Real Estate Intelligence Service, Tuesday, July 21, 2009

Sensex gets past 15K

Sensex gets past 15K
Business Standard, Money & Markets, Section II, Page 1

Press Trust of India

IT index the best performer among sectoral indices

Powered by the IT sector and good corporate results from within the country and the US, the BSE Sensex today added 446 points to close above 15,000 for the first time in a month.

A firm opening at European and Asian stock markets and the upgrade of Indian stocks by leading international lenders further boosted trading sentiment and the 30-share Sensex climbed 446.09 points, or 3.03 per cent, to 15,191.01.

The 50-share Nifty rose 127.30 points, or 2.91 per cent, to 4,502.25.20. The Nifty regained 4,500 points almost after a month. The 13-share BSE IT index was the best performer among sectoral indices with a rise of 254.33 points, or 7.26 per cent, to 3,759.61 points, after touching an intra-day high of 3,899.10 points. The current rally, which started last week, has taken markets up 9.2 per cent. Unicon Financial Chief Executive G Nagpal said, “Investors are optimistic and think that the worst is behind us. Our markets moved up on strong global cues. Probably a lot of money is playing around the market and is waiting to be invested.”

The stocks’ rating was raised to “equal-weight” from “underweight” at Morgan Stanley, which said uncertainty over earnings in the current financial year had been reduced.

Global trading sentiment remained bullsh as MSCI’s Asia Pacific, excluding Japan Index, added 2.3 per cent to 340.79, its highest close since September 26.

US housing sales unexpectedly rose, increasing optimism that the world’s largest economy is strengthening.

Sensex back on 15,000 track

Sensex back on 15,000 track
The Financial Express, July 21, 2009, Page 4

fe Bureau, Mumbai

Indian equity indices closed the day with huge gains, following strong cues from global markets coupled with inflows from the foreign institutional investors (FII).

News of $3 billion rescue from bondholders for US lender CIT Group also boosted sentiments of domestic markets. 30-share Sensex of Bombay Stock Exchange (BSE) added 446.09 points or 3.03% to end the day at 15,191.01 points. Broader S&P CNX Nifty of National Stock Exchange (NSE) closed higher by 127.30 points or 2.91% to 4,502.25 points.

There was huge buying in technology stocks during intra-day trade, possibly because of positive earnings announced by TCS. Additionally, short covering was also seen in domestic markets. Raamdeo Agrawal, MD of Motilal Oswal securities said, “Globally, huge inflows are entering emerging markets as growth is visible here. Apart from that, quarter earnings have been better then expected.”

Domestic markets opened on positive note led by strong cues from Asian and European markets. Markets remained in an upbeat mood and closed the day ‘above the dotted line’. Deven Choksey, MD of KR Choksey Securities said, “Lot of FII money is coming in and this is one reason Indian markets are surging ahead. I don’t see any downward rally in the near term, unless there is negative news from global markets. This upward rally is likely to continue in the coming days.”

Per provisional figures furnished by BSE, FII were net buyers at Rs 563.20 crores and domestic institutional investors (DII) bought stock worth Rs 151.85 crores on Monday. The breadth of the market remained strong as out of 2,741 stocks traded on BSE, 1,837 stocks advanced, 832 stocks declined while 72 remained unchanged. In Sensex 23 stocks closed in green while remaining seven stocks closed the day in red. Liquidity conditions have improved in the domestic markets in the last few trading sessions. Apart from that, monsoon will also play crucial part in the markets. Barring FMCG, whose stocks have mostly been in the green, all sectors in BSE sectoral indices closed the day above the dotted line on Monday and IT and realty stocks were the best performers.

“Now markets, during the next few trading sessions, will look at companies’ quarter earnings coupled with government measures to boost economy as well as inflows from FIIs,” said an analyst.

HDFC Bank cuts lending rates by 25 bps

HDFC Bank cuts lending rates by 25 bps
The Hindu Business Line, July 21, 2009, Page 1

Our Bureau Our Bureau

Mumbai, July 20 HDFC Bank today cut its benchmark prime lending rate (BPLR) by 25 basis points to 15.75 per cent. About 15 per cent of the bank’s loans are linked to the BPLR, a bank spokesperson said.

