Thursday, April 16, 2009
Infosys projects first income fall
Infosys projects first income fall
The Financial Express, April 16, 2009, Page 1
fe Bureau, New Delhi, Bangalore
In a first in its 28-year history, Infosys Technologies, IT bellwether and the country’s second largest software services firm, on Wednesday forecast a revenue decline in this financial year. The Bangalore-based company said its 2009-10 revenue will drop by 6.7% to 3.1% to between Rs 22,066 crore and Rs 22,928 crore.
For the first quarter of current financial year, Infosys guided for revenues of between Rs 5,379 crore and Rs 5,480 crore, a decline of 8.2% to 6.5% on a year-on-year basis.
The market sees Infosys guidance as a benchmark for the sector’s performance as it is the only IT firm among the top five that gives full-year guidance.
Though the company’s earnings for the fourth quarter and the full year of 2008-09 were above market expectations, the inferior outlook for the current financial year unsettled the market.
The company’s share tumbled by 2.72% on the Bombay Stock Exchange to close at Rs 1370.80.
Analysts see the lower guidance as a signal that the current economic crisis has taken its toll on global outsourcing and that the earnings of other major software firms like Wipro Technologies and TCS could be weak.
“The amount of uncertainty today is unprecedented. This is probably one of the worst economic environments we have seen in our lifetime,” said S Gopalakrishnan, CEO, Infosys. “The wide range that the company has given in its guidance numbers reflects the uncertainty it is facing in the market. The guidance is much below the market’s expectations”, said an analyst with a brokerage firm.
For the fourth quarter ended March 2009, the company declared a net profit of Rs 1,613 crore, up 29% over the same quarter last year. The company’s Q4 revenue was at Rs 5,635 crore, up 24.1% year-on-year. In dollar terms, revenue declined 1.8% on a yearly basis and 4% sequentially.
For the full year ended March 2009, Infosys posted a net profit of Rs 5,988 crore, up 28.5% over last year. Its revenue for the full year were at Rs 21,693 crore, up 30%.
Infosys added 37 new clients in the quarter, 40% of which are in the financial services sector, and lost 41 clients. The company also pointed to the heightened pricing pressure in the quarter and the coming year. “The pricing for the quarter declined by 3%”, said SD Shibulal, COO, Infosys.
V Balakrishnan, CFO, told FE that the company expects pricing decline in the range of 6-6.5% in the current financial year.
“Infosys has always had premium pricing for its services compared to its rivals. Therefore, the pricing pressure on the company is more than on others,” said an industry expert.
The company made a gross addition of 4,935 employees during the quarter and 28,231 during the year, taking its employee base to 1,04,850. For the current financial year, Infosys plans to hire 18,000 more, mostly from campuses. The company has made 20,000 offers for this year. The company had total 579 active clients at end of the financial year. During the quarter, the company suffered a forex loss of Rs 15 crore.
'Going ahead, we’ll move cautiously'
'Going ahead, we’ll move cautiously'
The Financial Express, Corporates & Markets, April 16, 2009, Section I, Page 1
The first Indian IT company to declare its full year results, Infosys Technologies said that the expected revenue decline in FY10 will be due to the combined impact of pricing and volumes. In an interview with The Financial Express’ Rachana Khanzode and Surabhi Agarwal, V Balakrishnan, CFO, Infosys, says that the firm would spend more on sales and marketing in this environment. Excerpts:
•What are the factors on which the FY10 guidance is based on?
It is based on the kind of visibility we see in the market at the moment. Our interactions with clients at the moment indicate that we could see a better business environment by early to mid financial year 2010.
But, we want to be cautious going ahead. Some encouraging signs have started coming in. For instance, around 60% of our clients have decided on their IT budgets.
•You are also expecting pricing to be down by almost 5.7-6% in FY10 versus FY09. How do you decide on these figures?
The pricing for the third quarter went down by 1.4% and this quarter by 2.1%, so we have an average of the decline. We expect it to continue at the same level for the full year as the business comes on a year-on-year basis. We expect the utilisation to come down and revenue to be down by 3-7%. It will be a combined impact of pricing and volume.
