Monday, May 4, 2009
Economy poised for a rebound
Economy poised for a rebound
Times of India, May 4, 2009, Page 17
Investment Bankers, Economists See Revival By September or December
Sanjay Dutta & Pradeep Thakur TNN
New Delhi: The worst is over and the economy looks set for a rebound. This may sound contra-intuitive after dire predictions of a long and deep slowdown, but economists and investment bankers interviewed by TOI see a revival as early as September, or latest by December.
All of them see growth riding on the back of domestic demand rather than overseas business but caution that some sectors, such as IT, may take a little longer to revive.
The pace of rebound being projected ranges from an optimistic 8% of GDP to a cautious 6-7% in the last quarter. For the full fiscal, there’s consensus on 6.5-7%, except a CII forecast that pegged it at 6-6.5%. But a word of caution here will not be out of place. These figures could still go off the mark as the signs may be deceptive. This is just like when specialists failed to see the upcoming bust through the boom.
“Green shoots of growth are showing in some sectors and we can certainly see a sustainable upward movement by the September-October busy season. Summer is a lean period as activities usually slow down before picking up in September... or more in October,’’ Ficci secretary-general Amit Mitra said.
Suresh Tendulkar, chairman of PM’s Economic Advisory Council, was more optimistic and said recovery had started. “There have been some pressure on the bottomline and profit growth may not be as high as expected. But the way revenues have grown, it shows revival has started,’’ he said. Investment bankers agree that a recovery is in the offing but give it a couple of more months. “A turnaround will start showing signs from the third quarter and pick up in the December quarter,’’ said a Mumbai-based economist with a major investment bank, requesting neither he nor his organisation be identified.
This is the time-frame Arvind Mahajan of global consultancy firm KPMG is also looking at. “The revival will begin in the last quarter of the financial year, or conversely, the end of the calendar year... from December.’’
He, however, cautions: “My guess is growth will be at 6-7%, if you are lucky. There may be some issues on the supply side of infrastructure projects. There will be liquidity issues. When we were having 8-9% growth rates, you see a lot of liquidity flowing during that period had a bearing on valuations, among other things.’’
Before the good times roll, some sectors could slip a little more. “The turnaround will not happen as a whole of the economy. Some sectors are bottoming out in the next two quarters,’’ said Mahajan. The investment banker sees oil and gas as flatish. Mitra adds exports by small and medium enterprises in textiles and jewellery to the list. For Tendulkar, the worst performance is behind us — in the third quarter of 2008-09.
Mahajan’s reason for the slow recovery in these sectors: “Japan and Europe will not rebound at the same time as the United States. Because they suffered less (than the US)... they will take time to bounce back.’’
All of them identified infrastructure as the engine, driving demand in steel, cement and other manufactured items. “Infrastructure will spur the drawdown on inventories. That’s happened in cement and is starting to happen in steel,’’ said the investment banker.
Mahajan sees the agricultural sector playing a supportive role. “It will prompt rural demand but since there’s a rigidity in the sector, it is not like the farm sector will carry the economy as a whole. A good monsoon and a good crop will certainly help the economic revival but that will not be the sole driver. After all, you already have good rural demand.’’
Mitra said steel and cement sectors signified some turnaround in the producer side. “FMCG never suffered. Activities in small housing are coming back. All these can be sustained if interest rates come down... projects become viable, start getting off the ground and (with low interest) propel consumer side interest.’’
Buyers still wait for prices to dip
Buyers still wait for prices to dip
The Hindu Business Line, May 3, 2009, Page 15
S. Shanker
Yet another property expo in Mumbai was organised by the 400-strong Maharashtra Chamber of Housing Industry in the second week of April.
An overwhelming response satiated the organisers, who said 77,752 visitors flocked to the exhibition this year as against 66,784 in October 2008. On the surface it did appear that many buyers preferred to merely touch base to know what the current offerings were rather than take a purchase call. However, MCHI president, Mr Pravin Doshi, felt it was thumbs up from home buyers, especially from the first time home-seeker who appeared convinced it was the right time to buy, after waiting it out for long.
However, experts and analysts appear a little less convinced, though they do agree that developers have seen some numbers on their sales charts in the last four months.
Researchers at Centrum feel prices in Mumbai still remain unaffordable. Compared to the NCR (NYSE:NCR) , Bangalore and Chennai markets which have seen prices drop 30-40 per cent, property prices in Mumbai had fallen only by 15-20 per cent, they contend, while pointing to concerns over completion of projects.
They say about 75 per cent of the projects on offer at the exhibition were the same that were showcased at the October 2008 Property Expo, which points to little or no off-take in residential volumes in Mumbai between October 2008 and March 2009.
With 57 per cent projects on display slotted for completion after March 2010, apprehensions on delivery hamper conversion of enquiries to actual transactions.
A buyer poll conducted by Centrum indicates that a majority of buyers were for a further 20 per cent cut in prices and would take a call only after six months, keeping in mind fears of job losses and salary cuts.
Mr Kumar Gera, Chairman, Confederation of Real Estate Developers Association of India, says the term affordable is a misnomer and cannot be used merely to identify projects without frills. Projects that do not have swimming pools, landscaping and club houses should not be categorised as affordable on the price count alone.