The cut in the BPLR will impact corporate and SME loans and not the rates on auto loans, the spokesperson said.

Environmental clearance process made more transparent

Environmental clearance process made more transparent
The Hindu Business Line, July 21, 2009, Page 15

Our Bureau, New Delhi

The Ministry of Environment and Forests has decided to put information regarding the clearance process on its Web site to increase transparency of the process.

Information relating to status of pending projects, schedule and agenda of the meeting of Expert Appraisal Committees (EAC), minutes of the EAC meeting, environmental clearance letters, and circulars and guidelines relating to Environmental Clearance would be available on the Ministry Web site.

The Minister of Environment and Forests, Mr Jairam Ramesh, also told Parliament that the Lower Painganga Project in Maharashtra was accorded the environmental and in-principle forest clearance in May 2007 and February 2009 respectively.

He added that two Special Economic Zone (SEZ) projects are awaiting environment clearance from Gujarat. For the “PhaEZ Park” SEZ project requisite information had been received and proposal would be included in the Expert Appraisal Committee for New Construction Projects and Industrial Estates meeting scheduled to be held in August 2009. The SEZ project at Dahej is yet to submit the site map, including areas falling under the Coastal Regulation Zone.

Clinton visit ends on a high note

Clinton visit ends on a high note
The Financial Express, July 21, 2009, Page 1

Agencies, fe Bureau

New DelhiThe US and India said on Monday they had agreed on a defence pact that takes a major step towards allowing the sale of sophisticated US arms to New Delhi.

US secretary of state Hillary Clinton, at the end of her first visit to India as Washington’s top diplomat, said Delhi had also approved two sites for US companies to build nuclear power plants. “We have been told that sites for two nuclear parks have been earmarked for us,” Clinton said.

India and the US also inked two agreements, including one that facilitates the launch of US satellites from Indian launch vehicles and another in the field of science & technology. An agreement on setting up an endowment board for R&D in agriculture was also signed.

Earlier in the day, Prime Minister Manmohan Singh conveyed to Clinton the concerns in India over growing protectionism in the US. Singh pointed out that the Indian business community was concerned over growing protectionism in the US, PMO sources said. Clinton assured Singh that the US did not have protectionist policies, the sources said.

India has been worried about growing protectionism in the US, which has been increasing in the aftermath of the economic crisis, affecting domestic industry. New Delhi has been emphasising that developed nations should not take recourse to protectionism as it would deepen the crisis, especially in developing countries.

During the meeting, which was followed by lunch hosted by the Prime Minister, the two sides reviewed bilateral relations across a wide range of sectors. Clinton said the US wanted India to play an active role in regional and global forums. She also reiterated President Barack Obama’s invitation to the Prime Minister to visit the US, the sources said.

A state department official said on condition of anonymity that Singh would be the first foreign leader to make a state visit under President Obama, another mark of the relationship’s importance to Washington.

The defence and nuclear agreements gave Clinton tangible accomplishments from a trip designed to deepen ties and demonstrate President Obama’s commitment to India’s emergence as a player on the global stage.

“We have agreed on the end-use monitoring arrangement which would refer to... Indian procurement of US defence technology and equipment, foreign minister SM Krishna said at a joint news conference with Clinton.

Known as an end-use monitoring agreement and required by US law for such weapons sales, the pact would let Washington check that India was using any arms for the purposes intended and was preventing the technology from leaking to others. India is expected to spend more than $30 billion over the next five years on upgrading its arsenal.

National Green Tribunal on the anvil

National Green Tribunal on the anvil
The Financial Express, July 21, 2009, Page 2

New Delhi: Bill for setting up the National Green Tribunal (NGT), aiming to expedite the disposal of environmental cases of civil nature pending in higher courts, is on the anvil, the government informed Rajya Sabha. In his reply to a written question, Environment Minister Jairam Ramesh said, the Bill for establishment of the National Green Tribunal is under finalization. "The NGT intends to reduce the load of environmental cases of civil nature pending in higher courts and to help in speedy disposal of such cases.

