Annual Report - Sobha Developers - 2009-2010

SOBHA DEVELOPERS LIMITED

ANNUAL REPORT 2009-2010

DIRECTOR'S REPORT

To
The Members

We have pleasure in presenting the fifteenth annual report on the business
and operations of the Company together with the audited results for the
financial year ended March 31, 2010.

Financial Highlights:

Result of Operations

After the unprecedented and dramatic changes in the macro economic
environment during the last financial year, there has been significant
improvement in the economic situation and general outlook especially during
the later part of the financial year under review.

We have successfully overcome the challenges of the economic downturn
through a series of measures like further capital infusion, monetization of
land parcels, product innovation, aggressive marketing strategy and
ensuring better control over costs. We can see the benefits of the above
measures in terms of higher sales, improved cash flows and significant
reduction in debt. During the year under review, our Company has executed
and handed over 10 residential projects covering an area of 1.82 million
square feet and 26 contractual projects covering an area of 3.75 million
square feet resulting in aggregate development of 5.57 million square feet.

Transfer to Reserves:

An amount of Rs. 140.00 million is proposed to be transferred out of the
current profit and Rs. 276.35 million from the Debenture Redemption Reserve
to the General Reserve aggregating the total transfer to reserves at
Rs.416.35 million.

Dividend:

The Directors propose to recommend dividend at the rate of Rs.2.50 for
every equity share of Rs. 10 each resulting in a dividend rate of 25% for
the financial year 2009 - 2010.

Business:

The Company's main operations can be divided into:

1. Development and construction of residential and commercial projects

2. Contractual projects:

The summary of the projects completed and ongoing as on March 31, 2010 have
been detailed in the Management Discussion Analysis Report.

Qualified Institutional Placement:

During the year, the Company has issued 25,162,135 equity shares of Rs. 10
each at a premium of Rs. 199.40 per equity share to Qualified Institutional
Buyers in terms of Chapter XIII A of the erstwhile Securities and Exchange
Board of India (Disclosure and Investor Protection) Guidelines, 2000.
Consequently, the paid up share capital of the Company has increased from
72,901,733 equity shares of Rs. 10 each to 98,063,868 equity shares of Rs.
10 each.

Utilization of QIP Proceeds:

The Audit Committee and the Board of Directors of the Company have taken on
record the following statement of utilization of the proceeds of the
amounts raised by the Company consequent to the issue of 25,162,135 equity
shares of Rs. 10 each at a premium of Rs. 199.40 per equity share to
Qualified Institutional Buyers in terms of Chapter XIII A of the erstwhile
Securities and Exchange Board of India (Disclosure and Investor Protection)
Guidelines, 2000.

(Rs. in Million)
Particulars 2009-10 2008-09

Net sales and other income 11,192.83 9,917.05

Profit before interest, 2,597.21 2,867.70
depreciation and tax

Finance charges 671.40 1,052.14

Depreciation 323.10 360.33

Profit before Tax 1,602.71 1,455.23

Provision for Tax - Current 261.00 374.00

- Fringe benefit - 4.00
- Deferred (20.83) (20.00)
- MAT Credit

Entitlement (4.10) -

Wealth tax 0.02 0.45

Net profit after tax 1,366.62 1,096.78

Add: Balance of profit brought 3,259.23 2,418.74
forward

Profit available for 4,625.85 3,515.52
appropriations

Appropriations :-

Proposed dividend 286.81 85.29
(Includes tax on dividend)

Transfer to General Reserve 140.00 -

Transfer to Debenture - 171.00
Redemption Reserve

Balance carried to Balance 4,199.04 3,259.23
Sheet

Debentures:

During the year under review, the Company has not issued any Debentures.
The Company has redeemed various series of Non- Convertible Debentures
aggregating Rs. 1,630.10 million.

Deposits:

The Company has not accepted any deposits in terms of provisions of Section
58A of the Companies Act, 1956, during the year under review.

Directors:

There are eight directors on the Board of Directors of the Company. Mr. M
Damodaran who was appointed as an Additional Director effective from
January 29, 2010, holds office up to the date of the forthcoming annual
general meeting and is eligible for reappointment. Mr. P Ramakrishnan who
was appointed as an Additional and Wholetime Director effective from
January 29, 2010 and designated as Deputy Managing Director from April 01,
2010 holds office up to the date of the forthcoming annual general meeting
and is eligible for re-appointment.

In terms of Article 107, 108 and 109 of Articles of Association, Mr. Anup
Shah and Mr. R V S Rao, Independent Directors are liable to retire by
rotation at the ensuing Annual General Meeting and being eligible offer
themselves for re-appointment.

The term of office of Mr. P N C Menon, Mr. Ravi Menon and Mr. J C Sharma
ceases during the financial year 2010 - 11 and the proposals for re-
appointment are included in the notice convening the Annual General
Meeting.

The Notice convening the Annual General Meeting includes the proposals for
the re-appointment of Directors. Brief resumes of the Directors proposed to
be re-appointed, nature of 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 the Annual General Meeting.

Auditors:

M/s S.R. Batliboi & Associates, Chartered Accountants, statutory auditors
retire at the ensuing Annual General Meeting and being eligible, offer
themselves for re-appointment. The Board of Directors upon the
recommendation of the Audit Committee proposes the re-appointment of M/s S
R Batliboi & Associates, Chartered Accountants as the statutory auditors of
the Company. The Auditors had given certain observations in their report
and the Board feels it expedient to address the same as follows:

1. Paragraph 4 of the Auditors Report:

The Registrar of Companies, Karnataka during the course of Technical
Scrutiny had observed that the Company during the earlier years has
undertaken certain transactions without the prior approval of the Central
Government required under Section 297 of the Companies Act, 1956. These
transactions were done on an arms length basis and in the normal course of
business. The Company has filed an application for composition under
Section 621A of the Companies Act, 1956 and the outcome of the application
is awaited. However the Company has obtained the necessary approvals for
such transactions undertaken during the year under review

2. 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 were undertaken by the
Company when the status of the Company was 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.

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

Due to slowdown in the market in which the Company is operating, requests
were made to the lenders to reschedule or roll over its near term
obligations. The Company had made these requests before the due dates of
repayment and in accordance with the applicable monetary policies initiated
by the Reserve Bank of India. However the said delay was during the first
quarter of the financial year under review and prior to the Company raising
further capital by way of Qualified Institutional Placement. The Company
post issue of equity shares has not delayed the repayments and there is no
overdue outstanding in respect of debenture holders and banks as at close
of the financial year.

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.

Human Resources:

Sobha Developers aims to align HR practices with business goals, motivate
people for higher performance and build a world class
(Rs. in Million)

Gross proceeds 5,269
Less: Expenses incurred (gross of service tax) 175
Net proceeds 5,094
Utilization
Loan repayments 3,995
Working capital 935
Interest payments 144
Refund of share application money 20
Total Utilization 5,094

Awards & Recognitions:

We are glad to report the following awards and recognition received during
the financial year 2009-10

i. Prof. Vasanth Rao Trophy in recognition of being the second best company
practicing Value Engineering in India by the Indian Value Engineering
Society for the year 2008-2009.

ii. Special Mention for The Terminal Building - Bangalore Infosys Food
Court' project in the Recreational Architecture category of Architecture +
Design & Spectrum Foundation Architecture Awards 2009.

iii. Bayer Technology has recognized the Company as 'The Best Contractor,
working with safe practices at the site' for their contractual project
being executed by the Company.

Code of Conduct:

Pursuant to Clause 49 of the Listing Agreement, the declaration signed by
the Managing Director affirming the compliance of Code of Conduct by the
Directors and senior management personnel for the financial year 2009-10 is
annexed and forms part of the Directors and Corporate Governance Report.

Disclosure of Employees:

The statement of employees in receipt of remuneration exceeding the limits
prescribed under Section 217(2A) of the Companies Act, 1956, read with the
Companies (Particulars of Employees) Rules, 1975 is attached herewith as an
annexure to this report.

Secretarial Audit Report:

The Company has appointed Mr. Nagendra D Rao, Practicing Company Secretary
to conduct the Secretarial Audit for the financial year ended March 31,
2010. The Secretarial Audit Report confirming compliance with all the
applicable provisions of corporate laws and the Listing Agreement is
provided separately in the Annual Report.

Implementation of IFRS:

Consequent to the issue of the road map for implementation of International
Financial Reporting Standards (IFRS) in India, the Company has constituted
a core team to ensure a smooth transition. The Company has also engaged
consultants for this purpose and is committed to meeting the time lines for
implementation. Training sessions for the members of the Audit Committee
were conducted to understand the impact and implications of the new
accounting standards.

