crisis which surfaced in the US early on is considered the
forerunner of the economic recession in that country. It soon engulfed the
entire global economy. The real estate sector, thus, was the first casualty
in the global meltdown. Defaults in payments coupled with a sharp fall in
property prices resulted in the crash of the markets. Funding bythe banking
system into the sector dried up totally. Demand has fallen considerably,
and construction activity has come to a standstill in many countries which
consequently eroded customer sentiment deeply. It is widely believed that
the recovery of global real estate sector will take longer to recover than
the global economy.

d. Real estate- India

Indian real estate industry had experienced phenomenal growth just before
the global meltdown hit it during the last year. Industry majors had highly
leveraged their positions to acquire land banks for expansion of their
operations. The recession blocked the inflow of funds so critical for
expansion. This was exacerbated by the slowdown of the market where buyers
who were lapping up whatever was on offer in the boom time suddenly became
waryand sceptical and started avoiding the market. It is important to note
that the slowdown in Indian real estate has more to do with the sentiment
in tune with the international scene than with fundamentals. India is
significantly different from other countries of the world. Genuine demand
exists for good quality homes. The government has also been sympathetic to
the industry with various stimuli being offered.

Considering the present economic condition, buyers are deferring their
decision to acquire property and are more likely to invest once economy
recovers and buyer confidence is restored. Judging from the pronouncements
made by the government from time to time, we can expect more positive and
concrete fiscal steps which will result in providing the required support
to this sector for an early recovery.

e. Future outlook

The country is currently excited with the prospect of a stable and
aggressively pro-reforms government at the centre. Combating economic
downturn and restoration of economic growth are going to be the top
priorities for the new government. Inflation, which has been controlled
effectively, is expected to be held in check. Interest rates have started
its movement southwards and buyers will be attracted to borrow at cheaper
rates of interest. In the long term, supplywill be moderated to be in line
with the demand and the gap currently existing on account of unsold stocks
is likelyto be bridged. New project launches with innovative products and
aggressive marketing will be the new strategy for this sector. Success will
depend on the ability of the enterprise to convert its land bank to
projects in theshortestpossibletimespan.

B. Company general business profile, strengths and strategy initiatives,
future outlookand new business opportunities

The Company has achieved in a short span of time the enviable status of
being one of the leading real estate players in India. It is engaged in
residential and commercial construction apart from undertaking contracts
from major clients, especially from the IT sector. Residential projects
include luxury and super luxury residential apartments, villas and row
houses. Standard facilities such as a well-equipped club house, swimming
pool, gymnasium, game courts and recreation centre are provided in all
projects. The projects are spread out in various localities catering to
different client profiles. In 2007 it had made its move towards a pan-India
presence. The Company is currently undertaking projects in Karnataka,
Kerala, Tamil Nadu, Andhra Pradesh, Maharashtra, Orissa, Haryana,
Chandigarh and Himachal Pradesh and have plans to enter other states as
well.

In the present economic scenario, the Company has been able to hold its
head high due to its pre-eminent strengths in quality construction, project
execution capabilities, transparentand honest dealings, aggressive
marketing strategy and above all a strong customer-centric approach.
Customer delight has been the Company's 'Mantra', with a dedicated team of
professionals serving the customers' interests from the time the sale is
made until after delivery and the conclusion of the mandatory post-delivery
warranty period of one year. Cost optimization is a continuous affair in
order to pass on the benefits to the customer and value engineering plays a
major role towards meaningful cost reduction. Innovation is given the
highest priority as also is the implementation of time-tested and well-
documented processes and best proven practices. The economic slowdown has
not diluted the efforts in this direction and has in fact reinforced the
resolve to be more productive and effective in continuing to offer the
discerning customera high value-for-money product.

While the entire real estate industry has been starved of adequate funding
for their operations, the Company has managed to restructure its short term
debts into long term ones. Efforts are also on to reduce debt by raising
equity so as to improve the gearing. The operating cash flow continues to
be positive.