•So, are you seeing price negotiations happening repetitively?
Most of the clients renegotiated price and if the environment goes worse, it might happen again. But we have to manage it and we are not seeing steep pricing cuts.
•You have added 37 clients this quarter. What is the usual contract size of the new clients?
It varies from client to client. As much as 40% additions are in the financial sector. In large deal terms, which is more than $50 million, we have won some 4-5 clients during the quarter. Clients are not willing to make any large commitments now, so there are no big deals happening. But $50 million to $100 million deals over 3-4 years time are of reasonable size and we will see more of them.
•How much has been the forex loss this quarter? What will be your hedging policy going forward?
We had a loss of around Rs 15 crore for the quarter. We want to hedge for the short-term, given the volatility in the currency. We are hedged for our next two quarters’ exposure at any given point of time. We have hedged around $506 million at a mark to market rate of Rs 50.72. Since we get around 17% from UK pound, 6-7% comes from Euro and 5% from Australian dollar, our other currency hedging would be around $100 million.
•How effective have your cost cutting measures been?
We have been efficient in controlling our costs. But this is the right time to spend on sales and marketing and so we will be hiring people, though it will be a bigger cost for us. But, there will be no wage hikes for existing employees.
•There is a two percentage point decrease in time and material contracts. This is opposite to the industry trend where companies are trying to reduce dependence on headcount...
I think clients are concerned about controlling the total cost of ownership. To some extent, they can do that by going for fixed price contracts. So, fixed price is increasing in the short-term but it won’t become a trend. Clients are very clear that if they do fixed price, the productivity benefit will come to them.
•What has been the impact on margins?
This year the margins went up by around 2%. Next year also we expect operating margin to come down by 300 bps because of the pricing pressure.
DLF wants to surrender 5 SEZs, approaches govt
DLF wants to surrender 5 SEZs, approaches govt
The Financial Express, April 16, 2009, Page 3
Press Trust of India, New Delhi
Reeling under a cash crunch, the country’s largest real estate player, DLF, has approached the government on surrendering its (DLF’s) five of the nine IT-ITeS notified special economic zones (SEZ).
“DLF has nine (notified) IT/ITeS special economic zones, five of them they are dropping they have made an application and it will come up after the elections,” a senior commerce ministry official said on Wednesday.
However, when contacted, a company spokesperson said, “We do not comment on market speculations”. While it cannot be ascertained as why the company plans to drop some of its SEZs, the entire real estate sector has been hit by a credit crunch, which has affected plans of major realty players. According to industry sources, firms like DLF and Parsvanath have been unable to raise funds for their SEZ projects. Earlier Parsvanath had put on hold its 12 IT/ITeS SEZ projects.
Bulls are back, feel mkt players
Bulls are back, feel mkt players
The Times of India, April 16, 2009, Page 15
Smell Of Recovery, Attractive Price-To-Earnings Ratio Wooing Investors
Prabhakar Sinha & Partha Sinha TNN
New Delhi/Mumbai: The prolonged bull rally in the stock markets, taking the 30-stocks sensitive index over 11,000 level on Wednesday, is driving home one point — the market is on a recovery path.
‘‘The worst is over,'' said Shitin Desai, executive V-P of DSP Merrill, airing the market sentiment. The market seems to have bottomed out, added Vijayan Krishnamoorthy, CEO of JP Morgan Asset Management Company.
However, fund managers feel that the current rally will not continue for ever and the sensex will be range-bound — between 10,000 and 12,000.
Among the positive factors, institutional investors are back in the market. In April so far, FIIs' net buying position has gone up to Rs 443 crore as against Rs 131 crore in March. In the first two months of 2009, FIIs sold shares worth over Rs 1,650 crore. Even domestic mutual funds have started buying in the market. A senior fund manager said that domestic funds have been buying since middle of March. In March, net buying position of them was 1,477 crore. However, in April they are little cautious and not buying agressively as market continued to rise. Fund managers said that they were confident and investing in the markets at all level.