Affordability is what a buyer can afford, which should be estimated at about 50 per cent of his combined family income. It varies from buyer to buyer and city to city. A Rs 20-lakh apartment in Mumbai and a Rs 20-lakh home in a tier III city are not the same, he says.
There are early signs of recovery though the going is slow. A full scale turnaround in real estate could happen only when the economy revives and there was little chance of prices going up till then. In the meanwhile, demand was expected to accumulate as supplies dwindle due to the lull in the market.
Mr Gera says prices have come down significantly and buyers could take the plunge now. A 5-10 per cent drop could happen in some pockets, but then real estate investment should be looked over a 10-year horizon, when considerable appreciation can be netted.
VISIBLE TRENDS
Motilal Oswal researchers too feel buyers are holding back, awaiting a further correction in prices, despite many developers across Mumbai reducing prices by 10-30 per cent and being open to price negotiations during the last 4-5 months.
The researchers say they expect most developers to increasingly focus on the affordable housing going forward.
Visible trends at the expo they felt were a huge pent-up demand for affordable housing as also a higher interest in city-centric properties.
Suburban Thane has seen several launches in the last three months, with developers such as Dosti, Hiranandani, Kalpataru, Lodha and Acme in the lead with a fair degree of success.
Lens on insurance CEOs
Lens on insurance CEOs
Hindustan Times, May 4, 2009, Page 21
The pay packets of chief executives of insurance companies is probably going to need some explaining and are in for scrutiny under challenging market conditions.
The High Level Coordination Committee on Financial Markets (HLCCFM) at a recent meeting discussed the issue, and hints have been dropped on setting ceilings on the compensation for CEOs and making shareholders pay for the juicy toppings.
“It is possible that a limit will be imposed up to which the company will bear the cost but if the board feels that higher salary needs to be paid then they should get the shareholders approval in which case the extra amount will not be charged to the company but the shareholders will bear the cost,” said the chief executive of an insurance company on condition of anonymity.
At present the salary of an insurance company CEO is approved by the board after which it goes the industry regulator if the salary is considered ‘very high’.
But one insurance company head said it was only a formality. “The regulator always approves the salary proposed by the board,” he said.
The committee’s act is likely to bring more clarity on how to fix the salary and to bifurcate the share of the compensation to be borne by the company from that by the shareholders.
“Currently there is no clarity on the salary and every year an approval is required for the salary which takes time. Now we expect there to be a proper guideline on the salary of CEOs,” said an industry insider.
New realty projects may not find any takers, say analysts
New realty projects may not find any takers, say analysts
The Economic Times, May 4, 2009, Page 5
Prashant Mahesh MUMBAI
A LOT of new projects have been announced by real estate developers across cities like Mumbai, Delhi, Chennai and Bangalore. While there have been a large number of enquiries for these projects, those tracking the industry believe that these may not necessarily convert into transactions. This is on account of the fact that these projects scheduled to be delivered about 2-3 years from now.
Take the case of Hiranandani’s new project in Panvel (Navi Mumbai) for which possession is expected only in December 2011 or that of the Marathon Group which has launched three properties in Mulund in central Mumbai. HDIL’s properties in Mumbai’s suburbs of Andheri and Kurla are scheduled for completion by the end of 2011.
“People want to buy into completed projects, since the risk there is negligible,” says Amit Agrawal, Real Estate Analyst at Ambit Capital. Importantly, there have been enough instances in the past where developers have not kept their promise on delivery schedules.
This often results in a strain on cash flows for the potential buyer who is typically a tenant. In the past there have been enough instances, where high rise properties have been delivered after 6-7 years, thought the promised time was 2-3 years. Adds Abhisheck Lodha, director, Lodha Developers: “This normally takes place only in the case of grade-two developers where their quality could be in doubt. For reputed developers, projects across the range have been receiving the same demand,” he clarifies.
Delivery schedules could be affected based on the nature of the project, (whether it is a high rise of low rise structure) or if it is a slum rehabilitation project. The track record of the developer and the nature of the project are other factors. For instance, townships may require lot of infrastructure work which the developer may not necessarily anticipate. “Concerns over developers’ ability to complete projects which often result in a low proportion of enquires being converted into actual transactions,” says Centrum Broking in a recent report.
The Economic Times, May 4, 2009, Page 5
Prashant Mahesh MUMBAI
A LOT of new projects have been announced by real estate developers across cities like Mumbai, Delhi, Chennai and Bangalore. While there have been a large number of enquiries for these projects, those tracking the industry believe that these may not necessarily convert into transactions. This is on account of the fact that these projects scheduled to be delivered about 2-3 years from now.
Take the case of Hiranandani’s new project in Panvel (Navi Mumbai) for which possession is expected only in December 2011 or that of the Marathon Group which has launched three properties in Mulund in central Mumbai. HDIL’s properties in Mumbai’s suburbs of Andheri and Kurla are scheduled for completion by the end of 2011.
“People want to buy into completed projects, since the risk there is negligible,” says Amit Agrawal, Real Estate Analyst at Ambit Capital. Importantly, there have been enough instances in the past where developers have not kept their promise on delivery schedules.