Moody’s expects rates to rise in next 12 mths

Moody’s expects rates to rise in next 12 mths
The Economic Times, July 17, 2009, Page 12

Our Bureau MUMBAI

RATINGS firm Moody’s expects interest rates to rise in the next 12 months, which will in-turn put pressure on banks profitability. The global ratings firm also expects non-performing loans to rise from the third quarter of the current fiscal.

Speaking to ET, Nondas Nicolaides, vice-president/senior analyst, Moody’s, said: “Interest rates, in the medium-term, they may start inching up and this may put some pressure on banks’ margin. This is because deposits start rising faster than the lending rates in India.”

But he also added that there may not be a significant pressure on their bottomline. Banks could manage this as they are focused on reducing their costs and tapping low-cost funds like current and savings accounts (CASA), salary accounts and lowcost deposits. “These may alleviate pressures on their margins,” said Mr Nicolaides.

Moody’s expects banks credit to grow at around 15-16% in FY10, given the projected GDP growth of 6%. According to Deborah E Schuler, senior vicepresident/regional credit officer, financial institutions (Asia), Moody’s, with the exception of China, other like Singapore and Hong Kong are seeing a contraction in loan book.

However, the major challenge facing Indian banks in the current economic environment is the asset quality and non-performing assets (NPAs). Gross NPAs, in the export oriented sectors like textiles, gems and jewellery, auto parts and retail, among others, have started to show up, noted the Moody’s official.

Trickle-down effect

Trickle-down effect
ET Realty, July 17, 2009, Page 25

The focus of the Budget has been on creating a broader economy-wide revival than on sector-specific incentive framework. This will yield dividend to realty sector also, ET Realty reports

Prabhakar Sinha

On the face of it, 2009-10 Budget seems to be disappointing for the real estate sector - it has not delivered much to the housing sector, directly. But analysts and developers feel finance minister Pranab Mukherjee did the right thing in addressing the main issue of an economic slowdown that the country is facing in the Budget, in the wake of a global recession. However, some of them argue the government should have given some sops to the real estate sector directly, which would have helped in reviving the economic growth in the country.

Ramesh Chandra, chairman of the second largest real estate firm Unitech Ltd, says that keeping in mind the 6.8% fiscal deficit, it was not possible for the finance minister to match all the expectations. Global real estate research firm, DTZ, in a report says 2009-10 Budget focuses on longterm economic development. The report f u r t h e r adds that e x p e c t a - tions of real estate participants were not addressed specifically, though the sector benefits indirectly by the fillip given to infrastructure development, consumption, and employment-related programmes and measures.

Kapil Wadhawan, vice-chairman and MD of Dewan Housing Finance Corporation, says the continuation of the stimulus packages for 2009-10, which were announced by the government early this year to contain the economic slowdown, led to the fiscal deficit of 6.8%. Had the government not continued with those packages, the economy would have been affected by the global slowdown, and this would have affected realty sector adversely. He added that if the economy revives, realty sector will also get back on track even without specific package for the sector.

Clearly, the focus has been on creating a broader economy-wide revival than on focusing on establishing sectorspecific incentive framework, the DTZ report says. Anshuman Magazine, CMD of global realty research firm CB Richard Ellis, South Asia, is of the view that the focus on infrastructure and providing more funding, especially for highways and railways, are the positive aspects of the Budget. The Jawaharlal Nehru National Urban Renewable Mission (JNNRUM), Mathur said, has been a very successful initiative and on the back of its success the FM increased allocation to it by a massive 87%, to Rs 12,887 crore. This scheme directly touches the urban fabric of the country and with real estate matters largely being a state subject, the central government through this tool will have the ability to initiate far-reaching reforms in the industry. This will provide impetus in creating urban infrastructure and bring in large land areas into the mainstream, where affordable houses could be developed.

There are several announcements relating to housing sector in rural areas. The Budget provides for interest subsidy on home loans up to Rs 1,00,000. Allocation to Indira Awaas Yojna increased by 63%, to Rs 8,883 crore. The Budget has also provided Rs 2,000 crore for Rural Housing Fund (RHF) to National Housing Bank (NHB) to boost its resource base for refinance operations in rural housing sector. It has also given Rs 1,000 crore for the housing of paramilitary forces. Allocation for Bharat Nirman has also been hiked by 45%.