The slowdown had impacted the pace of some of the real estate projects
initially. Subsequently however, the project progress has picked up
momentum with more than 9 million Sft. under construction in various
stages. This will ensure continuous stream of inflows fortheCompany.

Corporate houses like Infosys, Hewlett Packard, Dell, Contel, Taj Group of
Hotels, HCL, BOSCH etc. are some of the names that have been engaging the
Company's services to build their commercial complexes. The Company has
made record delivery of twenty six contractual projects during the year
aggregating to 5.91 million Sft. When the turnover from real estate has
come down due to the economic slowdown, the contractual income has come to
the rescue of the Company. This stream continues to provide the prospect of
a steady income flow in the years to come.

The Company's business model is very robust and pragmatic. Inhouse facility
is available for all major construction activity. Stringent quality norms
are being followed at every stage of construction activity starting with
designs. The Company is perhaps the only fully backward-integrated real
estate company with inhouse facilities for architectural, structural,
infrastructure, electrical, mechanical, plumbing and environmental design,
supply of woodwork, glazing and metal works and concrete products such as
blocks and pavers. Its manufacturing facilities are spread over 600,000
Sft. and have the most modern plant and equipment to provide high quality
inputs required in construction. These manufacturing units have, apart from
ensuring quality supply of inputs for captive consumption, branched out to
obtain significant shares from outside jobs. While the focus remains on the
core business of real estate development and construction, the company has
successfully diversified into interior business and manufacturing and
marketing of spring mattresses under the brand name of 'Sobha Restoplus',
The Company is excited with the response received for its products and
plans to soon expand its range.

Utmost importance is given to client satisfaction. While the Company
markets its products directly to the customers through a dedicated
marketing team, it is ablysupported in after-sales service by a unique team
of Customer Relationship Management (CRM). They are fully qualified and
trained to look after the customers' diverse requirements for their
complete satisfaction. High levels of ethics and transparency are
maintained in dealing with the clients to improve their confidence in the
brand and the company. World class building techniques with the aid of
modern technology are employed bythe Company to ensure delivery of quality
products.

To summarize, despite the despondency brought in by the global economic
crisis, the Company with its cutting edge technology, strong bias for
undiluted quality of its processes and products, backward-integrated
operations, high project capabilities, strict adherence to laws and
statutes, transparency in dealings, focussed customer-centric approach and
a highly professional management and motivated and dedicated human
resources, is in a strong position to tide over the current crisis. With
the proactive and progressive policies being practiced by the Government it
is hoped thatthe currentscenariowill change forthe better sooner than
later. The Company and its management will leave no stone unturned to
achieve this.

Project details of the Company

Summary of projects completed, ongoing and forthcoming as on March 31, 2009
is as under

Residential

- Completed : 38 projects aggregating 10.73 million Sft.

- Ongoing : 31 projects aggregating 9.31 million Sft.

Commercial

- Completed : 12 projects aggregating 1.74 million Sft.

Contractual

- Completed : 140 projects aggregating 18.30 million Sft.

- Ongoing : 34 Projects aggregating 5.84 million Sft.

C. Financial condition

The overall performance of the Company during the current financial period
was impacted adversely due to the general economic slowdown. The net sales
of the Company stood at Rs. 9,747 million and net profit before tax was Rs.
1,455 million. A summary of financial results for the financial period
2008- 09 is presented elsewhere in this report.

Sources of Funds

1.Share capital

The present share capital of the Company consists of equity shares of the
facevalue of Rs.10/-each and redeemable preference shares of Rs.100/-.

The Authorised Share Capital is Rs. 2,000 million, divided into 150 million
equity shares of Rs. 10/- each and 5 million redeemable preference shares
of Rs.100/-each.

The issued, subscribed and paid up equity share capital as of March 31,
2009 was Rs. 729.02 million, same as in the previous year. The Company did
not have any preference shares outstanding as of March 31, 2009.