This often results in a strain on cash flows for the potential buyer who is typically a tenant. In the past there have been enough instances, where high rise properties have been delivered after 6-7 years, thought the promised time was 2-3 years. Adds Abhisheck Lodha, director, Lodha Developers: “This normally takes place only in the case of grade-two developers where their quality could be in doubt. For reputed developers, projects across the range have been receiving the same demand,” he clarifies.
Delivery schedules could be affected based on the nature of the project, (whether it is a high rise of low rise structure) or if it is a slum rehabilitation project. The track record of the developer and the nature of the project are other factors. For instance, townships may require lot of infrastructure work which the developer may not necessarily anticipate. “Concerns over developers’ ability to complete projects which often result in a low proportion of enquires being converted into actual transactions,” says Centrum Broking in a recent report.
Developers turn to tech innovations to cut costs
Developers turn to tech innovations to cut costs
The Hindu Business Line, May 4, 2009, Page 3
Realty players change construction materials ‘without compromising on quality’.
A file picture of flats under construction in Kochi.
Anjana Chandramouly, Bangalore
The slump in the real estate market has forced developers to look within and think smart.
They are now taking a re-look at their strategies and tweaking them at the design stage to bring down costs of construction. Reduced costs would mean a good price for buyers and better bottom lines for developers.
“Ozonegroup saves 20 per cent on overall costs purely on changes in design, optimisation and material selection, which is passed on to the customers,” says Mr K.S. Sudarshan, Chief Operating Officer, Ozonegroup.
What aids developers is technological innovation in terms of mechanising construction, he says. For instance, try to get as much pre-fabricated structures as possible. These are economical, give better finish, reduce wastage by maintaining quality and finish, and enable faster delivery.
“All these bring down costs, and the customer is also happy,” says Mr Sudarshan.
Space and cost
Mr Abhinand Patil, General Manager-Sales & Marketing, CSC Constructions, which launched three projects in Bangalore in the Rs 4-18 lakh category, says: “It is important to manage costs by working with suppliers. We follow the just-in-time approach for effective inventory management. There should be a balance between space and cost.”
Some measures this company plans to adopt are a simplified and standardised design, no basement with maximised ground floor/stilt parking, shared walls and shafts, simplified façade, maximum FSI, and higher efficiency of built-up area.
Parking problems
“Though basement versus stilted parking is still a debate, basement parking could be avoided if it is not a high-rise building. A stilted parking could save 40 per cent of the cost of construction of parking slot. Where it is not possible to do away with basement parking, developers can opt for semi-stilted basement parking where it is enough to excavate only a part of the land,” says Mr Sudarshan.
Developers, who opted for the expensive machine room-less lifts (MRLs) till now, could go in for regular lifts with machine rooms, 40 per cent cheaper than MRLs.
Standardising unit and room sizes could help in optimising design, thus reducing costs and drastically reducing wastage in tile-laying. “Compared to non-standard sizes, it is possible to save 20-25 per cent costs,” he says.
CSC Constructions has two bedroom units of 600-700 sq.ft instead of the till-now preferred 1,000 sq.ft. This could also help increase the number of units in a floor. “Increasing the number of shared walls and shafts in the new blocks, unlike earlier, makes it more economical,” says Mr Patil.
Changes are being made in the choice of materials without compromising on the quality and appeal of the finished product, says Mr B.K. Dhar, CEO, Mfar Constructions.
Cheaper Options
Some options include changing paint specifications – distemper over plastic emulsion paint results in 20 per cent savings in painting costs of interiors, and cement paint over water-proof paints saves 35 per cent of exterior painting costs – and tiles – terrazzo tiles over vitrified tiles saves 20-25 per cent of flooring costs.
Concrete door-frames instead of wooden/aluminium frames (50 per cent savings); reducing floor-to-ceiling height from nine ft to 8.5 ft in high-rise buildings (10 per cent savings); reducing common area in buildings from six ft to four ft; optimising electrical circuit design within units (20-25 per cent savings); standardising the size of tiles used (20 per cent savings); and standardised bathroom fittings and fixtures (15-20 per cent savings) also help developers get a better price.
The Hindu Business Line, May 4, 2009, Page 3
Realty players change construction materials ‘without compromising on quality’.
A file picture of flats under construction in Kochi.
Anjana Chandramouly, Bangalore
The slump in the real estate market has forced developers to look within and think smart.
They are now taking a re-look at their strategies and tweaking them at the design stage to bring down costs of construction. Reduced costs would mean a good price for buyers and better bottom lines for developers.
“Ozonegroup saves 20 per cent on overall costs purely on changes in design, optimisation and material selection, which is passed on to the customers,” says Mr K.S. Sudarshan, Chief Operating Officer, Ozonegroup.
What aids developers is technological innovation in terms of mechanising construction, he says. For instance, try to get as much pre-fabricated structures as possible. These are economical, give better finish, reduce wastage by maintaining quality and finish, and enable faster delivery.
“All these bring down costs, and the customer is also happy,” says Mr Sudarshan.
Space and cost
Mr Abhinand Patil, General Manager-Sales & Marketing, CSC Constructions, which launched three projects in Bangalore in the Rs 4-18 lakh category, says: “It is important to manage costs by working with suppliers. We follow the just-in-time approach for effective inventory management. There should be a balance between space and cost.”