Insurance companies continued their buying spree. Senior V-P of ICICI Securities Ravi Sardana said that market would remain volatile and provide good opportunity for the savvy investors. He said that investors should put money in good stocks in select sectors to reap benefit of future rally.
Another fund manager said average price to earning ratio of around 15.5 of sensex stocks could be considered as attractive valuation, particularly as the companies are showing a positive growth in their profitability. Contrary to this, most of the companies in the developed world are showing losses. Therefore, the fund managers feel that foreign funds will start flowing into the Indian market once the political uncertainty ends.
Desai said once the government is formed, the inflow of foreign funds will increase. Krishnamoorthy added that the combined approach of the G-20 countries' leaders in containing the recessionary trend in the global economy provided the confidence to investors.
Realty stocks on fire, index gains 9%
Realty stocks on fire, index gains 9%
Times of India, April 16, 2009, Page 15
M Allirajan TNN, Coimbatore
They may be bogged down by debt and demand slowdown. But real estate stocks have suddenly caught the fancy of investors with top companies in the sector emerging as major gainers when sensex breached the 11000-mark on Wednesday. The BSE Realty Index was the topper among sectoral indices closing the day 8.79% higher. Sensex ended 2.9% higher with the BSE-100 advancing 3.3%.
Ansal Infrastructure emerged as the biggest gainer among the pack with the stock jumping 17.1% during the day. Unitech, which is rescheduling its debt, rose 15% and DLF, the country's largest real estate firm, saw its scrip rise by 10%.
The Realty Index has performed impressively in the current rally. Realty gained the maximum registering 13.7% increase for the week ended April 9 compared with the 4.4% advance made by sensex. DLF moved up 9.2% while Indiabulls Real Estate and Unitech ended the week 25.4% and 12.1% higher respectively during the period. High debt levels, however, are weighing down on the performance of realty companies. While DLF is estimated to have Rs 15,525 crore in debt, Unitech has Rs 8,900 crore with interest costs for the next financial estimated at around Rs 2,000 crore and Rs 1,150 crore respectively for the two realty majors.
Analysts point out that the stocks have been rising on the hopes of a further rate cut. With debt restructuring now complete, investors' focus would now shift to the ability of companies to service interest costs, according to Amit Adesara of Emkay Global Financial Services. "Attractively priced projects have found tremendous response. Cash flows generated from these projects will be utilised for interest servicing."
Some analysts don't seem impressed. "There is no improvement on the macro economic front for the realty companies to have rallied. We expect the sector to reel under pressure until interest rates go back to lows of 7-8% and prices correct to affordable levels," according to analysts at Angel Broking. The brokerage firm, in its weekly note, has maintained that it remains 'neutral' on realty and advised clients to stay away from stocks in the sector.
Banks should lend more to commercial institutions’
Banks should lend more to commercial institutions’
The Hindu Business Line, April 16, 2009, Page 6
Our Bureau, Hyderabad
Banks should lend aggressively to commercial enterprises to generate higher economic activity to lessen the impact of global recession on India, according to Dr C. Rangarajan, Member of Parliament.
Responding to questions after his lecture at a national symposium on ‘Global financial crisis: Impact on Indian economy’ at the University of Hyderabad here on Wednesday, Dr Rangarajan said as the liquidity is not an issue now, “banks should take a broader view to lend more to commercial institutions”.
Banks appear to be ‘averse’ to active lending mainly due to fears of adverse impact on recession, Dr Rangarajan, former Governor of RBI, observed.
“The availability of credit for Indian exporters abroad has dipped due to slowdown. So, there is a greater need for banks to provide this domestically,” he said.
INTEREST RATES
While observing that a further cut in interest rates on lending might improve aggregate demand in the economy, the former Chief Economic Advisor to Prime Minister said the capacity of banks to bring down interest rates is ‘limited’.
