Developers sack employees

Sobha cuts staff cost by Rs 6 crore

Pay cut of 10-15% across the board

Omaxe cuts staff expense by Rs 1.5 crore



April 2008: The realty sector was going great guns and thought the party would continue. Announcements of mega projects and great interest among investors were the order of the day. Developers couldn’t stop smiling but would make some noises time and again about the lack of skilled labour in the realty sector. They would blame project delays on non-availability of contractors and site engineers.


Six months later, things sure have changed.


Sobha Developers Ltd (SDL), the Bangalore-based realty major that mainly focuses on the high-end residential segment, has reported a dramatic decline in staff expenses in its September quarter results. From Rs 25 crore in the same quarter in 2007, staff costs fell to Rs 19 crore this year, a huge fall of Rs 6 crore. Rumours are that the company has shown many employees the door.


Asked if this was true, Sumit Keshan, chief financial officer (CFO), Sobha Developers, denied sacking any employee. “But we have decided to scale down the variable pay budget,” he said.


Variable pay is a component in the salary which depends on the employee’s performance and also the company’s and usually includes bonuses. If Keshan’s to be believed, Sobha Developers’ employees haven’t been given annual bonus this year as they were in 2007 when the sales were good.


However, an almost 25% drop in labour costs only through variable pay cuts is hard to believe. A site engineer working with Sobha who has resigned from the company says that Sobha had already cut pay-checks by minimum 10-15% across the board and since last week it has started sacking its employees. The pink slips are also being handed to its international division, Gulf International Construction & interiors Company (GICI) in Qatar.


DNA Money also checked various job portals where Sobha had advertised for hiring staff and all the advertisement that flashed were dated two months back which includes position like project manager, site engineer and others. Thus, it is clear that new hirings have also been freezed.


When Sobha launched its Initial Public Offering (IPO), a report by Motilal Oswal Brokerage dated September 30, 2006 says that the company has 3222 employees on board which is inclusive of skilled and unskilled labourers.


The other developer which has seen a fall in its staff cost expenditure is India’s largest developer according to market capitalisation, DLF. Its expenditure dropped by Rs 3 crore from Rs 61 crore, DLF had attributed that 300 people have left the company for better shores.


Even Omaxe, the Delhi based developer has shown the door to its employees. Its staff cost expenditure has fallen by Rs 1.5 crore from Rs 7.5 crore to Rs 6 crore this year. Repeated attempts to get in touch with the company remained unfruitful.


Analyst from an international brokerage says, “The provision for variable pay (bonus) has been reduced because numbers look bad for FY09. While that could explain some of the difference, the reality is that most developers are letting people go as execution has fallen substantially. Sobha has one of the most leveraged balance sheets and they are still developing premium segment projects they need to change their business strategy to liquidate themselves.”


According to the latest realty report released by the Kotak Institutional Equities Research stable says that Sobha has the second most leveraged balance sheet after Unitech, the Delhi based India’s second largest realtor according to market capitalisation.