Some measures this company plans to adopt are a simplified and standardised design, no basement with maximised ground floor/stilt parking, shared walls and shafts, simplified façade, maximum FSI, and higher efficiency of built-up area.
Parking problems
“Though basement versus stilted parking is still a debate, basement parking could be avoided if it is not a high-rise building. A stilted parking could save 40 per cent of the cost of construction of parking slot. Where it is not possible to do away with basement parking, developers can opt for semi-stilted basement parking where it is enough to excavate only a part of the land,” says Mr Sudarshan.
Developers, who opted for the expensive machine room-less lifts (MRLs) till now, could go in for regular lifts with machine rooms, 40 per cent cheaper than MRLs.
Standardising unit and room sizes could help in optimising design, thus reducing costs and drastically reducing wastage in tile-laying. “Compared to non-standard sizes, it is possible to save 20-25 per cent costs,” he says.
CSC Constructions has two bedroom units of 600-700 sq.ft instead of the till-now preferred 1,000 sq.ft. This could also help increase the number of units in a floor. “Increasing the number of shared walls and shafts in the new blocks, unlike earlier, makes it more economical,” says Mr Patil.
Changes are being made in the choice of materials without compromising on the quality and appeal of the finished product, says Mr B.K. Dhar, CEO, Mfar Constructions.
Cheaper Options
Some options include changing paint specifications – distemper over plastic emulsion paint results in 20 per cent savings in painting costs of interiors, and cement paint over water-proof paints saves 35 per cent of exterior painting costs – and tiles – terrazzo tiles over vitrified tiles saves 20-25 per cent of flooring costs.
Concrete door-frames instead of wooden/aluminium frames (50 per cent savings); reducing floor-to-ceiling height from nine ft to 8.5 ft in high-rise buildings (10 per cent savings); reducing common area in buildings from six ft to four ft; optimising electrical circuit design within units (20-25 per cent savings); standardising the size of tiles used (20 per cent savings); and standardised bathroom fittings and fixtures (15-20 per cent savings) also help developers get a better price.
Oversupply to reduce office rents further: Knight Frank
Oversupply to reduce office rents further: Knight Frank
Business Standard, May 4, 2009, Page 5
Rajesh Bhayani / Mumbai
Oversupply is expected to keep the rental market for office space in metro cities under check over the next three to four quarters.
In the next two years, 183.1 million sq ft of A-grade office space is estimated to be added in seven big cities, while the demand will be around 122.4 mn sq ft, said a report prepared by Knight Frank India.
A forecast by this international real estate consultancy suggests that “in Mumbai, rentals will fall for some more months and bottom out in the second half of next year, while in the national capital region (NCR), rents may bottom out in the second half of the current financial year in most areas.” In both metros, the correction in rents would be between 40 to 60 per cent by the first half of next year of their peaks in 2007-08.
Knight Frank has developed a model to forecast rents for office space, taking into account data of the past 15 years. These include GDP, industrial investment projections, behaviour patterns of consumers, supply-demand scenario and so on.
Knight Frank proposes to refine this model along the way and test it for its accuracy. Pranay Vakil, chairman of Knight Frank India, said he hoped the attempt works; if so, it could help clients take more informed decisions.
Knight Frank is the first agency to develop such a forecasting for rents and the model is based on past data and economic growth projections and other market variables. It also assumes that medium to long-term consumers continue to behave in the manner they did in the past.
According to the forecasts, average rentals in Gurgaon are Rs 51 a sq ft and expected to fall to Rs 44 in the second half of the current fiscal and may remain around that for a year. Rents were at their peak at Rs. 120 in 2007-08. For Noida, rents have fallen from Rs 90 in 2007-08 to Rs 44 now and will further fall to Rs 34 in the first half of the next fiscal.
In Mumbai, average peak rentals in most office areas have fallen by 40-60 per cent and are expected to come down by another 5-10 per cent in the second half of the current fiscal.
Business Standard, May 4, 2009, Page 5
Rajesh Bhayani / Mumbai
Oversupply is expected to keep the rental market for office space in metro cities under check over the next three to four quarters.
In the next two years, 183.1 million sq ft of A-grade office space is estimated to be added in seven big cities, while the demand will be around 122.4 mn sq ft, said a report prepared by Knight Frank India.
A forecast by this international real estate consultancy suggests that “in Mumbai, rentals will fall for some more months and bottom out in the second half of next year, while in the national capital region (NCR), rents may bottom out in the second half of the current financial year in most areas.” In both metros, the correction in rents would be between 40 to 60 per cent by the first half of next year of their peaks in 2007-08.
Knight Frank has developed a model to forecast rents for office space, taking into account data of the past 15 years. These include GDP, industrial investment projections, behaviour patterns of consumers, supply-demand scenario and so on.
Knight Frank proposes to refine this model along the way and test it for its accuracy. Pranay Vakil, chairman of Knight Frank India, said he hoped the attempt works; if so, it could help clients take more informed decisions.
Knight Frank is the first agency to develop such a forecasting for rents and the model is based on past data and economic growth projections and other market variables. It also assumes that medium to long-term consumers continue to behave in the manner they did in the past.