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

In terms of Section 217 (1) (e) of the Companies Act, 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 set out as an annexure
to this report. working environment. We continue to develop and retain the
best available talent through training and motivational programs. Our
Company strives to implement the best of HR practices so as to ensure that
talent retention is ensured at all levels. Employee relations continued to
be cordial and harmonious at all levels and in all divisions of the Company
during the year. A separate section on the Human Resources function is
provided in the Annual Report.

Quality:

The Department of Quality, Safety and Technology (QST) holds the
responsibility to monitor all quality and safety works in our various
projects and to introduce the latest construction technology so as to
enable project delivery on par with relevant specifications, norms and
standards. The department focuses on construction quality and safety
aspects, infrastructure execution, civil maintenance works, geotechnical
aspects, drawing detail development and importing / implementing new tools
and material for process up gradation.

Corporate Governance:

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 the Annual Report.

Responsibility Statement of the Board of Directors:

The Director's Responsibility Statement, setting out compliance with the
accounting and financial reporting requirements specified under Section
217(2AA) of the Companies Act, 1956, in respect of the financial
statements, is furnished below and on behalf of the Board of Directors, it
is hereby confirmed that:

i. In the preparation of the annual accounts, the applicable accounting
standards had been followed along with the proper explanation relating to
material departures, if any.

ii. The directors had selected the accounting policies and applied them
consistently and made judgments and estimates that are reasonable and
prudent so as to give a true and fair view of the state of affairs of the
Company at the end of the financial year and of the profit of the Company
for that period.

iii. The Directors had taken proper and sufficient care for the maintenance
of adequate accounting records in accordance with the provisions of the
Companies Act, 1956, for safeguarding the assets of the Company and for
preventing and detecting fraud and other irregularities.

iv. The Directors had prepared the annual accounts on a 'going concern'
basis.

Corporate Social Responsibility:

Sobha Developers is a responsible corporate citizen and is committed to
Corporate Social Responsibility. A separate section on Corporate Social
Responsibility forms part of the Annual Report.


Additional information to Shareholders:

We provide all the latest information on the Company's projects, matters of
interest to the investors like financial information, investor
presentations, press releases, etc., on our website www.sobha.com

Management Discussion and Analysis Report:

In accordance with the requirements of the Listing Agreement, the
Management Discussion and Analysis Report is presented in a separate
section forming part of the Annual Report.

Acknowledgements:

The Directors would like to place on record their sincere appreciation to
the Company's customers, vendors, and bankers for their continued support
to the Company during the year. The Directors also wish to place on record
their appreciation to the contribution made by employees at all levels for
sustaining the organizational growth especially during the challenging
times. We thank the Government of India, state governments and other
government agencies for their assistance and cooperation and look forward
to their continued support in future. Finally, the Board expresses its
gratitude to the members for their continued trust, cooperation and
support.

For and on behalf of the Board of Directors

Place: Bangalore Ravi Menon J.C. Sharma
Date : April 27, 2010 Vice Chairman Managing Director

Annexure to Directors' Report
Sobha Developers Limited is primarily engaged in the construction and
development of residential and contractual projects and hence the
information as required to be provided under the Companies (Disclosure of
particulars in the report of Board of Directors) Rules, 1988, to the extent
applicable is as follows

I. Conservation of Energy:

The Company has adopted the following energy conservation measures.

1. Use of energy efficient lamps, control gears, balast VFD's highly
efficient motors, PV cells, etc.

2. Use of CFLs, flourescent tubes, metal halide, etc., in the common area
light fittings in our residential projects.

3. Provision of back- up solar power for lighting in the residential
projects.

4. Use of lighting software in the design stage of our projects.

5. Use of day light sensors and occupancy sensors.

6. Use of the best quality wires, cables, switches, low self power loss
breakers.

7. Follow standard specifications like color codes, independent neutral and
earthing for each circuit and avoid creating joints to curb energy leakage.

8. Use of low- loss electronic balast and also some times dimmable ballast.

9. Selection of high efficiency transformers, DG sets and other equipment.

10. Introduction of auto correction power factor capacitor panels, harmonic
filters.

The Company continues to make project level investments for reduction in
consumption of energy. The total energy consumption, energy consumption per
unit of production and the impact of the measures implemented above for
reduction of energy consumption cannot be quantified.

II. Technology Absorption:

The Company uses German tools, waterproofing techniques, and follows
European standards in all our construction activity. We use both indigenous
and imported technologies for implementation in all our projects. The
Company has derived the benefits in the form of cost reduction, fewer
customer complaints and better quality of the end products. Import of
European technology is a continuous feature and has been fully absorbed.

III. Research and Development (R&D):

The Company has carried out R&D in the following areas

1. New scaffold anchorage system for easy and effective finishing of
external plastering/ painting.

2. Usage of precast polymer drain channels in basements for perfect
execution of basement floor drain and concrete flooring.

3. Introduction of concrete skip equipment to easily and effectively
transport liquid concrete from the mixer to the place of use through the
tower crane.

4. Inspection camera with recording facility for inspecting non- accessible
shafts, plumbing pipes, etc., for detecting leakages and cracks.

5. Usage of floor protection sheets for preventing damage to tile/ granite
and withstanding wear & tear during finishing.

6. Introduction of steel enamel bathtubs with compatible system and
precisely matching supports for fast, safe and stable installation.

7. Use of lightweight screed concrete on terrace floors with lower specific
gravity, easy workability and compatibility with thermal insulation.

8. Standardization of waterproofing works using waterproofing calendar to
prevent leakages, water ingress and dampness in structural elements.

9. Introduction of unit clearance procedure for systematic apartment
clearance and successful handover.

10. Introduction and implementation of new safety bracket system as a
safety standard procedure at project sites. Benefits derived as a result of
the above R&D The benefits derived from the above ensure that the final
product delivered by the Company adhere to 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 has to be understood as an ongoing process.

Expenditure on R&D:

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

IV. Foreign Exchange Earnings and Outgo:

(a) Activities relating to export, initiatives taken to increase exports,
development of new export markets for products and 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 and services or formulated any export
plans.

(b) Total foreign exchange used and earned

Total expenditure in foreign exchange: Rs. 71.26 million
Total income in foreign exchange: Nil


Management Discussion and Analysis

A. Economic Scenario:

Recovery in World Economy:-

World economy has started showing signs of a gradual recovery from the ill-
effects of the worst ever recession the world has seen in recent times.
Although the pace of economic growth has slowed down across the world in
the last couple of years, we have begun to see modest growth in developed
nations and a relatively higher growth amongst the emerging economies
including India. This has become possible due to the well coordinated
efforts of Governments across the world and the associated agencies.
According to IMF, the stimulus packages offered and increased demand from
Asia could pull the world out of recession at a faster pace than expected.
However, challenges of sustainability of growth in a government aided,
credit constrained and high unemployment environment still remain.

The Indian Story:

Even during these tough times, Indian economy has shown phenomenal
resilience and has achieved a growth rate of over 6.5% in 2009 and is
expected to continue the high growth performance in the coming years as
well. This performance is aided by certain key characteristics of the
Indian economy:

1. Strong sustainable domestic demand both from urban and rural economies

2. Conservative fiscal policies followed by the financial regulators and
Indian financial institutions

3. Government focus on infrastructure spending

4. Ability to attract capital into the country Real Estate Market

The Indian Real Estate market, particularly the residential asset class, is
showing signs of robust recovery in line with the revival of the Indian
economy. Our economy is being driven by its strong fundamentals,
demographic features and structural robustness including:

1. Young population comprises of over 60% of Indians
2. High growth of Urbanization
3. Nuclearisation of families
4. Rise in house hold disposable income
5. Improved outlook on urban infrastructure development

6. Increased penetration of home financing for end customers Above factors,
along with an enhanced consumer confidence arising from higher jobs, income
security and moderation of prices in Tier I cities are expected to drive,
the demand up for real estate sector in particular and all market segments
in general. As the developed nations' growth path is on a recovery mode,
the demand for commercial space catering to exports (IT, ITES etc) is also
expected to witness a substantial growth in the coming years. With the
growth momentum back on track, the availability of capital to real estate
sector is also on a rise, both for domestic and foreign capital. This will
boost the confidence of all stakeholders of the industry and provide the
right impetus for developers to cater to the potential end user demand
growth

B. The Company:

Our Company is one of the leading real estate development and construction
companies in India with a unique business model and delivery mechanism. The
Company is built on rock solid values, benchmark quality standards,
uncompromising business ethos, focused customer centric approach, robust
engineering and in-house research and development, which have all
contributed in making it a strong brand in both real estate and contractual
segments.Our Company has created an enviable brand in all the segments and
regions of its operations and the brand is synonymous with high quality
product and transparency in dealing with its customers.