The equity shares of the Company are currently listed on NSE and ESE in
India. The market capitalisation of the Company (based on NSE closing rate)
as of March 31, 2009 was Rs. 5,770 million (Previous year Rs.44,011
million).

2. Reserves and Surplus:

Asummaryof reserves and surplus is provided in the table below:

As on March 31,

2009 2008

a. Capital Redemption Reserve 87 87

b. Securities Premium 5,639 5,639

c. General Reserve 700 700

d. Debenture Redemption Reserve 480 309

e. Profit and Loss Account 3,260 2,419

Total 10,166 9,154

a. Capital redemption reserve

This reserve was created for redemption of redeemable preference shares
during 2006-07. As of March 31, 2009, this was at Rs. 87 million, same as
in the previous year.

b. Securities premium

There was no change in the share premium account of the Company during
theyear.

c. General reserve

Astatementof movement in theGeneral Reserve isgiven below:

(Rs. in Million)

As on March 31,

2009 2008
Balance beginning of year 700 450

Add: Transfer from P & L Account - 250

Balance end of year 700 700

d. Debenture redemption reserve

The Company has created Debenture Redemption Reserve amounting to Rs.171
million during theyear,outoftheprofitsofthe Company for the year, to
provide for redemption of non convertible debentures.

e. Profit and loss account

The balance retained in the profit and loss account as of March 31, 2009
was Rs. 3,260 million after providing the proposed dividend of Rs. 73
million and dividend tax of Rs.12 million. The bookvalue per share has
increased to Rs. 149.45 as of March 31, 2009 from Rs. 135.57 as of March
31, 2008.

3. Secured and unsecured loans:

During the period under review, the Company has increased its borrowings
from Rs. 17,631 million to Rs.19,122 million. The details regarding
borrowings raised and repaid during the year 2008-09 are given below.

(Rs. in Million)

Year ended March 31

2009 2008

Balance as on April 1, 2008 17,631 5,837

Borrowed during the year 13,267 18,616

Repaid during the year 11,788 6,822

Interest accrued & due 12 -

Balance as on March 31, 2009 19,122 17,631

The securities offered for these borrowings are shown in the Notes
toAccounts of theAnnual Report.

Application of funds

4. Fixed assets

Astatement of movement in fixed assets is given below:

(Rs.in Million)

As on March 31

2009 2008 %
Change

Land 66.36 66.36

Buildings 428.76 332.27 2.90

Plant and machinery 2,090.47 1,985.98 5.26

Furniture and fixtures 40.12 35.33 13.55

Vehicles 82.95 84.63 (1.99)

Computers & office equipment 158.11 149.55 5.72

Capitalized software 63.45 57.16 11.00

Gross Block 2,930.22 2,711.28 8.07

Less: Accumulated depreciation 1,198.02 841.78 42.32

Net block 1,732.20 1,869.50 (7.34)

Add: Capital Work-in-progress# 515.64 272.49 89.23

Net fixed assets 2,247.84 2,141.99 4.94

Depreciation

as % of revenue 3.63 2.44

as % of average gross block * 13.08 14.27

# The capital work-in-progress as of March 31, 2009 and 2008 represents
advances paid toward acquisition of fixed assets and the cost of assets not
put to use.

* Excluding land

a. Capital expenditure

The Company incurred an amount of Rs.468 million (Rs.549 million in the
previous year) towards capital expenditure comprising of additions to gross
block of Rs. 225 million and Rs.243 million on account of increase in
capital work in progress. The capital expenditure was funded out of
borrowings and internal accruals.

b. Additions to gross block

During the year, the Company added Rs. 225 million to the Company's gross
block comprising of Rs.105 million for investment in plant 8r machinery, Rs
96 million in Buildings, Rs 7 million in computer software and the balance
of Rs 17 million in computers, office equipments, furniture and fixtures
and vehicles etc. During the previous year, the Company added Rs.385
million to the gross block comprising of Rs. 264 million investment in
plant and machinery, Rs.46 million in computer software and the balance of
Rs.75 million in otherassets.

c. Retirement of assets

During the year, the Company retired/transferred various assets with a
gross block of Rs. 6 million and a net book value of Rs. 2 million. During
the previous year, the Company retired / transferred various assets with a
gross block of Rs. 8 million and a net book value of Rs.4 million.

d. Capital expenditure commitments

The Company's capital expenditure commitment stood at Rs. 17 million, as of
March 31, 2009 as compared to Rs. 41 million as of March 31, 2008.