According to the forecasts, average rentals in Gurgaon are Rs 51 a sq ft and expected to fall to Rs 44 in the second half of the current fiscal and may remain around that for a year. Rents were at their peak at Rs. 120 in 2007-08. For Noida, rents have fallen from Rs 90 in 2007-08 to Rs 44 now and will further fall to Rs 34 in the first half of the next fiscal.
In Mumbai, average peak rentals in most office areas have fallen by 40-60 per cent and are expected to come down by another 5-10 per cent in the second half of the current fiscal.
SEZ policy set for overhaul after polls
SEZ policy set for overhaul after polls
The Financial Express, May 4, 2009, Page 1
Arun S, New Delhi
Irrespective of whichever party or coalition comes to power at the Centre, the investment-magnet Special Economic Zone (SEZ) policy will be in for some major changes. Anticipating this, the commerce ministry has begun an exercise to gather suggestions from developers, units and stakeholders to improve the functioning of these tax-free enclaves. On the basis of the feedback, the government will also hold an inter-ministerial meeting to sort out policy and operational issues.
A lot is at stake as these zones have so far attracted over Rs 90,000-crore investments and given direct employment to around 2.3-lakh people — as per data culled from the ministry. Despite global slowdown, exports from SEZs had recorded 33% growth to touch Rs 89,000 crore last fiscal, much above the growth of shipments from the rest of the country at 3.4%. SEZ exports also formed close to 10.8% of India’s total exports. So far, around 572 SEZ projects have received formal approval, of which 282 have formally been notified.
Bibek Debroy, economist, working with the Centre for Policy Research in New Delhi, said the changes need not involve a new legislation to rewrite the Special Economic Zones Act of 2005. “A lot of the changes could be of rules. But it is certain that the policy would be reworked, as one of the first things the new government would undertake”.
The performance of the SEZs will help the new government contend with the problems of land grab, that some of them have been accused of.
While the UPA has not mentioned SEZ in its manifesto, Debroy said as the composition of the coalition is expected to change, a fresh examination of SEZs is fairly certain.
The BJP, in its manifesto, has clearly criticised the SEZ policy saying these tax-free enclaves “spells disaster for the farm sector.” The party said if voted to power, it would amend existing laws to rectify anomalies pertaining to land acquisition. The CPI(M) manifesto says it will amend the SEZ Act and rules to eliminate the tax concessions and regulate land use and labour policies in the zones.
Simultaneously, the commerce ministry is examining another set of issues that have emerged for the developers that could seriously impact the viability of the zones. One of the aspects that has put the government in a spot is the impact of the 20-odd free trade agreements, that India has inked or is negotiating with different trading partner countries and regions, on SEZs and units in the domestic tariff area (or DTA—the area outside the tax-free zones subjected to normal taxes and duties).
Under FTA rules, imports of agreed products from partner countries to India enjoy nil or negligible duties. But the DTA units importing from SEZ (SEZ is a tax-free zone and a foreign territory for tax purposes) has to pay the full range of duties (basic customs duty, additional customs duty/excise duty, education/ higher education cess)on the imports.
This would encourage DTA units to import from FTA countries instead of from SEZ units. It would indirectly mean that the government is encouraging manufacturing in FTA partner countries and not in SEZs in the country, especially at a time when domestic demand is much higher than in markets abroad.
Therefore, the government might resolve the problem by at least temporarily doing away with duties for DTA units while importing from SEZ units, on the condition that the goods will be exported. If the DTA unit adds value to the product and ships it abroad, the value addition also should be taken into account while determining the duty component. On their part, the SEZs will continue to pay income tax on the profits from sales to DTA units.
Another problem that the government is facing is income tax on intra/inter-SEZ transactions or the tax paid by vendors within an SEZ unit while supplying to the main manufacturing unit in the SEZ.
For instance, in an SEZ of a major telecom company, the vendors within the SEZ unit have no incentive to sell their wares to that telecom company, as they have to pay income tax on the profit from transaction.
This is because intra/inter-SEZ transactions are not considered physical export/import.
While on the other hand, the vendor gets tax benefits on his profits for exporting his ware outside the country. This makes it better for the vendor to house his unit in the DTA rather than in the SEZ. Also, the telecom company can get duty-free benefits if it imports the components or parts from outside the country.
This not only discourages intra/inter-SEZ transaction but also prevents the ‘just-in-time’ supply chain from vendors to the main company. The just-in-time concept saves time and money as well as encourage vendors to set up shops near the main company - promoting manufacturing and generating employment in India.
Therefore, in order to have more vendors set up shop in an SEZ, the government is now considering a proposal to make the main exporter in the SEZ (in this case the telecom company) give a certificate detailing the proportionate benefits that the vendor should get for contributing the components of their export. However, intra/inter-SEZ transactions are deemed exports and therefore does notattract duties.
The third aspect is regarding treating certain services, consumed within the SEZ and earning foreign exchange, as exports and according it tax benefits. For instance, medical, education and hospitality services to foreign nationals in SEZs as well as maintenance, repair and operation (MRO) services in aviation units in SEZs earn valuable foreign exchange is not considered deemed export now as they are not physical exports. Medical tourism, education, hospitality and MRO are growing sectors in India due to the affordability in services and its quality.