“Due to higher rates being paid on some deposits mobilised previously, banks may have to keep lending rates at a level,” he pointed out.
Earlier, he said the continuing Government expenditure would shield the economy from recession/depression.
PUBLIC SPENDING
“The public spending on infrastructure should remain at a high level in a situation like the present one is not a matter of dispute. The revised estimates of total expenditure for 2008-09 are 20 per cent higher than the budget estimations,” he said.
Precaution, however, should be taken to hold fiscal deficit from phenomenally increasing, he added.
The economy would witness signs of recovery in the second half of 2009 as there has not been any decline in the production, he predicted.
Dr Y.V. Reddy, former Governor of RBI and Emeritus Professor in the Department of Economics, University of Hyderabad, outlined various theories explaining the causes of the sub-prime crisis in the US and global recession.
The Hindu Business Line, April 16, 2009, Page 6
Our Bureau, Hyderabad
Banks should lend aggressively to commercial enterprises to generate higher economic activity to lessen the impact of global recession on India, according to Dr C. Rangarajan, Member of Parliament.
Responding to questions after his lecture at a national symposium on ‘Global financial crisis: Impact on Indian economy’ at the University of Hyderabad here on Wednesday, Dr Rangarajan said as the liquidity is not an issue now, “banks should take a broader view to lend more to commercial institutions”.
Banks appear to be ‘averse’ to active lending mainly due to fears of adverse impact on recession, Dr Rangarajan, former Governor of RBI, observed.
“The availability of credit for Indian exporters abroad has dipped due to slowdown. So, there is a greater need for banks to provide this domestically,” he said.
INTEREST RATES
While observing that a further cut in interest rates on lending might improve aggregate demand in the economy, the former Chief Economic Advisor to Prime Minister said the capacity of banks to bring down interest rates is ‘limited’.
“Due to higher rates being paid on some deposits mobilised previously, banks may have to keep lending rates at a level,” he pointed out.
Earlier, he said the continuing Government expenditure would shield the economy from recession/depression.
PUBLIC SPENDING
“The public spending on infrastructure should remain at a high level in a situation like the present one is not a matter of dispute. The revised estimates of total expenditure for 2008-09 are 20 per cent higher than the budget estimations,” he said.
Precaution, however, should be taken to hold fiscal deficit from phenomenally increasing, he added.
The economy would witness signs of recovery in the second half of 2009 as there has not been any decline in the production, he predicted.
Dr Y.V. Reddy, former Governor of RBI and Emeritus Professor in the Department of Economics, University of Hyderabad, outlined various theories explaining the causes of the sub-prime crisis in the US and global recession.
SBI sees 25% growth in credit
SBI sees 25% growth in credit
The Hindu Business Line, April 16, 2009, Page 6
Lending, deposit rates may fall by around 25-50 bps: O.P. Bhatt.
Mr O.P. Bhatt, Our Bureau, Mumbai
The banking sector may see loan growth of 19-20 per cent in 2009-10. However, for State Bank of India the credit growth could be as high as 25 per cent.
“For the past two to three years, SBI’s growth has been much more than that of the industry. Also, with increase in efficiency and opening of more number of branches, we should be able to achieve the growth,” Mr O.P. Bhatt, Chairman, State Bank of India, said.
He was speaking at the launch of SBI Mutual Fund’s Micro SIP.
The bank has targeted a growth of 25 per cent in its earnings in 2009-10. The bank’s total business is now above Rs 12 lakh crore, with around Rs 2.5 lakh crore business coming in 2008-09 itself, Mr Bhatt said.
SBI, which has the largest network of branches at over 11,111, added 1,600 branches in 2008-09. The bank is planning to add another 800-1,000 branches in 2009-10, with the majority in rural and semi-urban areas.
The bank is also trying to reach another 50,000 unbanked villages with the help of its banking correspondents and point of sale terminals in 2009-10.
High deposit growth
Explaining the rationale behind providing loans at a low interest rate of 8 per cent, Mr Bhatt said that post-October 2008, the bank saw a deluge in deposits as investors looked to park their money in safe havens.