5. Investments

a. Subsidiary

During the year, there is no change in investment made by the Company to
the partnership firm 'Sobha city'. Details are provided in the notes to
accounts (Schedule-19, Point No.22). The consolidated financials for the
current year reflects its share of revenue and profits.

b. Other investments

During the year there has been no change in the other non-trade investments
exceptforinvestmentofRs.0.1 million in equityshares of Sobha Developers
(Pune) Pvt Ltd and sale of 1,006 equity shares of Tata Steel Ltd.

c. Investment in liquid mutual funds

The Company has bought and sold investment in liquid Mutual funds of Rs.571
million during the current year, details are given in the Notes to
Accounts. (Schedule 19, Point No.23)

6. Deferred tax assets

The Company recorded deferred tax assets of Rs. 31 million as of March 31,
2009 compared to Rs. 11 million as of March 31, 2008. Deferred tax
assets/liability represent timing differences in the financial and tax
books arising from depreciation on assets and expenditure under section 43B
of IncomeTaxAct., 1961, which are allowed in the year of payment. The
deferred tax assets will be recovered from future taxable income.

7. Inventories

The inventories have gone up from Rs.7,879 million as at March 31, 2008 to
Rs.10,492 million as at March 31, 2009. A major portion of inventory is
attributed to work-in-progress of Rs.10,207 million in the current year end
as compared to Rs.7,235 million in previous year. This is mainly due to the
non recognition of sale value related to land and construction portion of
unfinished on-going real estate projects and will be recognized in
subsequentyears of sale.

8. Sundrydebtors

Sundry debtors amounted to Rs. 3,553 million (without considering advance
of Rs. 1,672 million) as of March 31, 2009 as compared to Rs.5,452 million
(without considering advances of Rs.1,068 million) as of March 31, 2008.
Since the ownership of apartments is transferred to the clients upon full
settlement of their dues, the Company considers these debtors as good and
realizable. Further the debtors outstanding more than six months were only
Rs.786 million (Rs.415 million in the previous year) out of the total
receivables of Rs.3,553 million (Rs. 5,452 million in the previous year).
It can thus be seen that the sundry debtors has been brought down
considerably.

9. Cash and cash equivalents

The cash balance includes the cash maintained at various branches and
imprest cash maintained at various projects for day to day expenses. The
bank balance includes the balance in various current accounts maintained
with various banks/locations. The deposit account represents deposits for
short tenures and margin money towards loan escrow account and other non-
fund based utilization of limits. The deposit includes the accrued interest
and outstanding (if any) as of the balance sheet date. The Company's
investment policy is to invest surpluses with banks and financial
institutions for short-term maturities and also with liquid mutual funds.
The balance under this head is Rs.211 million as on March 31, 2009 as
compared to Rs. 126 million as on March 2008.

10. Loans and advances

Loans 8r advances has increased from Rs.17,282 million as on March 31, 2008
to Rs. 18,956 million as on March 31, 2009. This is mainly due to increase
in advance towards purchasing land at Rs.17,958 million (as on March 31,
2009) from Rs. 16,248 million (as on March 31, 2008). Advances are
primarily towards amount paid in advance for value and services to be
received in future. The Company considers the advances/ deposit for land
good as the advances have been given based on arrangements/ Memoranda of
Understanding executed by the Company and the Company/ seller/ intermediary
is in the course of obtaining clearand marketable titles free from all
encumbrances.