The Delivery Experience:

Our Company has achieved a phenomenal growth since inception and has had a
superlative delivery experience compared to its peers. We are inching
towards 50th million square foot of delivery in just under 15 years of our
existence. We have so far delivered over 36 million square feet of real
estate space across 20 cities in India. Currently over 13 million sq. ft of
space is under execution in 16 cities both in real estate and contractual
space. In the real estate space, we are primarily focused on middle to high
end residential housing segment in Tier I and Tier II cities.

The residential projects primarily comprise a wide range of luxury
apartment complexes, lifestyle villas and row houses with world class
infrastructure and best-in-class amenities. In the contracting segment, we
are the largest developers of Grade A commercial office space in India
through mega scale campuses built for Infosys Technologies Limited, one of
the leading IT companies in India. In addition, we have undertaken and
completed contractual projects for corporate giants like Hewlett Packard,
Dell, Timken, MICO, HCL, Bharat Forge, Bayer India and the Taj Group of
Hotels.

Recognition and Rewards;

We have received numerous awards and accolades for the exceptional quality
of our delivery and have been duly recognized by prestigious institutions,
some of which are:

* Best of the Best' Award for Employee Care Centre (ECC), built for
Infosys, Pune

* India's Most Admired Company Award by Construction World

- NICMAR

* Best Developer From South India by Real Estate Observer

* Best Executed Project in India Award for our residential project Sobha
Malachite at Jakkur, Bangalore jointly by CNBC, ICICI and CRISIL

* Architect and Builder's Award by Construction World, for being among
India's top ten builders

C. Business Model and Delivery Mechanism:

Unique Business Model:-

We have developed a unique business model in the Indian Real Estate and
Construction industry. Our company's primary business is development of own
real estate spaces. However, we have successfully leveraged our
construction expertise to grow into other associated business segments -
Contracts, Manufacturing and Design and Engineering catering to third party
customers.

This unique business model has proved to be very successful and is
charactrised by the following features:.

1. Superior control over the company's delivery quality

2. Continuous enhancement of our construction expertise through adoption of
market innovations and best practices

3. Stable source of revenue in tough economic times

4. Flexibility to grow into associated businesses in future

Integrated Delivery and Support Mechanism:

Since its inception, the heart of our Company's philosophy has been to
continuously strive towards delivery of high quality end product,
understanding of the customers' needs and catering tothem in the best
possible manner. Over the years, the Company's 'Backward Integrated
Delivery Model' has evolved to support this philosophy.

We have developed in-house expertise in the entire gamut of construction
activity space - including design (through a design studio of
architectural, structural and MEP design), planning & estimation, project
execution (civil, mechanical, electrical, infrastructure, metal works,
interiors) and integrated project management. Additionally, we have set up
a separate quality and safety department, headed by German master masons,
which ensures the best quality product for the customers. The Training
Academy supports the execution team by providing intensive training to our
technicians/tradesmen before start of their work at the construction sites.
So far, over 6000 tradesmen have undergone training in the Academy.

We are moving towards developing the best-in-class processes across
functions and implementing the same through ERP. The customer relationship
management department, first of its kind in Indian real estate industry,
assists customers in the purchase and possession process and works towards
enhancing the customer satisfaction

Overall, we have set up and implemented a model in which a strong in-house
expertise is developed for the entire range of activities in real estate
and construction.

D. Overall Strategy:

We have shown great strength and resilience in the last 2 years of
extremely challenging business environment. On the basis of learning from
the last couple of years and also based on our eagerness to get equipped
for the potential growth phase in future, we have developed a tightly
integrated strategy to achieve 'Sustainable and Profitable Growth' as
depicted below.

E. Key Challenges:

As we continue to focus on our strategy execution, there are certain key
challenges and risks that need to be actively monitored and mitigation
steps to be taken as and when required. These challenges can be summarized
as follows:

i) Material cost increases leading to higher construction costs

ii) Increase in interest rates with a potential risk of lower demand and
higher interest cost for the company

iii) Increasing labour cost and shortage of skilled and technically
qualified manpower

iv) Land prices still continue to be high due to lack of clear land policy

v) Lack of desirable progress in development of infrastructure specifically
in the areas of roads, water and sewage systems, power, etc.

vi) Implementation of new Direct Tax Code, newer regulations to control the
industry by the Government

F. Risk Management:

Our Company has a risk management policy in place and is continuously
working towards improving the same. The risk management process, inter-
alia, provides for review of the risk assessment and mitigation procedure,
laying down procedure to inform/report to the management and periodical
review of the procedures to ensure that identified risks are adequately
controlled through a properly defined frame work.

Our Company has systems and practices to help in identifying potential
risks and taking measures to mitigate those risks. The potential risks
include:

* Assets Risks
* Consumer Risks
* Competitor Risks
* Human Resource Risk - ability to attract, train, motivate, empower and
retain people
* Interest Rate risk - fluctuation in interest rates
* IT Risks - IT resources, disaster recovery, etc
* Land Purchase - risks related to legal titles
* Project execution Risk - project management, time, cost & quality
delivery
* Raw material Risks - availability and pricing
* Regulatory Risks -Tax & Tariff Regulation, Environment Regulation etc.
* Statutory approval - legal clearance for building plans and governmental
clearances

G. Internal Control System:

Our Company has an appropriate internal control system for the business
processes, with regard to the efficiency of operations, financial
reporting, compliance with applicable laws and regulations. Clearly defined
roles and responsibilities for all the managerial persons have been
institutionalized. We Core Strategy practice quality management system for
Design, Planning, and Construction that complies with International
standards. All operating parameters are well monitored and controlled.
Regular internal audits and checks ensure that responsibilities are
executed effectively. The Audit Committee of the Board of Directors reviews
the effectiveness of internal controls and suggests improvements for
strengthening it.

H. Operational Review:

The past financial year has been challenging but gave some key learnings.
Given the present economic situation and stakeholders' expectations we have
taken certain bold and pragmatic initiatives during the year as follows

1. Continued focus on Innovation, Execution, Delivery and timely completion
of projects.

We directed all our resources to ensure high quality delivery to our
customers and completinng all ongoing projects within the planned time.
There was no stoppage of work at any of the sites for want of resources.

In addition we have also expedited all our projects which were generating
higher cash flow to the company and focused on delivery of such projects.

Projects such as Sobha Garrison were launched in order to meet the latent
demand amongst the armed forces. Sobha Celsia was redesigned and
relaunched. Both these projects elicited great response from customers.

2. Raised Equity through QIP:

We had successfully raised Rs 5,268.95 million during the financial year
through a QIP which was used mainly in repaying the debts. Maximum focus
was given to bring down the debt levels and also reduce the interest rates.
Debts were restructured wherever possible and feasible. Our Company's debt
equity ratio came down from the high of 1.76 as on March 31, 2009 to 0.85
as on March 31, 2010 and the effective interest cost was also brought down
from about 15%.p.a. to less than 13%p.a. on borrowings.

3. Monetization of Land Bank:

Our Company had also ensured monetization of surplus assets by sale of land
and plotted development in a most beneficial manner. The monetization
resulted in raising Rs.3,368.63 million in the last 2 years. We have been
fairly successful in converting otherwise illiquid asset into cash as per
the business needs.

4. Marketing Strategy:

A unique Sobha Challenge Scheme' was introduced to give an opportunity to
employees to become ambassadors of the company and make an effort to sell
the apartment and earn a lucrative reward. Similarly, Sobha Privilege
Scheme' was launched to promote Sobha products to its customers through the
efforts of existing Sobha customers . Aggressive advertisement campaigns in
mass media, radio, TV and also through exhibitions gave us a better
competitive advantage.

5. Rationalization of construction parameters to reduce costs:

In line with the company's philosophy to enhance value per square feet of
construction, a detailed technological analysis was made on construction
materials such as tiles, plumbing materials, wooden items etc. Costing and
Planning analyses were undertaken to optimize time and execution of
projects. Further emphasis on new manpower structure and stress on the
technicians and foreman in execution have also resulted in making our
construction cost more efficient.