Regarding the huge tax and revenue losses, earlier cited by the finance ministry, these were proved to be notional by the commerce ministry. This is because, without these benefits, India would not have got that particular investment and would not have resulted in multiplier effects of employment generation and exports. The revenue losses are therefore compensated by this additional economic activity.
But at a time when every country is competing with each other to attract foreign investors, if India loses that investment, it will also lose the subsequent benefits of economic activity forever, industry sources said.
Also, at a time when port-based SEZs too are coming up, the commerce ministry is deliberating on whether to accord tax-benefits to new ports that are built inside the new SEZs or provide the same to the ones situated outside too to ensure a level playing field.
Besides the government is expected to ask the Reserve Bank of India to notify an empowered group of ministers recommendation that SEZs should be classified as infrastructure projects. “Despite the EGoM decision, the RBI has not notified the same,” said L B Singhal, director general, Export Promotion Council for Export Oriented Units and SEZs.
Singhal said the central bank’s stand is denying SEZ developers the ability to access external commercial borrowings and cheaper domestic credit. RBI treats SEZs as commercial realty projects and lending rates for such projects are considerably higher than core sector projects. As per the SEZ policy, these zones are social, commercial and industrial infrastructure projects, Singhal said. Lack of funds have forced developers to delay in the implementation of their SEZ projects and in some cases even surrender some of these projects.
—Tomorrow: More IT SEZs by non-IT developers to drop out
DLF targets Rs 5,500 crore from asset sale
DLF targets Rs 5,500 crore from asset sale
Sunday Business Standard, May 3, 3009, Page 1
Raghavendra Kamath / Mumbai
DLF Ltd, the country’s largest real estate developer, plans to raise Rs 5,500 crore through the sale of non-core assets such as power units and hotels to help it reduce its debt. In addition, it is banking on another Rs 2,000 crore of additional inflows from group company DLF Assets (DAL), the company said in a presentation to analysts.
The move follows 33 per cent growth in DLF’s gross debt to Rs 16,358 crore at the end of March, 2009 from Rs 12,277.08 crore an year ago. In addition, during the last financial year, the company’s revenues fell 28 per cent to Rs 10,541 crore as home-buyers deferred purchases and the company offered discounts to lure buyers into many projects. As a result, the company’s revenues were hit to the tune of Rs 688 crore, it said.
DLF’s net profit fell 41 per cent during 2008-09 to Rs 4,629 crore, while there was a 93 per cent decline in fourth quarter profits to Rs 159 crore. Loss from non-core businesses such as insurance, hotels and power was estimated at Rs 163 crore during the year.
The plan to sell parts of the non-core business was aimed at lowering the company’s net debt burden by 53.73 per cent to Rs 6,458 crore by March 2010, as against Rs 13,958 at the end of March this year, DLF said in the presentation. The net debt is arrived at after excluding the cash-in-hand, estimated at Rs 1,198 crore at the end of March 2009, and equity shown as debt and joint venture company debt, which together amounted to Rs 1,202 crore.
Out of Rs 5,500 crore, the sale of its wind power business and three land parcels are expected to generate around Rs 2,100 crore, and the remaining amount is expected to come from the sale of other assets such as hotels, DLF Vice-chairman Rajiv Singh said in an analyst call today.
“We are looking to sell those assets which do not significantly add to our bottom line and alter our business plans in the next three years. There is a clear visibility of Rs 3,500 crore (income) to us through this and (the remaining) Rs 2,000 crore is in various stages of negotiation and identification,” Singh added.
The company said that it had met all debt-repayment commitments and has made long-term arrangements for the remaining loans. It pointed out that new loans to the tune of Rs 2,500 crore had been sanctioned and were under disbursal. Of the Rs 3,591 crore debt due for payment during the current financial year, DLF paid Rs 723 crore in April.
Mounting debt and tight liquidity conditions have made real estate companies such as Unitech sell assets to generate funds. Unitech has sold a majority stake in its telecom venture Unitech Wireless to Norway’s Telenor and also sold off its Gurgaon hotel. It is in the process of selling its property in Saket in Delhi.
Apart from selling non-core businesses, DLF is also pulling out of unviable real estate projects such as those in Bidadi in Karnataka and Dankuni in West Bengal. Singh told analysts that the company was focusing on launching mid-income housing projects to beat the slowdown in the property sector. DLF is planning to launch 8-9 million square feet of city-centre projects in Chennai, Kochi, Delhi and Gurgaon and around 5 to 8 million square feet of mid-income housing projects in the National Capital Region (Delhi’s suburbs) and southern Indian cities, he added.
DLF is also looking at launching office and mall projects in Mumbai, Chennai, Gurgaon in the current financial year to generate more revenue. The company is looking at capital expenditure of Rs 500 crore this financial year and Rs 1,000 crore in the next year, Singh said.
“We hope to restart our commercial projects aggressively this year and restore the company back to non-DAL levels. We want to make up for the stress and loss with limited number of projects,” Singh said.
Sunday Business Standard, May 3, 3009, Page 1
Raghavendra Kamath / Mumbai
DLF Ltd, the country’s largest real estate developer, plans to raise Rs 5,500 crore through the sale of non-core assets such as power units and hotels to help it reduce its debt. In addition, it is banking on another Rs 2,000 crore of additional inflows from group company DLF Assets (DAL), the company said in a presentation to analysts.