This provided the bank with sufficient liquidity and, hence enabled the bank to push credit to the needy sectors, he said. The inflow of deposits has been as high as Rs 1,000 crore a day in recent times, he said.
The slowdown in credit offtake and the RBI reducing the reverse repo rates to as low as 3.5 per cent, prompted us to provide home and SME loans at 8 per cent, auto loans at 10 per cent and loans for providing warehousing facility for agricultural produces at 8 per cent, to genuine borrowers with feasible proposal, Mr Bhatt said. Through the special home loans scheme (which provided loans at 8 per cent), the bank sanctioned loans worth Rs 1,350 crore in the 40 day period of February 2 and March 13.
Margins
Even a small variation in the prime lending rate or the margins can have a huge impact on the bank’s balance sheet, he said. The bank’s net interest margin (NIM) has been under pressure. “For the just ended quarter, we would be lucky to have our NIM at around 3 per cent. We will try to hold the NIM at 3 per cent for 2009-10 also,” he said.
“I expect the lending and deposit rates to fall by around 25-50 basis points in the immediate future,” Mr Bhatt.
Capital raising
On capital expansion plans, Mr Bhatt said the bank needs around Rs 60,000-70,000 crore in the next five years to aid growth. The bulk of the amount would come from retained profits and through raising Tier-II capital. “We are hoping the Government permits us to raise money through the rights issue”.
Also, with a Bill pending in Parliament allowing the Government stake to be diluted from 55 per cent to 51 per cent, there would be more room to raise capital.
“We will need more capital for growing internationally. We raised around Rs 20,000 crore last year and this year the amount raised will not be less than that,” Mr Bhatt said.
NPAs
The bank’s NPAs have come down for the just ended quarter. The NPAs have come down on a year-on-year basis for the domestic business. However, the NPAs have risen for the international business. The bank has around 100 offices abroad, Mr Bhatt said.
The Hindu Business Line, April 16, 2009, Page 6
Lending, deposit rates may fall by around 25-50 bps: O.P. Bhatt.
Mr O.P. Bhatt, Our Bureau, Mumbai
The banking sector may see loan growth of 19-20 per cent in 2009-10. However, for State Bank of India the credit growth could be as high as 25 per cent.
“For the past two to three years, SBI’s growth has been much more than that of the industry. Also, with increase in efficiency and opening of more number of branches, we should be able to achieve the growth,” Mr O.P. Bhatt, Chairman, State Bank of India, said.
He was speaking at the launch of SBI Mutual Fund’s Micro SIP.
The bank has targeted a growth of 25 per cent in its earnings in 2009-10. The bank’s total business is now above Rs 12 lakh crore, with around Rs 2.5 lakh crore business coming in 2008-09 itself, Mr Bhatt said.
SBI, which has the largest network of branches at over 11,111, added 1,600 branches in 2008-09. The bank is planning to add another 800-1,000 branches in 2009-10, with the majority in rural and semi-urban areas.
The bank is also trying to reach another 50,000 unbanked villages with the help of its banking correspondents and point of sale terminals in 2009-10.
High deposit growth
Explaining the rationale behind providing loans at a low interest rate of 8 per cent, Mr Bhatt said that post-October 2008, the bank saw a deluge in deposits as investors looked to park their money in safe havens.
This provided the bank with sufficient liquidity and, hence enabled the bank to push credit to the needy sectors, he said. The inflow of deposits has been as high as Rs 1,000 crore a day in recent times, he said.
The slowdown in credit offtake and the RBI reducing the reverse repo rates to as low as 3.5 per cent, prompted us to provide home and SME loans at 8 per cent, auto loans at 10 per cent and loans for providing warehousing facility for agricultural produces at 8 per cent, to genuine borrowers with feasible proposal, Mr Bhatt said. Through the special home loans scheme (which provided loans at 8 per cent), the bank sanctioned loans worth Rs 1,350 crore in the 40 day period of February 2 and March 13.