Project Details:

Summary of the completed and current projects as on March 31, 2010 is as
follows:

(a) Completed Projects:-

All of our completed residential projects are located in Bangalore and
Coimbatore. The completed commercial projects are located solely in
Bangalore and the contractual projects are located in eighteen cities
across India.

i. Residential Projects:

Till date we have developed and constructed 47 residential projects in
Bangalore and Coimbatore aggregating 5,544 units and covering

12.44 million sq. ft. of Super Built up area.

ii. Commercial Projects:

Our Company has till date completed a total of 13 commercial projects
measuring 1.85 million sq.ft of Super Built up area

iii. Contractual Projects:

We have completed construction of 166 projects on a contractual basis in
eighteen cities, covering 22.05 million sq. ft. of Super Built up area .
Typically, under a contractual assignment, we undertake to perform
construction for third parties on pre-agreed terms and conditions. Our
scope of work in contractual projects includes designing, civil and
finishing works, electrical works, plumbing works, metal and glazing works
as well as interior works. In certain cases, we undertake finishing and
interiors related work on structures that have already been built.

Profit and Loss Account

1. Income:

Our Company is one of the leading real estate development and construction
companies in India, which focuses on residential and contractual projects.
For the purpose of analysis, its revenue can be segregated as follows:

(Rs. in Million)
Income from Operations Year ended March 31 Growth
2010 2009 %

Income from property 8,024.58 5,795.79 38.45
development, sale of land
& development rights

Income from contractual 2,098.73 2,299.25 (8.72)
activity

Income from 982.79 1,675.44 (41.34)
manufacturing

Share in profits of 67.73 68.26 -
partnership firm (post
tax)

Total 11,173.83 9,838.74 13.57

The increase in revenue was primarily on account of better sales volume and
better realization from the second half of the current financial year and
also due to selective monetization of land. We have achieved an overall
growth of about 13.57% in the total revenue during the year. The increase
in net revenue was primarily on account of improvement in real estate
operations.

2. Other Income:

Other Income has reduced from Rs.169.65 million in the year ended March 31,
2009 to Rs.52.91 million for the year ended March 31, 2010.

3. Expenditure:

The total expenditure during the year and also the percentage of
expenditure with respect to the net revenue of the year is given as
follows:

(Rs. in Million)
Particulars Year ended March 31
2010 % 2009 %

Revenue from 11,139.92 100.00 9,747.40 100.00
operations (net)

Cost of sales 6,324.63 56.77 4,503.70 46.20

Personnel expenses 768.27 6.90 1,008.64 10.35

Operating and 1,502.72 13.49 1,537.01 15.77
other expenses

Depreciation/ 323.10 2.90 360.33 3.70
amortization

Financial expenses 671.40 6.03 1,052.14 10.79

Total 9,590.12 86.09 8,461.82 86.81

b) Current Projects:

Currently, we are developing residential projects in four cities,
commercial projects in three cities and contractual projects in ten cities
across India.

i. Residential Projects:

We are presently developing 21 residential projects in Bangalore, Thrissur,
Coimbatore and Pune at various stages of construction, aggregating 8.50
million sq. ft. of Super Built up area comprising of 3,797 units.

ii. Commercial Projects:

We are presently developing 6 commercial projects in Bangalore, Thrissur
and Coimbatore, which are at various stages of construction, aggregating
0.58 million sq. ft. of Super Built up area.

iii. Contractual Projects:

We are currently executing the construction of 31 contractual projects for
various corporate and other entities in various cities such as Bangalore,
Mysore, Mangalore, Hyderabad, Pune, Chennai, Trivendrum, Bhubaneshwar and
Greater Noida aggregating 4.24 million sq.ft. of Super Built up area.

I. Financial Results and Overall Business Performance of the Company:

The overall performance of our company during the current financial year
has been good. During the initial six months of the year, there were
elements of uncertainty, but the businessstarted picking up during the last
two quarters because of positive sentiments that were prevailing in the
whole business environment and the pro-active measures taken by the Company
to improve the top line. The Net Sales of the Company stood at Rs.
11,139.92 million for the year ended March 31, 2010 (up 14.29% from
Rs.9,747.40 million last year) and net profit before tax is Rs. 1,602.71
million for the year ended March 31, 2010(up 10.14% from Rs.1,455.23
million last year).

The summarized analysis of financial statements, viz. the Profit and Loss
account and Balance Sheet is given below


3.1 Cost of Sales:

(Rs. in Million)
Particulars Year ended March 31
2010 % 2009 %

Net Revenue 11,139.92 100.00 9,747.40 100.00

Cost of Sales

Land Cost 1,292.24 11.60 2,453.09 25.17

Construction 3,847.24 34.53 3,491.80 35.81
cost

Raw material 665.86 5.98 957.66 9.82

Production 213.15 1.91 297.67 3.06
expenses

Decrease/ 306.14 2.75 (2696.52) (27.66)
(increase) in
inventories

Total Cost 6,324.63 56.77 4,503.70 46.20
of Sales
(Rs. in Million)
Particulars Concrete Interior Glazing Total
Products

Direct wages 4.75 84.24 92.83 181.82
Power and fuel 5.02 9.33 2.68 17.03
Labor charges 0.17 6.83 0.04 7.04
Other direct 0.01 6.24 1.01 7.26
expenses

Total 9.95 106.64 96.56 213.15

e Decrease/(increase) in Inventories:

Inventory consists of Building materials, work in progress, stock in trade-
flats and finished goods at factories. As explained earlier, the costs
associated with un-recognized revenue are transferred to work-in-progress.
This includes the construction cost, land cost etc. During the year
inventory has decreased by Rs.306.14 million mainly due to increase in real
estate sales resulting in lower inventory. The revenue from the work-in-
progress will get realized in subsequent years based on the stage of
completion and sales of those projects in progress.

3.2 Personnel Expenses:

The personnel expenses have reduced to Rs.768.27 million in the current
year from Rs.1,008.64 million during last year. These expenses include
salaries & bonus, contribution to funds, Gratuity & leave encashment
provision, staff welfare and other expenses. Reduction in personnel
expenses was possible mainly due to reduction in manpower, higher attrition
rates and improvement in productivity. The total strength has reduced from
2,082 as on March 31, 2009 to 1,852 as on March 31, 2010 resulting in a
reduction of 11.04% over previous year. Personnel expenses have come down
from 10.35% of the net revenue during the last year to 6.90% of the net
revenue in the current year.

3.3 Operating and Other Expenses:

The operating expenses have reduced to Rs.1,502.72 million in the current
year from Rs.1,537.01 million in the previous year. We had taken several
steps to reduce our fixed costs of operation, reduce operational overheads
and increase the efficiency. As a result, the operating and other expenses
which were about 15.77% of net revenue during last year have come down to
13.49 % of net revenue during the current year. The detailed analysis of
expenditure is given below:

a Land Cost:-

Our Company, while obtaining clear and marketable titles free from all
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 more number of projects (real estate) and works
carried out during the year, the overall construction cost has increased to
Rs. 3,847.24 million in the current year from Rs.3,491.80 million in the
previous year. Further, as per our 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 un-recognized revenue
are transferred to work-in-progress.

c. Raw Materials:

The raw materials costs are reduced to Rs.665.86 million from Rs.957.66
million during the previous 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)
Particulars Year ended March 31
2010 % 2009 %

Net Revenue 11,139.92 100.00 9,747.40 100.00
Electricity charges 36.06 0.32 43.36 0.44
Insurance charges 17.49 0.15 21.73 0.23
Sales tax and others 509.74 4.58 419.19 4.30
Freight outwards 28.11 0.25 36.88 0.38
Donation 99.87 0.90 95.09 0.97
Registration 210.20 1.90 250.65 2.59
expenses - flats
Rent 112.45 1.01 139.02 1.43

Legal and professional 117.21 1.05 80.67 0.83
charges

Repairs and 25.80 0.23 31.61 0.32
maintenance

Advertisement and 123.13 1.10 157.62 1.62
sales promotion
expenses

Travelling and 59.90 0.54 87.91 0.90
conveyance

Miscellaneous 162.76 1.46 173.28 1.76
expenses

Total 1,502.72 13.49 1,537.01 15.77

4. Operating Profits (Profit before interest, depreciation and tax):

Our Company has earned an operating profit of Rs. 2,597.21 million,
representing 23.30% of total revenues as compared to Rs.2,867.70 million,
representing 29.42% of total revenues during the previous year. Reduction
in operating profit is 9.43% over the previous year.