11. Current liabilities

Sundry creditors include creditors for goods, services and expenses,
advance from customers and interest accrued but not due etc. This has
increased to Rs.5,556 million as on March 31, 2009 from Rs.4,771 million as
on March 31, 2008. Unclaimed dividends represent dividends paid, but not
encashed by shareholders, and are represented bya bank
balanceoftheequivalentamount.

Advances received from customers denote monies received for the delivery of
the final products at future dates and amount received forwhich income
hasyetto be recognized in the books of accounts.

12. Provisions

Proposed dividend represents the final dividend recommended to the
shareholders by the Board of Directors of the Company. Upon approval by the
shareholders, this will be paid after the Annual General Meeting. Provision
for Corporate dividend tax denotes the taxes payable on dividends.
Provisions for compensated absences represent an amount equivalent to
earned leave standing to the credit of employees' account.

D. Operations review

1. Income

The Company is one of the leading real estate development and construction
companies in India, which focuses on residential and contractual projects.
Sales have come down during the year as compared to previous year due to
economic slowdown and recession which affected most to our construction
business. For the purpose of analysis, the revenue can be categorized as
follows:

(Rs. in Million)

Income from Year ended March 31 Change
Operations 2009 2008 %

Income from property 5,796 8,533 - 32
development, sale of land
and development rights

Income from contractual 2,299 3,887 - 41
activity

Income from manufacturing 1,676 1943 - 14

Share in profits of partnership 68 67 1
firm (post tax)

Total 9,839 14,430 - 32

The Company is following a prudent accounting policy in recognizing
revenue.

Revenue in respect of real estate property development is recognized based
on the project cost actually incurred as a proportion of total estimated
project cost and the proportion of the estimated saleable area in the
project in respect of which bookings have been made. However, if the actual
project cost incurred is less than 250/0 of the total estimated project
cost, no income is recognized in respect of that project in the relevant
fiscal period. Land costare not included forthe purpose of computing
percentage of completion. Estimates of saleable area and the related income
as well as project costs are reviewed periodically. The effect of any
changes in the estimates is recognized in the financial statements forthe
period in which such changes are determined. The company has so far
delivered 50 residential and commercial projects having 12.47 million Sft.
There are 31 ongoing projects with 9.31 million Sft The company has plans
to launch 24 more projects aggregating 17.53 million Sft.

Revenue from sale of land and development rights is recognized upon
transfer of all significant risks and rewards of ownership of such real
estate/property, as per the terms of the contracts entered into with
buyers, which generally coincides with the firming of the sales
contracts/agreements.

Revenue in respect of contractual projects is recognized on the basis of
completion of a physical proportion of the contract work, agreements
entered into by the Company with its customers, and based on certification
by the clients. The Company has so far delivered 140 contractual projects
having 18.30 million Sft.

Revenue from sale of materials from Manufacturing Divisions like Interior,
Glazing 8r Metal Works, Building Materials are recognized when the
significant risks and rewards of ownership of the goods have passed to the
buyer which coincides with dispatch of goods to the customers. Service
income is recognized on the basis of completion of a physical proportion of
the contract work and based on certification bythe client.

The Company's share in profits from a firm where the Company is a partner
is recognized on the basis of such firm's audited annual accounts, as per
terms of the partnership deed. As per the deed, the Company has invested
Rs.200 million towards capital for 700/o share in the profits in FY 2007-08
and the other partner Tree Hill Estates Pvt Ltd. has invested Rs.200
million towards capital and Rs.400 million towards loan for 300/o share in
the profit of the firm. This has been arranged for the projects in
Thrissur.

2. Other Income

This has increased from Rs.71 million to Rs.170 million in the current year
mainly due to incentive received for pre-payment of loan.