Margins
Even a small variation in the prime lending rate or the margins can have a huge impact on the bank’s balance sheet, he said. The bank’s net interest margin (NIM) has been under pressure. “For the just ended quarter, we would be lucky to have our NIM at around 3 per cent. We will try to hold the NIM at 3 per cent for 2009-10 also,” he said.
“I expect the lending and deposit rates to fall by around 25-50 basis points in the immediate future,” Mr Bhatt.
Capital raising
On capital expansion plans, Mr Bhatt said the bank needs around Rs 60,000-70,000 crore in the next five years to aid growth. The bulk of the amount would come from retained profits and through raising Tier-II capital. “We are hoping the Government permits us to raise money through the rights issue”.
Also, with a Bill pending in Parliament allowing the Government stake to be diluted from 55 per cent to 51 per cent, there would be more room to raise capital.
“We will need more capital for growing internationally. We raised around Rs 20,000 crore last year and this year the amount raised will not be less than that,” Mr Bhatt said.
NPAs
The bank’s NPAs have come down for the just ended quarter. The NPAs have come down on a year-on-year basis for the domestic business. However, the NPAs have risen for the international business. The bank has around 100 offices abroad, Mr Bhatt said.
Builders’ body seeks ban on cement export
Builders’ body seeks ban on cement export
The Economic Times, April 16, 2009, Page 7
Our Bureau MUMBAI
THE Builders’ Association of India on Wednesday called for a total ban on exports of cement as shortages in the local market were leading to frequent price hikes. The association also asked the government to set up a regulatory authority to control high cement prices. “An important factor affecting the building industry is the fact that after December 2008, the government levied an 8% duty on imports. This indirectly helped cement manufacturers and led to unjust price hikes,” said association secretary Anand J Gupta.
The ongoing cement price hikes have hit the construction industry hard. Currently, the housing sector consumes 55% of cement while infrastructure sector uses 35%, with the remaining 10% going towards other products.
The builders’ association also alleged that the domestic cement industry appears to have ignored an earlier order of the Monopolies and Restrictive Trade Practices Commission on continued price hikes.
In February last year, the MRTPC had held that all cement producers with the exception of one, acted in collusion to raise the price of cement.
Steel cos must look beyond themselves
Steel cos must look beyond themselves
The Economic Times, April 16, 2009, Page 13
COS SHOULD NOT HIKE PRICES AS THE BUSINESS IS LUCRATIVE ENOUGH, THANKS TO THE FALL IN INPUT PRICES
KG NARENDRANATH
WITH INPUT PRICES CRASHING, INDIA’S steel industry is looking up. It can now sell goods at reasonable prices to pep up pent-up demand for the metal and engender significant economy-wide revitalisation of consumption. What is important, however, is that the primary steelmakers would need to respect the sentiments of not only the consumers but also the mineral industry, their raw material suppliers, for them to sustain the situation.
True, ‘global steel prices’ or the average export prices of the metal have plunged headlong since June last year owing to the economic crisis that followed the financial meltdown in the west. Hotrolled coil is now being exported by major steelproducing countries at $450/tonne as compared to $1,100 a year ago. A corresponding fall, of up to 50%, has also been there of the global prices of coking coal, iron ore, steel melting scrap and ferro alloys. The decline in prices of these inputs has been sharper, to the benefit of the steel mills. For example, the spot global price of coking coal has declined from the peak of $400 to $130, that of iron ore from $140 to $60 and steel scrap from $650 to $270. For the new long-term contracts, steel mills are now demanding further reductionsin prices of inputs, up to 60% from June last year level.
Hard bargaining is taking place between the steel mills in China, Japan and Europe and raw material suppliers in Australia, South Africa and Brazil. The steel giants need to realise that putting too much pressure on the mineral companies at this juncture when there is an all-pervasive demand crunch is not a wise proposition. Such narrow-minded pursuit of partisan interests can’t produce wholesome results.