5. Finance Expenses:

Finance expenses include interest on term loans, bank loans etc and the
bank charges. We have charged interest and finance charges to profit & loss
account to the extent of Rs.671.40 million and Rs.1,052.14 million for the
year ended March 31, 2010 and March 31, 2009 respectively. Finance expenses
represented about 6.02% of total revenue in the current year as compared to
10.79% in the last year mainly due to reduction in borrowings and interest
rates.

6. Depreciation and Amortization:

We have provided Rs.323.10 million and Rs.360.33 million towards
depreciation and amortization during year ended March 31, 2010 and March
31, 2009 respectively, representing 2.90% and 3.70% of total revenue. The
depreciation amount as a percentage of average gross blocks (excluding
land) is 11.25% and 12.58% for the year ended March 31, 2010 and 2009
respectively.

7. Net Profit:

The net profit after tax has increased from Rs.1,096.78 million for the
year ended March 31, 2009 to Rs.1,366.62 million for the year ended March
31, 2010 shows a growth rate of 24.60% in net profit over previous year.

(Rs. in Million)
Particulars Year ended March 31
2010 2009

Total Revenue 11,139.92 9,747.40
PBT 1,602.71 1,455.23
PAT 1,366.62 1,096.78
PBT as % of revenue 14.39% 14.93%
PAT as % of revenue 12.27% 11.25%

Our Company has performed well under the trying circumstances and is able
to improve its over all net profit rate from 11.25% of total turnover
during the previous year ended March 31, 2009 to 12.27% of total turnover
during the current year ended March 31, 2010.

Balance Sheet:

With a net worth of Rs.17,084.68 million and Debt Equity Ratio of 0.85 as
on March 31, 2010, our company has considerably improved our financial
position and the leverage ratio in the current year. We had met all
stakeholders' interests in time during the year including commitments
towards repayment of loan, interest servicing to banks,financial
institutions and payment of statutory dues. We had raised a significant
amount through a Qualified Institutional Placement (QIP) and used its
proceeds partially for the effective restructuring of its debts.

The share capital increased to Rs.980.64 million as on March 31, 2010 from
Rs.729.02 million as on March 31, 2009 due to additional issue of about
25.16 million shares to Qualified Institutional Buyers (QIB) during the
year. The secured loan saw a decrease of Rs.4,317.54 million from Rs.
18,783.39 million as on March 31, 2009 to Rs.14,465.85 million as on March
31, 2010. Unsecured loans were also reduced from Rs. 338.39 million as on
March 31, 2009 to Rs. 74.50 million as on March 31, 2010, Gross Fixed
assets grew marginally to Rs.2,942.11 million from Rs. 2,930.22 million
mainly on account of small additions in the asset class of plant and
machinery, buildings, computers etc. We had adopted a conscious strategy
not to incur major capex in the current year.

There were no major change in the trade and non trade investments of the
company during the year other than investment in capital of partnership
firm.

Deferred tax assets/liability represents timing differences in the
financial and tax books primarily arising from depreciation of assets with
different rates and expenditure disallowed under section 43 B of the Income
Tax Act, 1961, which are allowed in the year of payment. Deferred tax
assets are recognized only to the extent that there is reasonable certainty
that sufficient future taxable income will be available against which such
deferred tax asset can be realized.

Inventories were brought down from Rs.10,491.94 million as on March 31,
2009 to Rs.10,173.94 million as on March 31 2010. A major portion of
inventory was attributable to work-in-progress which was reduced from
Rs.10,206.96 million as on March 31, 2009 to Rs. 9,882.39 million as on
March 31 2010. This has resulted in a reduction of Rs, 324.57 million in
work in progress thus making it possible this year to realize the sale of
said work in progress of last year.

Sundry Debtors were Rs.4,165.80 million and Rs.3,553.24 million as on March
31,2010 and March 31,2009 respectively. Since the ownership of apartments
is transferred to clients upon full settlement of their dues, the company
considers the debtors as good and realizable.

Advances were Rs.20,093.23 million as on March 31, 2010 as compared to
Rs.18,956.30 million as on March 31, 2009. Advances are primarily towards
amount paid in advance for purchase of land or for other value and services
to be received in future. We consider the advances/deposits towards land as
good since these advances are backed by arrangement/ memorandum of
understanding / agreement executed by the company and the
company/seller/intermediary in the course of obtaining clear and marketable
titles free from all encumbrances.

Efforts were made during the year to reduce Sundry Debtors and advances
which were old and unrecoverable. Accordingly, debtors outstanding for more
than six months reduced from Rs.785.74 million as on March 31, 2009 to
Rs.532.08 million. as on March 31, 2010

Cash and Bank Balances improved from Rs.210.51 million as on March 31, 2009
to Rs. 800.36 million as on March 31,2010 mostly held in current account
and deposit accounts maintained at various banks. The deposit account
represents deposits for short tenures and margin money towards loan escrow
account and other non fund based utilization of limits.

Current Liabilities include sundry creditors for supply of materials and
provision of services, bank overdraft, advance from customers and interest
accrued but not due and other liabilities. This has increased from
Rs.5,555.58 million as on March 31, 2009 to Rs. 5,613.19 million as on
March 31, 2010 Advance from customers in current liabilities denote monies
received for the delivery of final products on future dates and amount
received for this income is yet to be recognized in the books of accounts.

Provisions include proposed dividend, corporate dividend tax, provision for
leave encashment and gratuity, provision for taxation etc. Total Provisions
were Rs.279.85 million and Rs. 537.09 million as on March 31, 2009 and
March 31, 2010 respectively. Our Company has emerged strong in its
financial position during the year showing improvement in all the financial
parameters of liquidity, solvency, leverage, profitability and cash flow.

1. Liquidity:

Our Company broadly defines liquidity as its ability to generate sufficient
funds from both internal and external sources to meet its obligations and
commitments. Our Company has financed capital requirements primarily
through funds generated from its operations, equity/equity related
instruments and borrowings. Working capital requirements were met by short
term borrowings and internal accruals to keep the smooth running of
operations.

2. Debt Equity:

The debt equity ratio of the Company as on March 31, 2010 is at 0.85 as
compared to 1.76 as on March 31, 2009.

3. Cash Flow:

The table below summarizes the Company's cash flow for the periods
indicated:

(Rs. in Million)
Particulars 2009-10 2008-09

Net cash generated from/ 3,277.63 1,962.73
(used in) operating
activities

Net cash generated from/ (124.07) (396.27)
(used in) investing
activities

Net cash generated from/ (2,563.71) (1,481.89)
(used in) financing
activities

Net cash increase/ 589.85 84.57
(decrease) in cash
and cash equivalents

(i) Operating Activities:

Net cash generated from operating activities was Rs. 3,277.63 million in
Fiscal 2010. Net cash generated from operating activities consisted of
profit before tax of Rs. 1,602.71 million as adjusted for interest expenses
of Rs. 610.69 million and non-cash items such as depreciation and
amortization of Rs. 323.10 million. This amount was partially offset by a
decrease in cash generated from working capital movements which was
primarily due to increase in debtors amounting to Rs. 612.56 million.
Meanwhile, there was also Rs. 396.70 million decrease in inventory, Rs.
523.74 million decrease in loans advances and Rs. 623.57 million increase
in current liabilities and provisions.

As against above, Net cash used in operating activities was Rs. 1,962.73
million in Fiscal 2009. The Company had a profit before tax of Rs. 1,455.23
million, which was adjusted for and interest expenses of Rs. 980.94 million
and non-cash items such as depreciation and amortization of Rs. 360.33
million. This amount was offset by a decrease in cash generated from
working capital movements which was primarily due to an increase in
inventories of Rs. 1,748.14 million and an increase in loans and advances
of Rs. 945.30 million and a decrease in debtors of Rs. 1,898.37million and
increase in current liabilities of Rs.308.07 million.

(ii) Investing Activities:

Net cash used in investing activities was Rs. 124.07 million in Fiscal
2010. We had used Rs. 650.00 million for the purchase of investments and
Rs. 139.41 million for the purchase of fixed assets, which was partially
offset by Rs. 650.00 million, generated from the sale of investments.

As against above position, Net cash generated from investing activities was
Rs. 396.27 million in Fiscal 2009. The company generated Rs. 570.77 million
for the purchase of investments, and Rs. 412.47 million for the purchase of
fixed assets, which was partially offset by Rs. 571.46 million realized
from sale of investments and Rs. 12.40 million received as interest.