Enhanced allocation for the Commonwealth Games in 2010, from Rs 2,112 crore to Rs 3,472 crore, will also go a long way in improving the condition of NCR, which will in turn help the realty sector. Vijay Jindal, CMD of SVP Group, concurs with this and says, "There are many positives that we can take out from this Budget." Allocation for NHAI has increased, which will mean better connectivity and hence a boost to the values of real estate along these routes. The increase in allocation for JNNURM will also come as a shot in the arm to mass housing on the outskirts of metros, Jindal adds.

Government has allocated Rs 1,00,000 crore to India Infrastructure Finance Company Ltd (IIFCL) to fund infrastructure projects in the country. In fact, analysts also say due to global slowdown, prices of commodities like steel and cement have fallen substantially from the peak level of last year, which is helping developers in constructing affordable houses. While real estate has not seen a direct mention in the Budget speech, DTZ report said, various consumptiondriven benefits may accrue to this sector in the near future.

By increasing allocation to the NREGA, government is hoping for a more inclusive employment and broad-based consumption revival. However, while a lot was expected in the first Budget of the newly elected government, real estate sector has been given a miss by the finance minister. Developers feel measures like reintroduction of 80 IB would have helped builders in constructing affordable houses. Under this act, the profit made on small-size housing projects of less than 1,000 sq ft in metro cities are exempt from taxes. They were also expecting a good increase in Income Tax exemption limits to help increase the buyers' purchasing power. But at the same time, the most important factor that affects realty sector is the interest rate. The slowdown in economy has affected the government's revenue adversely, while the stimulus packages have increased its spending. This has already taken the fiscal deficit to all time high level of 6.8% of GDP. Had the government accepted all the demands of industry, fiscal deficit would have further gone up, which would have increased the demand for government's borrowings leaving only a small quantum of resources for private sectors, including home loan borrowers.

FOCAL POINT

The Budget provides for interest subsidy on home loans up to Rs 1,00,000. Allocation to Indira Awaas Yojna increased by 63%, to Rs 8,883 crore The Budget has also provided Rs 2,000 crore for Rural Housing Fund (RHF) to National Housing Bank (NHB) to boost its resource base for refinance operations in rural housing

Trickle-down effect

Trickle-down effect
ET Realty, July 17, 2009, Page 25

The focus of the Budget has been on creating a broader economy-wide revival than on sector-specific incentive framework. This will yield dividend to realty sector also, ET Realty reports

Prabhakar Sinha

On the face of it, 2009-10 Budget seems to be disappointing for the real estate sector - it has not delivered much to the housing sector, directly. But analysts and developers feel finance minister Pranab Mukherjee did the right thing in addressing the main issue of an economic slowdown that the country is facing in the Budget, in the wake of a global recession. However, some of them argue the government should have given some sops to the real estate sector directly, which would have helped in reviving the economic growth in the country.

Ramesh Chandra, chairman of the second largest real estate firm Unitech Ltd, says that keeping in mind the 6.8% fiscal deficit, it was not possible for the finance minister to match all the expectations. Global real estate research firm, DTZ, in a report says 2009-10 Budget focuses on longterm economic development. The report f u r t h e r adds that e x p e c t a - tions of real estate participants were not addressed specifically, though the sector benefits indirectly by the fillip given to infrastructure development, consumption, and employment-related programmes and measures.

Kapil Wadhawan, vice-chairman and MD of Dewan Housing Finance Corporation, says the continuation of the stimulus packages for 2009-10, which were announced by the government early this year to contain the economic slowdown, led to the fiscal deficit of 6.8%. Had the government not continued with those packages, the economy would have been affected by the global slowdown, and this would have affected realty sector adversely. He added that if the economy revives, realty sector will also get back on track even without specific package for the sector.