3. Expenditure

The total expenditure with respect to the yearly revenue is given as
follows:

(Rs. in Million)

2009 % 2008 %

Revenue from operations (net) 9,747 100.00 14,291 100.00

Cost of sales 4,504 46.21 7,725 54.05

Personnel expenses 1,009 10.35 1,025 7.17

Operating and other expenses 1,537 15.77 1,939 13.57

Depreciation/amortization 360 3.69 350 2.44

Financial expenses 1,052 10.79 615 4.30

Total 8,462 86.81 11,654 81.53

3.1 Cost of Sales

(Rs. in Million)

2009 % 2008 %

Revenue 9,747 100.00 14,291 100.00

Cost of sales
Land cost 2,453 25.17 3,900 27.29

Construction cost 3,492 35.83 6,370 44.57

Raw material 958 9.82 1,229 8.60

Production expenses 298 3.05 288 2.02

Decrease/(increase) (2,697) (27.67) (4,062) (28.42)
in inventories

Total Cost of of Sales 4,504 46.20 7,7255 4.06

Cost of sales has come down to 46.20/o in the current year as compared to
54.1 0/o in the previous year due to various efforts made by the company
for cost reduction i.e. developing sources for alternate material and
alternate suppliers, efficient procurement and usage of material, improving
productivity, rationalization of workforce and close controlling and
monitoring of overheads etc.

a. Land cost

The company while obtaining clear and marketable title free fromall
encumbrances and transfer of legal title in its name, charge the amount to
land cost from Loans and Advances paid to the seller/intermediary. When
income is not recognized for the undivided share of land, it is transferred
to Work-in-Progress.

b. Construction cost

Construction cost mainly consists of materials towards civil, electrical
and finishing works. Due to lower sales volumes overall cost has reduced to
Rs. 3,492 million from 6,370 million in the current year. Further as per
the Company's accounting policy, once the materials are purchased for a
project, it is charged to that particular project cost. As a result, any
cost associated with unrecognized revenue is transferred to Work-in-
progress.

c. Rawmaterial

For the same reasons discussed hereinabove raw materials cost has reduced
to Rs.958 million from Rs.1,229 million in the current year. This cost
includes the net materials consumed for Concrete, Interior and Glazing
Divisions.

d. Production expenses

This expense includes the following heads of expenses for the manufacturing
divisions during the year.

(Rs. in Million)

Concrete Interior Glazing Total
Products

Direct wages 6.86 102.51 127.37 236.74
Power and fuel 4.36 12.59 2.17 19.12
Labour charges 0.36 12.01 3.17 15.54
Other direct expenses 0.00 18.90 7.37 26.27
Total 11.58 146.01 140.08 297.67

e. Decrease/(increase) in inventories

As explained earlier, the cost associated with un-recognized revenue is
transferred to work-in-progress. This includes the construction cost and
land cost. During the year the work-inprogress has reduced to Rs. 2,697
million from Rs. 4062 million. The revenue from the work-in-progress will
get realized in subsequent years based on the stage of completion and sales
of those projects.

3.2 Personnel expenses

The personnel expenses have reduced to Rs.1,009 million from Rs.1,025
million in the current year as compared to last year. This is mainly due to
combined effect of revisions in salaries and reduction in Manpower. The
total strength has reduced to 2,082 as on March 31, 2009 from 3,308 as on
March 31, 2008. The expenses include salaries and bonus, provision towards
gratuity and leave encashment, providentfund and staff welfare expenses.

3.3 Operating and other expenses

The operating expenses have reduced to Rs.1,537 million in the
currentyearfrom Rs.1,939 million of the previous year.

(Rs.in Million)

Particulars 2009 % 2008 %

Revenue 9,747 100.00 14,291 100.00
Electricity charges 43 0.44 56 0.39
Insurance charges 22 0.23 54 0.38
Sales tax and others 419 4.30 767 5.37
Freight outwards 37 0.38 43 0.30
Donation 95 0.97 100 0.70
Registration expenses 251 2.58 241 1.69
- flats
Rent 139 1.42 136 0.95
Legal and 81 0.83 107 0.75

professional charges

Repairs and 31 0.32 23 0.16

maintenance

Advertisement and 158 1.62 143 1.00
sales promotion
expenses

Travelling and 88 0.90 97 0.67
conveyance

Miscellaneous 173 1.77 172 1.20
expenses

Total 1,537 15.76 1,939 13.56

4. Operating profits

The Company earned an operating profit (EBIDTA) of Rs. 2,868 million,
representing 28.90/0 of total revenues as compared to Rs. 3,674 million,
representing 25.6 0/o of total revenues during the previous year. The
reduction in EBIDTA is around 220/0 over the previous year.