(iii) Financing Activities:

Net cash used in financing activities was Rs. 2,563.71 millionin Fiscal
2010, which primarily included Rs. 6,407.21 million for the repayment of
secured loans and interest payment of Rs. 2,447.98 million. There was also
an outflow due to refund of share application money amounting to Rs.474.70
million. This amount was partially offset by Rs. 5,094.00 million (net of
share issue expenses) coming from proceeds of issue of shares and Rs.
1,838.00 million fresh inflows from secured loans. Net cash generated from
financing activities was Rs. 1,481.89 million in Fiscal 2009, which
primarily included Rs. 12,652.59 million generated from proceeds of secured
loans and Rs. 614.00 million generated from proceeds of unsecured loans.
This amount was partially offset by Rs. 8,262.30 million used for the
payment of secured loans, Rs.3,525.23 million used for repayment of
unsecured loans and Rs. 2,961.79 million used for interest payments and Rs.
473.86 million used for dividend payments.

Our Company has delivered a healthy performance, particularly viewed in the
backdrop of the challenging environment it faced during the year. The
outlook appears bright on the back of growth initiative taken by the
Government. Infrastructure impetus in Government's spending will
undoubtedly encourage the construction industry as a whole through its
cascading effect.

J. Cautionary Statement:

Statements in the Management Discussion and Analysis describing the
company's objectives, projections, estimates, expectations may be 'forward
looking statements' within the meaning of applicable security laws and
regulations. Actual results could differ materially from those expressed or
implied. 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 and 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.

Additional Information

Human Resource Management

In order to maximize value for our stakeholders in today's dynamic
environment, we have focused on anticipating the unknown, evolving new
strategies by thinking out of the box, motivating people, developing their
skills, promoting synergies and creating a cordial environment at the work
place. We strive to achieve this by:

* Ensuring employees have a fair understanding of the essential business
needs

* Providing them the skills, expertise, and knowledge needed to fulfill
these needs

* Removing areas of ambiguity with respect to policy issues and expected
outcomes

* Developing effective teams with good capabilities

* Encouraging employees to eliminate unnecessary costs and to seek
innovative solutions

HR Department has played a key role in accomplishing the organization-wide
business plan. Our focus has been on retaining talent, recognizing and
rewarding high performers and investing in employee development which will
serve us in the long run.

Employee Satisfaction:

Leadership is the key for organizational development. It is therefore
necessary to assess the satisfaction and motivational levels of Managers in
the organization. An internal online satisfaction survey was conducted and
the analysis and feedback of the results was discussed at the Leadership
Development Program Workshops conducted for Managers posted across all
locations in India. These sessions which dealt with real-life day to day
challenges faced by managers were conducted by the senior management staff.
These programs with customized case studies and assessments were mandatory
for all managers to attend.

Recruitment:

Online assessments tests and IQ tests were developed for strengthening our
recruitment process for selecting high quality candidates.

Workshops on recruitment and selection were conducted exclusively for the
recruitment team to upgrade and understand the latest tools and trends in
recruitment. In addition to the regular behavioral training programs,
needbased programs in the following areas were organized to enable
incumbents face the new challenges in their respective functions. Sales
Training Workshop was conducted for the entire Sales team to provide them
with the tools and knowledge to face the new challenges arising in the
market place. The training material and methodology were formulated after a
Customer Validation Study and direct interaction with all the Sales team
members.

Customer Service Foundation Course was conducted for the Customer
Relationship Executive team to enable them to interface better with
clients. This program provided a unique set of skills along with practical
implementation techniques which can be used in any form of client interface
for continual improvement. Negotiation Skills Workshop was conducted for
the Purchase team to become skilled negotiators. The session enhanced their
skills and knowledge about strategies and methods required to negotiate
successfully in any business situation. It enabled employees to craft,
negotiate, and reach agreements while enhancing the business relationship
as well as protecting the targeted opportunity.

Lean Implementation through experiential training was conducted for factory
staff to understand the importance of identifying and eliminating wasteful
processes. After the session, a list of 76 items was compiled that covered
about 40 areas of wasteful processes in the factory. This indicates the
involvement of the participants in making Lean Implementation successful.
The factory teams are now gearing up to start pilot projects for 5S
implementation at the shop floor.

Workshop for Enhancing Effectiveness of Secretaries was designed to build
up various skills of the secretaries to ensure their effectiveness, pride
of belongingness and above all to be true ambassadors when they interact
with a cross section of the people who come into contact with the Company.

We have encouraged and promoted employees initiatives that promote team
work in the organization. Many self-help teams have been initiated to build
a positive culture within the organization. Our employees' Creative Club
takes an active role in building a positive and encouraging work
environment for employees to share their ideas and get recognized. This
club aims at keeping the morale of the employees high and inculcates the
importance of team work through various creative team-building activities.
The club actively conducts awareness campaigns like Earth Day, Bus Day,
Earth Hour, Environment Day, etc., to sensitize Sobhaites about the
importance of such issues through their participation. The club regularly
organizes cultural programs on Independence Day, New Year's Day, etc., and
commemorates all festivals to keep traditions intact as well as keep
Sobhaites rejuvenated. Our Sobha Fine Arts Group formed for employees to
showcase their talent in music, theater and dance has been named 'Rhythm-
Soul of Life' on account of our employees' outstanding performance at the
New Year celebrations.

Our Sobha Toastmasters Club affiliated to Toastmaster International USA is
a learn-by-doing workshop in which participants hone their speaking and
leadership skills in a friendly atmosphere. A typical group has 20 to 40
members who meet weekly to practice communication and leadership
techniques. The Sobha Toastmasters Club takes the lead to enhance
employees' communication and leadership skills in a fun-filled environment.

Environment, Health and Safety:

We at Sobha Developers Ltd have formulated an Environment, Health and
Safety Policy which acts as our guiding force in creating value for an eco-
friendly environment and accident-free workplace.

Energy Conservation:

We are focused on energy conservation and provide energyefficient solutions
to our customers thereby reducing carbon emission. Some of the best
practices followed are

* Continuous focus on highly energy-efficient lighting system design for
all projects and usage of CFL/FTL/metal halide fittings

* In lighting design, we have achieved 0.55W/SFT, which is remarkable. We
were able to achieve this by exploiting lighting software and using highly
efficient lamps like T5 tubes and LEDs. Lighting software has helped us in
designing an energy-efficient lighting system. This software is used in
designing street lighting systems which utilize energy optimally and thus
contribute to energy conservation. Timers, sensors and automatic switching
methods are provided to save energy and reduce running costs

* Some innovative devices such as daylight sensors and occupancy sensors
have been introduced in software development blocks to save energy and
reduce running costs

* Use of solar lighting in all common areas in residential apartments and
deployment of solar heating thereby reducing the use of conventional energy

* Internal and external electrification is designed keeping in mind the
need to reduce energy loss and running costs

* Installation of highly efficient transformers, DG sets and other
equipment. An effective, preventive and predictive maintenance system is in
place to protect all energy-intensive equipments like DG sets, cranes,
hoists and other heavy equipment

* Automatic power factor control panels are installed at supply level of
individual projects for achieving energy efficiency

Water Conservation:

Water is a precious resource and to ensure its judicious use and
conservation the following best practices are followed:

* Sewage Treatment Plants (STP) are installed in all projects to achieve
the ultimate goal of zero discharge. Usage of STP-treated water for
flushing and gardening

* Rain Water Harvesting - Rain water-harvesting system is mandatory for all
projects. Rain water is collected in tanks and used for domestic purposes
after treatment. During the monsoons, this saves 50% to 60% of the water
consumed

* Ground water is recharged by diverting the run-off water from hard-paved
areas of the building to rain water percolation pits through external
drains thereby recharging the water table

Waste Management:

Waste is an unavoidable outcome of any process but effective management
practices help in minimizing waste generation and controlling the pollution
caused by its disposal. Waste management practices are based on the Reduce,
Reuse and Recycle principle. Some of the waste management practices
followed are:

* Segregation of waste at the source which helps in identifying the right
waste management option.

* Salvaging or recycling useful packaging and/or surplus building materials
wherever it is practical. Wooden pallets, plywood, runners, cardboard
boxes, cement bags, jute bags, aluminum cut pieces, steel cut pieces, PVC
pipes (electrical and plumbing), etc. are amongst the items recycled. Scrap
vendors have been identified near project locations.

* Disposal of hazardous waste through authorized recyclers.

* Organic waste converters are installed at projects to convert organic
waste into manure which is eventually used for landscaping. Thus the burden
and costs associated with disposal of such waste are totally avoided.