Clearly, the focus has been on creating a broader economy-wide revival than on focusing on establishing sectorspecific incentive framework, the DTZ report says. Anshuman Magazine, CMD of global realty research firm CB Richard Ellis, South Asia, is of the view that the focus on infrastructure and providing more funding, especially for highways and railways, are the positive aspects of the Budget. The Jawaharlal Nehru National Urban Renewable Mission (JNNRUM), Mathur said, has been a very successful initiative and on the back of its success the FM increased allocation to it by a massive 87%, to Rs 12,887 crore. This scheme directly touches the urban fabric of the country and with real estate matters largely being a state subject, the central government through this tool will have the ability to initiate far-reaching reforms in the industry. This will provide impetus in creating urban infrastructure and bring in large land areas into the mainstream, where affordable houses could be developed.

There are several announcements relating to housing sector in rural areas. The Budget provides for interest subsidy on home loans up to Rs 1,00,000. Allocation to Indira Awaas Yojna increased by 63%, to Rs 8,883 crore. The Budget has also provided Rs 2,000 crore for Rural Housing Fund (RHF) to National Housing Bank (NHB) to boost its resource base for refinance operations in rural housing sector. It has also given Rs 1,000 crore for the housing of paramilitary forces. Allocation for Bharat Nirman has also been hiked by 45%.

Enhanced allocation for the Commonwealth Games in 2010, from Rs 2,112 crore to Rs 3,472 crore, will also go a long way in improving the condition of NCR, which will in turn help the realty sector. Vijay Jindal, CMD of SVP Group, concurs with this and says, "There are many positives that we can take out from this Budget." Allocation for NHAI has increased, which will mean better connectivity and hence a boost to the values of real estate along these routes. The increase in allocation for JNNURM will also come as a shot in the arm to mass housing on the outskirts of metros, Jindal adds.

Government has allocated Rs 1,00,000 crore to India Infrastructure Finance Company Ltd (IIFCL) to fund infrastructure projects in the country. In fact, analysts also say due to global slowdown, prices of commodities like steel and cement have fallen substantially from the peak level of last year, which is helping developers in constructing affordable houses. While real estate has not seen a direct mention in the Budget speech, DTZ report said, various consumptiondriven benefits may accrue to this sector in the near future.

By increasing allocation to the NREGA, government is hoping for a more inclusive employment and broad-based consumption revival. However, while a lot was expected in the first Budget of the newly elected government, real estate sector has been given a miss by the finance minister. Developers feel measures like reintroduction of 80 IB would have helped builders in constructing affordable houses. Under this act, the profit made on small-size housing projects of less than 1,000 sq ft in metro cities are exempt from taxes. They were also expecting a good increase in Income Tax exemption limits to help increase the buyers' purchasing power. But at the same time, the most important factor that affects realty sector is the interest rate. The slowdown in economy has affected the government's revenue adversely, while the stimulus packages have increased its spending. This has already taken the fiscal deficit to all time high level of 6.8% of GDP. Had the government accepted all the demands of industry, fiscal deficit would have further gone up, which would have increased the demand for government's borrowings leaving only a small quantum of resources for private sectors, including home loan borrowers.

FOCAL POINT

The Budget provides for interest subsidy on home loans up to Rs 1,00,000. Allocation to Indira Awaas Yojna increased by 63%, to Rs 8,883 crore The Budget has also provided Rs 2,000 crore for Rural Housing Fund (RHF) to National Housing Bank (NHB) to boost its resource base for refinance operations in rural housing

On less risky terrain

On less risky terrain
The Hindu Business Line, July 19, 2009, Page 11

'Fortune favours the brave' - this Latin proverb may well sum up the changing fortunes of Unitech as well as the high risk-return proposition that may be awaiting the prospective investors of Unitech.

Unitech's unremitting efforts to tide over a precarious state of high leverage, high receivables, plunging sales and low cash during the realty slowdown of the last one year seem to be paying off. Among the larger players, we believe that Unitech has been most proactive in combating the slowdown. There are signals that these efforts would translate into a healthier balance sheet that is low on debt and a more sustainable earnings stream for the company, though margins may moderate.

Investors with a three-year investment perspective can consider buying the stock of Unitech on declines linked to broad markets.