5. Interest

The Company has charged interest to profit and loss account of Rs.1,052
million and Rs. 615 million for the years ended March 31, 2009 and 2008
respectively. An amount of Rs.1,731 million and Rs. 897 million were
inventorised / capitalized for the said period. The increase in interest is
due to increase in borrowing cost and quantum of borrowings.

6. Depreciation and amortization

The Company has provided Rs.360 million and Rs.350 million towards
depreciation and amortization for the years ended March 31, 2009 and 2008
respectively, representing 3.630/o and 2.440/0 of revenues. The
depreciation as a percentage of average gross block (excluding land) was
13.080/o and 14.270/o for the years ended March 31, 2009 and 2008
respectively.

7. Provision for taxes

The details of provision for taxes areas follows:

(Rs.in Million)

Year ended March 31

2009 2008

Current tax 374.00 453.00

Deferred tax credit (20.00) (33.02)

Wealth tax 0.45 0.30

Fringe benefits tax 4.00 5.50

Total Provision 358.45 425.78

% on PET 24.6% 15.7%

% on Total Revenue 3.6% 3.0%

The Corporate tax provision was lower for the year ended March 31, 2009
compared to the previous year due to low profit before tax. Deferred tax
asset created during the year will be recovered from futuretax liability.

8. Net profit

The net profit after tax was Rs.1,097 million for the year ended March 31,
2009 as compared to Rs.2,283 million for the year ended March 31, 2008
showing a decline over previous year.

(Rs.in Million)

Year ended March 31

2009 2008

Total Revenue 9,917 14,363

PET 1,455 2,709

PAT 1,097 2,283

PET as % of revenue 14.7% 18.9%

PAT as % of revenue 11.1% 15.9%

9. Liquidity

The Company's growth has been financed through cash generated from
Operations and debt. The Company's policy is to maintain sufficient cash
balance to fund the ongoing projects requirement, the operational expenses
and other strategic initiatives like land acquisition.

The Company's investment policy is to invest surpluses with banks and
financial institutions for short-term maturities and also with liquid
mutual funds. The Companyaims to maintain adequate cash balances to meet
the strategic objectives while earning adequate returns.

10. Related party transactions

These have been discussed in detail in the notes to the financial
statements in this report.

E. Risks and threats to business

The real estate sector has been severely impacted due to the economic
slowdown. This sector requires large amount of funds for investment which
has further brought the sector under pressure. Slowdown in industry
generallyand specificallyto ITand job losses are having adverse impact on
the sector. Difficulty in getting finance at reasonable cost may hamper the
business. Due to volatility in economic conditions investors may not be
interested to invest in this sector. 1Nhile these concerns are valid to
some extent, the Company believes that large real estate players will be
able to control the situation because of their skills, competencies,
professional managementand demand supplygap.

F. Strategy

Important business strategy of the Company includes the following:

a. Tailor made projects for group of clients

The Company is in touch with a group of clients to serve their requirements
with tailor made projects. The project will be conceived, developed
designed and constructed in line with the specific requirements of the
proposed group of clients. The Company is also working on the concept of
affordable housing to reap the benefits of its brand image by focusing on
middle class clients in prime locations. The Company is hopeful of getting
good responsefrom this newsegmentofclients.

For quick realization of its inventory various offers are being made by the
Company with convenient terms and conditions to attract new customers.
Projects are also conceived for sale of plotted land and sale of land bank.