The move follows 33 per cent growth in DLF’s gross debt to Rs 16,358 crore at the end of March, 2009 from Rs 12,277.08 crore an year ago. In addition, during the last financial year, the company’s revenues fell 28 per cent to Rs 10,541 crore as home-buyers deferred purchases and the company offered discounts to lure buyers into many projects. As a result, the company’s revenues were hit to the tune of Rs 688 crore, it said.
DLF’s net profit fell 41 per cent during 2008-09 to Rs 4,629 crore, while there was a 93 per cent decline in fourth quarter profits to Rs 159 crore. Loss from non-core businesses such as insurance, hotels and power was estimated at Rs 163 crore during the year.
The plan to sell parts of the non-core business was aimed at lowering the company’s net debt burden by 53.73 per cent to Rs 6,458 crore by March 2010, as against Rs 13,958 at the end of March this year, DLF said in the presentation. The net debt is arrived at after excluding the cash-in-hand, estimated at Rs 1,198 crore at the end of March 2009, and equity shown as debt and joint venture company debt, which together amounted to Rs 1,202 crore.
Out of Rs 5,500 crore, the sale of its wind power business and three land parcels are expected to generate around Rs 2,100 crore, and the remaining amount is expected to come from the sale of other assets such as hotels, DLF Vice-chairman Rajiv Singh said in an analyst call today.
“We are looking to sell those assets which do not significantly add to our bottom line and alter our business plans in the next three years. There is a clear visibility of Rs 3,500 crore (income) to us through this and (the remaining) Rs 2,000 crore is in various stages of negotiation and identification,” Singh added.
The company said that it had met all debt-repayment commitments and has made long-term arrangements for the remaining loans. It pointed out that new loans to the tune of Rs 2,500 crore had been sanctioned and were under disbursal. Of the Rs 3,591 crore debt due for payment during the current financial year, DLF paid Rs 723 crore in April.
Mounting debt and tight liquidity conditions have made real estate companies such as Unitech sell assets to generate funds. Unitech has sold a majority stake in its telecom venture Unitech Wireless to Norway’s Telenor and also sold off its Gurgaon hotel. It is in the process of selling its property in Saket in Delhi.
Apart from selling non-core businesses, DLF is also pulling out of unviable real estate projects such as those in Bidadi in Karnataka and Dankuni in West Bengal. Singh told analysts that the company was focusing on launching mid-income housing projects to beat the slowdown in the property sector. DLF is planning to launch 8-9 million square feet of city-centre projects in Chennai, Kochi, Delhi and Gurgaon and around 5 to 8 million square feet of mid-income housing projects in the National Capital Region (Delhi’s suburbs) and southern Indian cities, he added.
DLF is also looking at launching office and mall projects in Mumbai, Chennai, Gurgaon in the current financial year to generate more revenue. The company is looking at capital expenditure of Rs 500 crore this financial year and Rs 1,000 crore in the next year, Singh said.
“We hope to restart our commercial projects aggressively this year and restore the company back to non-DAL levels. We want to make up for the stress and loss with limited number of projects,” Singh said.
DLF wraps up buyback ahead of schedule
DLF wraps up buyback ahead of schedule
The Hindu Business Line, May 3, 2009, Page 1
Our Bureau, Mumbai
Real estate major DLF Ltd announced on Saturday the closure of its buyback programme, two months ahead of schedule.
The programme fetched only a little over 10 per cent of the upper limit of shares that could be tendered.
The closures were announced after the company acquired the minimum requisite number of shares for an aggregate amount of Rs 140.69 crore.
The company had earlier planned to buy back a maximum of 2.2 crore shares equivalent to 9.80 per cent of its total paid up capital for a sum not exceeding Rs 1,100 crore.
As per the buyback plan announced last year in July, DLF had offered to buy back its shares of face value Rs 2 each at a price not exceeding Rs 600 a share.
The company’s share price has been quoting in the range of Rs 300 to Rs 125 between October 17 and April 29 on the stock exchanges since the commencement of the buyback.
On Thursday, DLF shares closed with a gain of 2.71 per cent at Rs 230.90 on the BSE.
The decision for early closure was taken by the DLF board on April 30, DLF said in a filing to the BSE.
“The company, having purchased the requisite minimum number (55 lakh shares) of equity shares, has decided to close the buyback with effect from May 6, 2009,” DLF said.
“As on May 1, 2009, the company has bought back 76,38,567 equity shares for an aggregate amount of Rs 140.69 crore.
“No order for the buyback shall be placed after May 4, 2009,” the company added.
DLF promoter and promoter group held 88.55 per cent stake in the company, according to the shareholding pattern reported to the BSE at the close of the March 31, 2009.
The Hindu Business Line, May 3, 2009, Page 1
Our Bureau, Mumbai
Real estate major DLF Ltd announced on Saturday the closure of its buyback programme, two months ahead of schedule.
The programme fetched only a little over 10 per cent of the upper limit of shares that could be tendered.
The closures were announced after the company acquired the minimum requisite number of shares for an aggregate amount of Rs 140.69 crore.