As SC Mathur, a functionary of downstream steel mills’ association in India says, “with the projected growth in steel demand in the BRIC countries, production cuts by the European and Japanese mills and themassive stimulus packagesbyvariouscountries and the G-20, additional demand for steel would be generated in the months to come and this would help the prices to stabilise at the current levels.” Going by the spurt in sales by Indian steelmakers like SAIL and Tata Steel in the last two months, it is expected that the growth in domestic steel demand and production this fiscal could be much higher than the 1-2% last year. And the likely stabilisation of prices at relatively lower levels would reduce the cost of infrastructure building in India, a very beneficial development as it coincides with the possible investment binge in the sector.
According to India’s National Steel Policy, steel production in the country would grow 7.3% annually till 2020, and consumption, at a rate of 6.9%. High profile foreign investments in India’s steel sector could get delayed because of the global economic crisis. So, it appears the prospect of production growth edging out consumption growth, and making India a net exporter of steel in the next three-four years is rather blighted, although that was what the policy looked at.
The point is that there is an urgent need to rev up steel consumption in India that could lower the cost of construction and infrastructure projects, apart from reducing the prices of a variety of goods ranging from automobiles and white goods to tin plates and utensils. While there could be different views on the degree of price-elasticity of demand, it is undeniable that low prices do revive pent-up demand of steel. The steel companies are now in a position not to hike prices as their business is lucrative enough at the current levels of pricing, thanks to the fall in input prices. An attempt by the steel companies to narrow-mindedly and short-sightedly shore up their own profits at the expense of the economy at large would boomerang on them. If steel prices are low, infrastructure industries and various other users of the material would gain in terms of input costs, and that would drive up demand for their products.
It is also important that the steel companies don’t lobby hard for restrictions on import of primary and semi-finished steel items. A plan to place HR coil on the list of restricted items of import has been put on the backburner by the government, despite strident demand from big steel companies. That was a right decision. A host of applications for imposition of anti-dumping duties on steel items is being considered by the authority concerned. The authority would do well to heed the fact that Indian steel mills, most of which have the advantage of captive raw material linkages, don’t need an extra layer of protection in the form of dumping duties from imports that are genuine competition. There is already an import duty of 5%, ocean freight ($50/tonne) and incidental charges related to imports ($85/tonne) to provide reasonable protection to Indian steel companies.
The Economic Times, April 16, 2009, Page 13
COS SHOULD NOT HIKE PRICES AS THE BUSINESS IS LUCRATIVE ENOUGH, THANKS TO THE FALL IN INPUT PRICES
KG NARENDRANATH
WITH INPUT PRICES CRASHING, INDIA’S steel industry is looking up. It can now sell goods at reasonable prices to pep up pent-up demand for the metal and engender significant economy-wide revitalisation of consumption. What is important, however, is that the primary steelmakers would need to respect the sentiments of not only the consumers but also the mineral industry, their raw material suppliers, for them to sustain the situation.
True, ‘global steel prices’ or the average export prices of the metal have plunged headlong since June last year owing to the economic crisis that followed the financial meltdown in the west. Hotrolled coil is now being exported by major steelproducing countries at $450/tonne as compared to $1,100 a year ago. A corresponding fall, of up to 50%, has also been there of the global prices of coking coal, iron ore, steel melting scrap and ferro alloys. The decline in prices of these inputs has been sharper, to the benefit of the steel mills. For example, the spot global price of coking coal has declined from the peak of $400 to $130, that of iron ore from $140 to $60 and steel scrap from $650 to $270. For the new long-term contracts, steel mills are now demanding further reductionsin prices of inputs, up to 60% from June last year level.
Hard bargaining is taking place between the steel mills in China, Japan and Europe and raw material suppliers in Australia, South Africa and Brazil. The steel giants need to realise that putting too much pressure on the mineral companies at this juncture when there is an all-pervasive demand crunch is not a wise proposition. Such narrow-minded pursuit of partisan interests can’t produce wholesome results.
