Whalesbook
Sarla Garments LLP, a company mainly known for its textile operations, is making a major strategic shift by securing a ₹1,370 crore construction loan from State Bank of India (SBI). The funds will be used for a large commercial real estate project in Bengaluru. Luthra and Luthra Law Offices India advised SBI on the deal, managing the necessary loan and security documents.
Diversifying into Property
This move represents a significant shift from Sarla Garments' main textile business. The company reported about ₹9,500 crore in consolidated revenue for FY2025 from its garment manufacturing and exports. Now, it's making a bold diversification into real estate. The project includes four commercial towers with an estimated 2.18 million square feet of leasable space. It's a considerable investment of roughly ₹1,900 crore, with the loan structured at a 2.6:1 debt-to-equity ratio. The project is planned for completion by September 2029. This expansion aims to use Sarla Garments' capital to enter Bengaluru's growing commercial real estate market, where demand for quality office space is strong. The company hopes to build a solid presence in this new sector, creating new ways to generate revenue and broaden its business.
Managing Risks
Financing a move into a capital-intensive sector like real estate with substantial debt carries inherent risks. While Sarla Garments' parent companies are known for large operations and low debt, this project relies heavily on borrowed funds. SBI's policy for commercial real estate construction loans usually requires developers to secure commitments from tenants for at least 40-50% of the space. The loan has a bullet repayment due in November 2029. The plan is to refinance it later using a lease rental discounting (LRD) facility, which could pose refinancing risks if leasing targets aren't met.
The Indian textile industry, though resilient with exports around USD 37-38 billion in 2025, has seen flat year-on-year performance due to trade barriers and uncertain demand. Moving into real estate, a sector subject to economic cycles, brings a different set of risks. Bengaluru's commercial real estate market is performing well, with office rents expected to increase by 4.0-4.5% annually through 2026. Rental yields in areas like Sarjapur Road are between 3-6%. However, market changes can affect rental rates and how quickly space is leased. Other companies like Century Textiles have successfully diversified into real estate, but aggressive strategies in this sector can lead to overleveraging, as past examples show.
Legal Support
Luthra and Luthra Law Offices India advised SBI on this major transaction. The firm is known for its deep expertise in banking and finance, especially in project and infrastructure finance. Its role in drafting and finalizing the complex loan and security documents is key to reducing lender risk. Luthra & Luthra has a history of advising on large financings for infrastructure and energy projects, showing its ability to handle high-value, complex deals. Their skill is vital for ensuring these large term loans are set up with strong legal protections.
Future Prospects
Sarla Garments' real estate venture will succeed if it can complete the project efficiently, secure leasing deals promptly, and manage its significant debt. Bengaluru's commercial real estate market, powered by the IT and IT-enabled services sector, shows steady demand and increasing rents. With new office spaces expected in 2026 and consistent absorption rates, market conditions seem favorable for new developments. However, the company needs to watch for changes in market trends and ensure its project meets tenant demands for quality, sustainability, and operational resilience, which are now key factors for businesses choosing office space.