The company had earlier planned to buy back a maximum of 2.2 crore shares equivalent to 9.80 per cent of its total paid up capital for a sum not exceeding Rs 1,100 crore.
As per the buyback plan announced last year in July, DLF had offered to buy back its shares of face value Rs 2 each at a price not exceeding Rs 600 a share.
The company’s share price has been quoting in the range of Rs 300 to Rs 125 between October 17 and April 29 on the stock exchanges since the commencement of the buyback.
On Thursday, DLF shares closed with a gain of 2.71 per cent at Rs 230.90 on the BSE.
The decision for early closure was taken by the DLF board on April 30, DLF said in a filing to the BSE.
“The company, having purchased the requisite minimum number (55 lakh shares) of equity shares, has decided to close the buyback with effect from May 6, 2009,” DLF said.
“As on May 1, 2009, the company has bought back 76,38,567 equity shares for an aggregate amount of Rs 140.69 crore.
“No order for the buyback shall be placed after May 4, 2009,” the company added.
DLF promoter and promoter group held 88.55 per cent stake in the company, according to the shareholding pattern reported to the BSE at the close of the March 31, 2009.
'Cement capacity to increase by 50 MT this year'
'Cement capacity to increase by 50 MT this year'
Business Standard, May 2, 2009, Page 10
Q&A: H M Bangur, President, CMA
Ajay Modi / New Delhi
The cement industry appears to be emerging from the lean patch last year. Capacity utilisation is improving, dispatches are picking up and companies have raised prices this month. However, the industry may soon find itself in a difficult situation with the addition of 50 million tonnes (MT) capacity in the current financial year, leading to an oversupply. H M Bangur, president of the Cement Manufacturers Association (CMA) and managing director of Shree Cement, spoke to Ajay Modi on the prospects. Edited excerpts:
There is a general perception that cement prices continue to remain high. Most companies took a price increase earlier this month. Is this likely to result in higher profits?
Prices are certainly higher than last year. But the profitability of companies is down by an average 10 per cent, since the cost of inputs like fuel and freight continues to increase.
What kind of capacity addition is expected in 2009-10? What would be the country’s total capacity by March 2010?
The existing capacity is about 218 million tonnes. The industry is expected to add around 50 million tonnes this year, taking the total capacity to 268 million tonnes by the end of this financial year.
The new capacities are expected to create an oversupply, since cement consumption growth is likely to fall in tune with the GDP growth rate. How would the industry cope with it?
The market will face an oversupply situation from September onwards, when the new capacities would get stabilised. While domestic supply will outpace the demand, even export is losing attraction. In such a situation, a lot would depend on the new government and its initiatives related to infrastructure projects.
How is the industry going to manage this oversupply?
Individual companies need to act keeping in mind their strengths and weaknesses. However, the situation would make it difficult for new players to enter the market.
Is the industry trying to find ways to boost cement consumption?
The industry is trying to project the benefits of cement concrete roads over the bitumen road. Various researches have established that the initial cost of a cement concrete road today is cheaper than a bitumen road. Plus, the maintenance cost on cement roads is low as well.
Given the cement import from certain neighbouring countries, is the industry seeking protection from the government in terms of safeguard duty, etc?
No. The industry is globally competitive and it does not require any protection. However, a level playing field should be ensured.
Business Standard, May 2, 2009, Page 10
Q&A: H M Bangur, President, CMA
Ajay Modi / New Delhi
The cement industry appears to be emerging from the lean patch last year. Capacity utilisation is improving, dispatches are picking up and companies have raised prices this month. However, the industry may soon find itself in a difficult situation with the addition of 50 million tonnes (MT) capacity in the current financial year, leading to an oversupply. H M Bangur, president of the Cement Manufacturers Association (CMA) and managing director of Shree Cement, spoke to Ajay Modi on the prospects. Edited excerpts:
There is a general perception that cement prices continue to remain high. Most companies took a price increase earlier this month. Is this likely to result in higher profits?
Prices are certainly higher than last year. But the profitability of companies is down by an average 10 per cent, since the cost of inputs like fuel and freight continues to increase.
What kind of capacity addition is expected in 2009-10? What would be the country’s total capacity by March 2010?
The existing capacity is about 218 million tonnes. The industry is expected to add around 50 million tonnes this year, taking the total capacity to 268 million tonnes by the end of this financial year.
The new capacities are expected to create an oversupply, since cement consumption growth is likely to fall in tune with the GDP growth rate. How would the industry cope with it?
The market will face an oversupply situation from September onwards, when the new capacities would get stabilised. While domestic supply will outpace the demand, even export is losing attraction. In such a situation, a lot would depend on the new government and its initiatives related to infrastructure projects.
How is the industry going to manage this oversupply?
Individual companies need to act keeping in mind their strengths and weaknesses. However, the situation would make it difficult for new players to enter the market.
Is the industry trying to find ways to boost cement consumption?
The industry is trying to project the benefits of cement concrete roads over the bitumen road. Various researches have established that the initial cost of a cement concrete road today is cheaper than a bitumen road. Plus, the maintenance cost on cement roads is low as well.
Given the cement import from certain neighbouring countries, is the industry seeking protection from the government in terms of safeguard duty, etc?
No. The industry is globally competitive and it does not require any protection. However, a level playing field should be ensured.
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