Investment strategy

At the current market price of Rs 76 the stock trades at 10 times its earnings for 2008-09. Note that even the FY-09 earnings were aided by reasonably good performance during the first half of that fiscal. This may not be sustained in the current financial year. The valuation only gets marginally expensive at 13 times its expected FY-10 earnings, factoring in an expanded equity base and revenue from new launches accruing over the next couple of years. An investment in the stock, at this stage, could still hold uncertainties. Even as Unitech has done well to tackle company-specific issues, the macro concern over the pace of recovery in realty still remains a matter of conjecture. A longer investment time-frame may, therefore, be needed.

The trials

While smaller realty companies took the first hit from the realty slowdown, it wasn't long before players such as Unitech were also impacted. Unitech has traditionally been high on leverage. However, comfortable revenue growth rates ensured that debt was serviced. Lower sales volume as well as rapid drying up of funding avenues - visible from September 2008 - spelt trouble. By December 2008, the company's receivables galloped to Rs 1,345 crore from Rs 750 crore in March 2008. Debt increased by over Rs 2,000 crore to Rs 10,900 crore during the December quarter, with higher number of near-term repayment schedules. Sales volume, meanwhile, plummeted over 85 per cent in the above quarter. Added to this, rumours of the company defaulting on payments, made fund raising extremely difficult.

The efforts

Unitech, unlike its peer DLF, was in a more difficult spot then, as it was more highly leveraged than the latter. As bank credit and customer advances - the key sources of working capital - started drying up, the first positive for Unitech's came in the form of a stake sale in its telecom venture - Unitech Wireless. While the inflows from the sale came at a later date, Unitech's consolidated balance sheet received some relief as a part of the debt for the telecom business was shifted from its books.

The next relief came in the form of debt restructuring package allowed to banks by corporates. These events, despite providing some respite to the pressurised balance sheet, did not free up cash for the launches (mostly middle income housing) that the company was resorting to. It was then that Unitech went on an asset monetising spree, selling its hotel and office spaces, freeing up at least Rs 650 crore of cash. The monetising initiative is still on, with the company negotiating to offload more hotel properties.

Unitech was also one of the fist companies to capitalise on the turnaround in the equity markets through two quick successive rounds of qualified institutional placements, through which it is reported to have garnered about Rs 4,400 crore. Besides, the company's first's QIP at Rs 38.5 per share left much on the table for investors; this smart strategy led to a successful second QIP offer. Unitech's debt at Rs 7,800 crore (as of May 2009) and gearing of 1.5 are likely to come down further to these measures. The company has also issued warrants to a promoter group company.

The above de-leveraging/fund raising measures are not only likely to reduce the debt burden significantly, but also ensure execution of projects taken up. In the process, Unitech has also unlocked value from non-core businesses such as telecom (the company is also said be negotiating to sell its tower manufacturing business) thereby lightening its balance sheet as well as conserving resources for the core realty business.

Business strategy

Meanwhile, to revive sales volume, Unitech had resorted to shifting focus to middle-income housing. It stalled many commercial projects where the demand scenario was abysmal and instead concentrated on the residential space. Prices too were slashed by as much as 25 per cent.

While the effect of this was tepid in the March quarter, the company has sold about 3.2 million sq.ft of the close to 14 million sq ft of area launched since April 2009. To put this in perspective, the company sold 3 million sq. ft of properties for the full year ending March 2009. If the company is able to sell properties at the pace at which it has in recent months, the volumes may provide some cushion for the lower realisations from selling mid-income housing/discount properties.

The challenge for Unitech, is in keeping the volumes ticking for at least the next six-nine months not only to grow its revenue but also to revive its working capital cycle. For this, the nascent recovery visible in real-estate may have to be sustained. The near term concern is that the equity expansion of over 40 per cent (excluding warrants) may dilute the earnings over the next one year.

More India business stories

Surprisingly, Unitech has managed a better show than most other larger players for the full year ending FY-09. While revenues declined by 30 per cent to Rs 2,890 crore net profits contracted 26 per cent to Rs 1,198 crore. Operating profit margins expanded marginally to 55 per cent.

Going forward, with an average land cost of about Rs 200 per sq ft, OPMs may gradually contract to 40 per cent unless the company is once again able to command better pricing power. Any improvement in commercial project off take may also support profit margins.