Tree plantation is an important activity which Sobha Developers undertakes
at all its projects. While designing a project, it is ensured that at least
40% of the total project area is set aside for gardening and green belt
development. It absorbs CO2 emissions arising from anthropogenic
activities.

Ensuring Health and Safety:

The health and safety of our people is of paramount importance to us. At
Sobha Developers, our most precious resource is our human resource and we
strive to ensure that we create a great workplace for our people. We
sponsor health, safety and wellness programs to actively manage healthcare
in pursuit of our goal of zero onthe- job injuries. Plus, our emergency
preparedness and response program helps in protecting our employees and
workforce and help them cope with emergency situations.

Initiatives/ Safeguards to control accidents on sites:

* Special focus is laid on creating awareness about safety in our own
employees and contracted employees. Regular tool box talks/safety talks
form an important feature of our project execution.

* A Safety Room is erected at each site where safety promotion activities
are carried out by the Safety Department; videos on safety and related
aspects are regularly shown at each site.

* Work permit system is designed and implemented at every site.

* A team of safety auditors is deployed to cater to day-to-day safety
requirements at every site.

* An effective safety evaluation system is in place to evaluate site
safety conditions.

* Safety net installation standards have been evolved and implemented at
every site. Safety nets are installed at vertical intervals of 6 meters to
avert any casualty due to fall.

* Job Safety Analysis is carried out on regular basis in case of critical
activities and as and when required for non-critical activities. Health
Initiatives

* A well-equipped clinic is mandatory on every site to treat cases of minor
accidents and illness.

* Occupational health-related medical evaluation is undertaken at regular
intervals through medical camps for all our site laborers and their
families.

* Day Care Centers are provided at labor camps to take care of the children
of laborers; elementary education is imparted to these children and food is
provided at such centers.

* Superior sanitation practices are followed and instilled into our
laborers. Regular pest control activities are undertaken to prevent
occurrence of any serious illness in labor camps.

* These programs help us in ensuring the welfare of our most valuable
resource, namely, our people, by enabling them to lead a balanced,
rewarding and productive life

Training:

The details of training programs conducted during the financial year on
Environment, Health and Safety are presented below

Training Details A B C

First Aid Training 18 407 } Conducted with the help of
Program } in-house resources.
}
Fire Fighting 88 2317 }
Training Program }
}
Environment, 18 540 }
Health and Safety }
Awareness }

Evacuation Drills 13 95% } Average participation during
Conducted } each drill
}
Medical Camps 37 8714 }
Conducted }

A = Number of Programs
B = Number of Employees & Workers who participated
C = Remark

Corporate Social Responsibility:

Sobha Developers Limited, through its Sri Kurumba Trust, has set a new
benchmark in corporate social responsibility by adopting two underdeveloped
gram panchayats, Vadakkanchery and Kizhakkanchery, part of Palakkad
District in the state of Kerala. Sri Kurumba Trust, registered in June
1994, functions as the social responsibility arm of our company. The Trust
operates to improve various core areas of socio-economic development like
education, health, employment, water, sanitation and housing for people
living below the poverty line in these two grama panchayats. Of the six
verticals identified for social development, we have decided that
education, health and employment will be our core areas and immediate
priority will be accorded to education. Several important initiatives were
taken during the financial year 2009-10 in our three key institutions set
up by the Trust.

Sobha Academy:

At Sobha Academy, a new LKG batch comprising 90 children of BPL families
has been added, in line with the existing rules. Seven children of widows
from the BPL category have been admitted directly as an empowerment
measure. The admission process adopted by the Academy has been widely
acclaimed as just and transparent by the public.

Phase-II of Sobha Academy in Panniyankara has been completed. 12 class
rooms and facilities for allied activities, including a refectory with a
320-seat dining hall, arts, science, maths and computer labs, etc, are in
place. With this, the super built up area of the Academy has increased to
76,700 sq. ft. approximately.

The Academy will admit students up to 7th standard. The Sobha Senior
School, a boarding school of international quality proposed to be set up at
Mangalam, will cater to students from 8th to 12th standard. The design of
this school is at an advanced stage and is scheduled to open in June 2014.

The year also witnessed the Trust implementing a high strategic Social
Empowerment Education Program (SEEP). Under this we impart continuous and
systematic life-skills education to parents of Sobha Academy students to
prevent any parent-child divide which may arise in the future. The need is
to constructively empower parents with appropriate knowledge, skills and
attitude to carry them along with the development of their children. The
program has been greatly appreciated by parents and others. The Trust also
organized programs in career guidance, graphic designing and music training
for people from poor sections of the society.

Sobha Health Care:

In the administration of health care, two major policy initiatives have
been announced: First, all BPL card holders and first level staff have been
made eligible for free diagnosis, including tests, treatment and medicines.
Second, it has been decided to establish a gynecology and pediatric ward to
add value to the services being provided to women and children belonging to
the target group. To provide services to the most needy, Health Outreach
Programs were launched in far-flung areas. A School Health Program has also
been launched, and children from at least five schools of the region have
been fully diagnosed and provided preventive care. Besides, a program for
comprehensive medical screening of parents of the Sobha Academy students
was initiated this year.

Sobha Hermitage:

There are now 28 senior citizens, 15 young widows (referred as young
mothers) and their 24 children in the Hermitage. Of these, 4 young mothers
and their 6 children were added during the year. Two more services have
been added to empower women staff residing in the Hermitage: Yoga and
English communication classes.

The Trust has also unveiled a program for the comprehensive rehabilitation
of young mothers in the Hermitage. Accordingly, everyone has to graduate at
the earliest for which the Trust will provide support. Once graduated, they
will be provided suitable placement in the Trust institutions.
Simultaneously, exclusive apartments will be built adjacent to the
Hermitage which they can move into as the children grow older.

In addition, special marriage assistance of Rs. 60,000 each was provided
during the financial year to 12 girls working and living in the Hermitage.
33 girls have been assisted so far in this manner.

Other Initiatives:

In order to maximize value for every beneficiary, Unique Individual Photo
Identity Cards (UIC) are being issued to each member of the BPL families by
the Social Empowerment Department of the Trust. This will make it easier to
access the Trust's resources, services and facilities. Our effort
towards UIC has made social governance transparent and simple.

The staff recruitment policy of the Trust has also been revised and
enforced this year. Accordingly, the final selection of candidates to all
posts, excluding teachers for the Sobha Academy, would be made from the BPL
families only.

Some specific guidelines on environmental preservation have been laid down
during the year. These include greening of the campus by planting more
trees wherever possible. The objective is to transform it into a truly
green campus within a couple of years. Another important thing has been the
construction of two rain water harvesting plants, with a capacity of
100,000 liters, in the campus. The existing STP system has been further
strengthened. As a part of our efforts to empower girls from the poorest
families, 40 girls were married at the annual Social Wedding program in
December 2009. 251 girls have been so far married under this program.

We have also decided to plant 100,000 trees in the adopted Panchayats
before 2013.

We, at Sobha, believe in bringing about a change in society by serving the
poorest of the poor from the villages by providing them the best of the
services.

Secretarial Audit Report for the year ended march 31, 2010

To,
The Board of Directors,
Sobha Developers Limited,
Bangalore - 560 042.

I have examined the records, registers and documents of Sobha Developers
Limited (hereinafter referred to as ['the Company'] for the financial year
ended on March 31, 2010, required to be maintained under the provisions of:

i) The Companies Act, 1956, hereinafter referred to as ('the Act'), rules
made there under and also the provisions contained in the Memorandum of
Association and Articles of Association of the Company;

ii) The Equity Listing Agreements with Bombay Stock Exchange Limited and
National Stock Exchange of India Limited (Designated Stock Exchange).

iii) The following Regulations and Guidelines prescribed under the
Securities and Exchange Board of India Act, 1992 (SEBI Act');

a. The Securities and Exchange Board of India (Substantial Acquisition of
Shares and Takeovers) Regulations, 1997;

b. The Securities and Exchange Board of India (Issue of Capital and
Disclosure Requirements) Regulations, 2009 erstwhile The Securities and
Exchange Board of India (Disclosure and Investor Protection) Guidelines,
2000.

Based on my examination and verification of the registers, records and
documents produced to me and according to the information and explanations
given to me by the Company, I report that the Company, has in my opinion,
complied with

i) The provisions of the Companies Act, 1956 (the Act') and the Rules made
there under the Act and the Memorandum and Articles of Association of the
Company, with specific reference to:

1. The Company has kept and maintained the requisite registers and other
records required under the Act and the Rules made there under.