As SC Mathur, a functionary of downstream steel mills’ association in India says, “with the projected growth in steel demand in the BRIC countries, production cuts by the European and Japanese mills and themassive stimulus packagesbyvariouscountries and the G-20, additional demand for steel would be generated in the months to come and this would help the prices to stabilise at the current levels.” Going by the spurt in sales by Indian steelmakers like SAIL and Tata Steel in the last two months, it is expected that the growth in domestic steel demand and production this fiscal could be much higher than the 1-2% last year. And the likely stabilisation of prices at relatively lower levels would reduce the cost of infrastructure building in India, a very beneficial development as it coincides with the possible investment binge in the sector.
According to India’s National Steel Policy, steel production in the country would grow 7.3% annually till 2020, and consumption, at a rate of 6.9%. High profile foreign investments in India’s steel sector could get delayed because of the global economic crisis. So, it appears the prospect of production growth edging out consumption growth, and making India a net exporter of steel in the next three-four years is rather blighted, although that was what the policy looked at.
The point is that there is an urgent need to rev up steel consumption in India that could lower the cost of construction and infrastructure projects, apart from reducing the prices of a variety of goods ranging from automobiles and white goods to tin plates and utensils. While there could be different views on the degree of price-elasticity of demand, it is undeniable that low prices do revive pent-up demand of steel. The steel companies are now in a position not to hike prices as their business is lucrative enough at the current levels of pricing, thanks to the fall in input prices. An attempt by the steel companies to narrow-mindedly and short-sightedly shore up their own profits at the expense of the economy at large would boomerang on them. If steel prices are low, infrastructure industries and various other users of the material would gain in terms of input costs, and that would drive up demand for their products.
It is also important that the steel companies don’t lobby hard for restrictions on import of primary and semi-finished steel items. A plan to place HR coil on the list of restricted items of import has been put on the backburner by the government, despite strident demand from big steel companies. That was a right decision. A host of applications for imposition of anti-dumping duties on steel items is being considered by the authority concerned. The authority would do well to heed the fact that Indian steel mills, most of which have the advantage of captive raw material linkages, don’t need an extra layer of protection in the form of dumping duties from imports that are genuine competition. There is already an import duty of 5%, ocean freight ($50/tonne) and incidental charges related to imports ($85/tonne) to provide reasonable protection to Indian steel companies.
DLF mulls apartment resale to refund buyers
DLF mulls apartment resale to refund buyers
Business Standard, April 16, 2009, Page 3
Neeraj Thakur / New Delhi
DLF, the country’s largest property developer, may retrade its apartments at New Town Heights, Gurgaon, and Garden City, Chennai, at a discount. This is to refund buyers who want to exit the projects, according to a senior company official.
“We are not sure at what price the re-selling of the apartments will take place. It may happen at the current price. It is also likely that we will have to reduce our prices further,” said the official.
DLF, in a recent letter to its New Town Heights customers, said, “Refunds to the members will be available only after DLF is able to ‘retrade’ the property, or earliest by six months if the company fails to sell the property.”
Over 550 customers at the two projects have asked the company to return their money. Most customers have paid 40 per cent of the total cost of their apartments.
The company official said many of the people looking for refunds were investors, not end-users. “It is not the delay in start of the construction work that is troubling these customers.They want their money back as the lock-in period of one year in the project is over,” he added.
The company expects the total number of customers looking for refunds to come down to 100-125. It will charge a penalty for returning the money. “The customers had entered into a three-year contract with us. If we have to sell the apartments at a discounted rate, the customers who are backing out should make up for it,” the official added.
“If the company tries to re-sell its apartments in the open market, it will have to reduce prices by a further 10-15 per cent. The new buyers know the expected supply is more than demand,” said Rupesh Sankhe, equity analyst, Centrum Broking.
DLF Garden City, launched in January 2008, has around 3,493 apartments, while New Town Heights, launched in March last year, has around 3,300 apartments.
The company has already slashed the prices of other projects in Bangalore, Chennai and Gurgaon by 10-20 per cent to keep restive customers.
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