Further, the Company is having a strong land bank in various strategic
locations which will be a major strength for the Company once the economy
revives.

b. Increased business for contractual projects

The Company has successfully executed various contractual projects with
very reputed clients and established its competency and capability. Clients
include Infosys, HCL technologies, DELL, Hewllet Packard, Taj group of
hotels, MICO, Contel etc. The Company believes that it will be able to use
its strength, superior product qualityand project execution capabilitiesfor
increasing business by adding more corporate housesas its clients.

c. Sale of plotted development land

The Company has planned for sale of plotted development land resulting in
quick cash realization, reduction in inventory and improvement in sales
revenues.

d. High Standard of quality

The Company has developed its brand image because of its abilityto deliver
quiz products to the utmost satisfaction of the customers. The Company uses
world class building techniques and employs international expertsto ensure
high level of quality.

e. Cash Flow

The Company has been able to manage its cash flow successfully in the
present scenario. During the financial year 2008-09, the operating cash
flow remained positive throughout. Most of the loans due for repayment
during the financial years 2008-09 and 2009-10 have been rescheduled,
giving major relief. Further cash flow is being planned for the next two
years to enable the Company to make payment of loans, operational expenses,
fixed overheads and financial charges etc.

The Company has taken various initiatives to arrange the required funds for
future requirements i.e. sale of land and development rights, attracting
investments for specific projects and diluting promoter's stake etc. The
Company is confident that the above initiatives taken by it will give
desired results in the next six to nine months and adequate cash will be
available with the Company to discharge itsfinancial obligations.

G. Human resource management

Astrong brand image has been builtthanks to the high standard of quality
products delivered by the Company. This could not have been possible but
for the dedicated professional and experienced manpower resources of the
Company. The Company ensures best work environment and equal opportunities
with better prospects of career developmenttoallitsemployees.
Besttalentisattractedand retained bythe Company. It has created a state-of-
the-art facility for technical and managerial training of its employees to
groom their professional knowledge and managerial abilities. The Company
has also established a Training Academy to provide technical training to
tradesman and these trained tradesmen are offered preferential employment
with the Company. Human Resources department is following best practises to
motivate the workforce.

H. Information technology

The Company is continuously working and concentrating on IT to get maximum
benefit for the organization. The Company has been able to use a good ERP
system successfully. All branches and regional offices all across India are
well connected ensuring timely and qualitative collection and dissemination
of business information. The Company has been able to manage such a large
size of business successfully only because of excellent information
technology systems and processes.

I. Internal control system and their adequacy

The Company has an in-house internal audit department which examines and
ensures adequate internal checks and control procedures. It also ensures
proper accounting, records authorisation, control of operations and
compliance of law.

The Company has a strong reporting system which evaluates and forewarns the
management on issues related to compliance. Further the Company is
continuously working to improve and strengthen internal check and control
system to align with the expected growth in operations.

J. Riskmanagement

The Company is taking care of its risk management through robust risk
management system. Risks are being identified to achieve its strategic
business objective; plans are made, implemented and monitored to
mitigatesuch risks.

K. Compliancewith local laws

The Company believes strongly in complying with the laws of the land where
it operates. The Company has a well-established legal set up for ensuring
compliance with all statutes which are applicable periodically to its
operations/ ventures. The legal department is responsible for getting
various sanctions and approvals pertaining to the projects. Any other
approvals or permissions related to specific operations are either handled
by corporate legal cell or bythe concerned department.

L. Cautionary statement

In accordance with the Code of Corporate Governance approved by the
Securities and Exchange Board of India, shareholders and readers are
cautioned that in the case of data and information external to the Company,
no representation is made on its accuracy or comprehensiveness though the
same are based on sources believed to be reliable. Utmost care has been
taken to ensure that the opinions expressed by the management herein
contain its perceptions on the material impacts on the Company's operations
but it is not exhaustive as they contain forward-looking statements which
are extremely dynamic and increasingly fraught with risks and
uncertainties. Actual results, performances, achievements or sequence of
events may be materially different from the views expressed herein.