2. The Company has filed required forms, returns, documents, and
resolutions required to be filed with the Registrar of Companies, Ministry
of Corporate Affairs.

3. The Company closed its Register of Members and Share Transfer Books from
June 15th, 2009 to June 19th, 2009 (both days inclusive) and necessary
compliance of Section 154 of the Act has been made.

4. The Board of Directors of the Company is duly constituted in accordance
with the Act.

5. The Board of Directors of the Company met 5 times, during the financial
year, viz., May 4, 2009, May 18, 2009, July 29, 2009, October 29, 2009 and
January 29, 2010 in respect of which meetings, proper notices were given
and the proceedings were properly recorded and signed in the Minutes book.

6. During the financial year, the Board of Directors has passed three
Circular Resolutions dated May 22, 2009, June 24, 2009 and July 03, 2009.

7. As per the declarations received by the Company, the Directors have
disclosed their interest in other firms/companies to the Board of the
Directors pursuant to the Provisions of Section 299 of the Act.

8. As per the declarations received by the Company, none of the Directors
are disqualified under section 274(1) (g) of the Act read with the
Companies (Disqualification of Directors under section 274(1) (g) of the
Companies Act, 1956) Rules, 2003.

9. The Audit Committee constituted as per the requirement of Section 292A
of the Act and listing agreement duly met 4 times during the financial
year, viz., May 18, 2009, July 29, 2009, October 29, 2009 and January 29,
2010 in respect of which meetings, proper notices were given and the
proceedings were properly recorded and signed in the Minutes book.

10. The meetings of the other Committees of the Board were duly and
properly convened and minutes of such meetings have been properly recorded
and signed in the Minutes book maintained for the said purpose.

11. The Annual General Meeting for the financial year ended on 31st March
2009 was held on June 24th, 2009 after giving due notice to the members of
the Company and the resolutions passed thereat were duly recorded in
Minutes book maintained for the purpose.

12. During the Financial Year, 1 (One) Extraordinary General Meeting of the
Company was held on 17th June, 2009 after giving due notice to the members
of the Company and the resolutions passed thereat were duly recorded in
Minutes book maintained for the purpose.

13. The Company has obtained approvals of the Members of the Company, the
Board of Directors, and the Committees of Directors, wherever required.

14. The appointment and remuneration of Managing Director, Wholetime
Director, and other Directors of the Company have been made in accordance
with the Articles of Association of the Company and with the relevant
provisions of the Act.

15. During the year under review, the Company has co-opted two additional
Directors in the Board of Directors of the Company, viz, Mr. M. Damodaran
and Mr. P Ramakrishnan. Mr. M. Damodaran is an Independent Director and Mr.
P Ramakrishnan is an Executive Director (Wholetime Director) designated as
Deputy Managing Director.

16. The Company has re-appointed M/s. S. R. Batliboi & Associates,
Chartered Accountants, as Statutory Auditors of the Company in accordance
with the Act. The remuneration paid to them is with prior approval of
members of the Company.

17. The Company has deposited the amount of dividend declared at the Annual
General Meeting held on June 24th, 2009, in a separate bank account on June
27th, 2009, with State Bank of India, Overseas Branch, Bangalore within 5
days from the date of declaration of such dividend in accordance with the
provisions of Section 205 of the Act.

18. The Company is not required to effect any transfer of the amounts in
unpaid dividend account, application money due for refund, matured
deposits, matured debentures and the interest accrued thereon which have
remained unclaimed or unpaid for a period of seven years to Investor
Education and Protection Fund as there were no cases.

19. The Company has issued 25,162,135 Equity Shares of Rs. 10 each at a
premium of Rs. 199.40 per share during the financial year under scrutiny
and requisite E-form 2 has been filed with the Ministry of Corporate
Affairs.

20. The Company has not issued any Redeemable NonConvertible Debentures/
Commercial Paper during the financial year.

21. The Company has not issued any redeemable preference shares and as such
there was no redemption of preference shares during the financial year.

22. The Company has redeemed various series of Redeemable Non- Convertible
Debentures aggregating Rs. 1,630.10 Million (Rupees One Thousand Six
Hundred Thirty point Ten Million) only during the year under report.

23. The Company has not bought back any shares during the financial year.

24. The Company has not altered the provisions of the memorandum with
respect to situation of the Company's registered office from one state to
another during the year under scrutiny.

25. The Company has not altered the provisions of the memorandum with
respect to the objects of the Company during the year under scrutiny.

26. The Company has not altered the provisions of the memorandum with
respect to name of the Company during the year under scrutiny.

27. The Company has not altered the provisions of the memorandum with
respect to the Share Capital of the Company during the year under scrutiny.

28. The Company has not altered its Articles of Association during the
financial year under report.

29. Consequent to the preliminary observations made during the Technical
scrutiny and Inspection under section 209A of the Companies Act, 1956, the
Company has filed an application for compounding of offence in pursuance to
Section 621A of the Companies Act 1956, for not taking prior approval of
the Central Government with regard to certain contracts entered by the
Company in terms of Section 297 of the Companies Act, 1956.

30. During the year under review, the Company has obtained the previous
approval of the Central Government vide Letter no. 2/B-10525/09 dated July
8, 2009, in pursuance to Section 297 of the Companies Act, 1956 for
purchase of goods from Sobha Projects and Trade Private Limited for a
period of five years with effect from July 08, 2009 to July 07, 2014, up to
a maximum limit of Rs. 30 Crores per annum.

I further report that:

ii) The Company is a listed Company with Bombay Stock Exchange Limited
bearing Stock Code no. 532784 and National Stock Exchange of India Limited,
bearing Stock Symbol 'SOBHA' and has complied with the requirements under
the Equity Listing Agreements entered into with the Bombay Stock Exchange
Limited and the National Stock Exchange of India Limited as to the
following matters:

1. The Constitution of Board of Directors has been in the terms of the
Clause 49 of the listing agreement entered by the Company with the Bombay
Stock Exchange Limited (BSE) and National Stock Exchange of India Limited
(NSE) (collectively referred as 'the Stock Exchanges').

2. The Constitution of Audit Committee has been in terms of clause 49 of
the listing agreement.

3. The Constitution of Investors Grievance Committee has been in terms of
clause 49 of the listing agreement and the committee has duly met 4 times
during the financial year, viz., May 18, 2009, July 25, 2009, October 29,
2009 and January 29, 2010 in respect of which meetings, proper notices were
given and the proceedings were properly recorded and signed in the Minutes
book.

4. The Company has filed the Quarterly Corporate Governance Report and
Shareholding pattern with the Stock Exchanges in terms of Clause 49 and 35
respectively, of the listing agreements.

5. The Company has filed the half yearly Compliance Certificate with the
Stock Exchanges in terms of Clause 47(c) of the listing agreements.

6. The Company has filed the quarterly Secretarial Audit Report with the
Stock Exchanges in compliance with the provisions of Regulation 55A of the
SEBI (Depositories and Participants) Regulations, 1996.

7. The Directors have complied with the disclosure requirements in respect
of their eligibility of appointment, their being independent and compliance
with the code of Business Conduct & Ethics for Directors and Management
Personnel;

8. The Company has obtained in principle approval from the Stock Exchanges
for the issue and allotment of Equity Shares to the Qualified Institutional
Buyers under the provisions of Chapter XIII A of the erstwhile Securities
and Exchange Board of India (Disclosure and Investor Protection)
Guidelines, 2000.

I further report that the Company:

iii) has complied with the requirements under the following Regulations and
Guidelines prescribed under the Securities and Exchange Board of India Act,
1992 (SEBI Act');

a. The Securities and Exchange Board of India (Substantial Acquisition of
Shares and Takeovers) Regulations, 1997 with regard to:

1. The Continual Disclosure in terms of the Regulation 8 (3).

b. The Securities and Exchange Board of India (Issue of Capital and
Disclosure Requirements) Regulations, 2009 erstwhile The Securities and
Exchange Board of India (Disclosure and Investor Protection) Guidelines,
2000 with regard to:

1. The Company has issued and allotted 25,162,135 Equity Shares under the
provisions of Chapter XIII A of the erstwhile The Securities and Exchange
Board of India (Disclosure and Investor Protection) Guidelines, 2000 to the
Qualified Institutional Buyers.

Place: Bangalore Nagendra D. Rao
Date : April 27, 2010 Practicing Company Secretary

Certificate of Practice No.: 7731