Real Estate Intelligence Service, Friday, December 18, 2009

RIL again largest wealth creator, Unitech the fastest: Study

RIL again largest wealth creator, Unitech the fastest: Study
Business Standard, December 18, 2009, Section II, Page 1

BS Reporter / Mumbai

Reliance Industries has emerged as the country’s largest wealth creator for the third time in a row, according to the 14th Motilal Oswal Wealth Creation Study.

It created Rs 1,514 billion (Rs 1.5 lakh crore) worth of wealth, 15.6 per cent of the total created, in 2008-09. Wealth creation has been calculated in the latest study as a change in the market cap of companies between 2003 and 2009, duly adjusted for corporate events such as mergers, demergers, fresh issuance of capital, buyback, etc.

Unitech has been the fastest wealth creator, for the second time in a row. Its stock price CAGR ( compounded annual growth rate) is a staggering 122 per cent. Five companies — HDFC, Sun Pharma, Reliance Inds, Hero Honda and Infosys — have remained among the top 100 wealth creators in the past 10 years. NMDC has the unique distinction of featuring in both the biggest and the fastest wealth creators’ list.

Among sectors, eight of the top 10 most consistent wealth creators are consumer-facing businesses, with strong franchise. Oil & gas continues to be the largest wealth creating sector. Telecom’s rising share of wealth created is attributed to a superior CAGR in profits after tax (PAT), of 62 per cent over the past five years. On the other hand, the comparative figure for FMCG companies is a muted 14 per cent.

Comparing the performance of the top 100 wealth creating companies (Wealthex) over the entire period, the Wealthex outperformed the Sensex by 83 per cent. Wealthex earnings showed a CAGR of 24.2 per cent, compared to 18.8 per cent for the Sensex. The Wealthex P/E ratio was 16.3, lower than 16.8 for the Sensex.

According to the study, the criteria for multi-bagger stocks is: these companies should have a P/E of less than 10 times, a price to book value of less than one, a price to sales ratio of one or less and a payback ratio of one or less. As many as 74 of the top 100 wealth creating companies had a base market cap of less than Rs 50 billion in 2004.

RIL, Unitech, HDFC lead wealth creators

RIL, Unitech, HDFC lead wealth creators
Hindustan Times, December 18, 2009, Page 27

HT Correspondent

Reliance has come up as the biggest wealth creator in the country’s stock market for third time in a row while realty firm Unitech is the fastest and housing lender HDFC is the most consistent creator of wealth, said the Motilal Oswal Securities Ltd’s (MOSL) study on wealth creation.

The annual study also predicted exponential growth in consumption, saving and investment leading India towards a $2-trillion (over Rs 93.8 lakh crore) GDP mark.

The study credits RIL with creating over Rs 1.5 lakh crore worth of wealth contributing 15.6 per cent of total wealth crated in the fiscal year ended March 2009. Unitech, with its 5-year stock price compound annual growth rate (CAGR) at 122 per cent was the fastest wealth creator during the 2004-09 period.

HDFC is seen as that most consistent with its 10-year price CAGR being the highest at 24.9 per cent.

Govt to look at index for corporate social responsibility

Govt to look at index for corporate social responsibility
The Hindu Business Line, December 18, 2009, Page 15

Our Bureau, New Delhi

The Corporate Affairs Minister, Mr Salman Khursheed, said on Thursday that the Government wants to explore the possibility of having an index based on corporate social responsibility (CSR).

Addressing a FICCI event on CSR here, Mr Khursheed said in the West, there are indices that benchmark the performance of companies on the basis of their CSR activities.

Fiscal sops

“We want to see whether it is possible to take that a step further,” the Minister said, adding that companies should integrate CSR strategies into their manner of doing business. He said the Government could give fiscal incentives to companies for their CSR activities.

Last month, the Minister had said the Government could come up with norms on CSR credits on the lines of carbon credits and companies can, in turn, trade in such credits. The Minister said the companies would have to get certification for their CSR activities from a government body and earn credits. The credits could then be traded in a CSR credit exchange.

DIVERSIONARY TACTIC

Speaking at the same event, the former SEBI Chairman, Mr M. Damodaran, sounded alarm bells on companies that are using CSR activities to divert attention from their illegal acts.

Mr Damodaran said even some companies -- whose leaders have been lauded as heroes by reputed organisations such as Forbes for their philanthropy -- are using CSR activities as diversionary tactics to cover up their non-compliance of laws.

“We seem to equate philanthropy with heroes,” he said, adding, however, that some of the activities of the companies of those heroes are anything but heroic. Without naming any companies that are committing such illegal acts, Mr Damodaran said, “Merit lists, honours lists and badges of courage are just to deflect attention from what is really happening.”

He said companies are treating CSR as just an expenditure item in their balance sheet by spending money on completely irrelevant activities instead of doing something useful for the communities in which they live and work. Mr Damodaran said CSR as a theme has remained in the margins for corporate India for far too long, adding that it was time that CSR occupied central space.

RCom issue

Mr Khursheed said his Ministry will look into the allegations of financial irregularities against Reliance Communications (RCom) only if systems like MCA-21 throws up any aberrations regarding its financial statements.

“If there is a violation of Companies Act (by RCom) that is picked up by MCA-21, then we will look at it. Also, if the Department of Telecom asks us (Corporate Affairs Ministry), we will look into it. But if individuals write to us (about RCom) we will just pass it on to regulators,” the Minister said. He, however, said the issues of company law violations will come only at the fag end of the probe.

DIPP to scan FDI end-use in realty

DIPP to scan FDI end-use in realty
The Financial Express, December 18, 2009, Page 1

Rajat Guha, New Delhi

The department of industrial policy & promotion (DIPP) has set up a monitoring cell to investigate the end-use of foreign funds raised by realty firms, according to official sources. Its objective: to ascertain whether companies diverted the money to areas where FDI is banned like buying agricultural land. The development comes at a time when the government is trying to relax the three-year lock-in period on repatriation of investments by foreign partners in real estate projects.

The decision comes after recent raids by the enforcement directorate (ED) on one prominent Delhi-based real estate developer revealed “large-scale” FDI violations in the purchase of land. The company had an around 12,800-acre land bank, of which 8,700 acre is agricultural land. The ED claimed that most of this farmland was acquired through FDI, in contravention of existing rules.

Under current regulations, FDI is banned in agriculture and agriculture-related activities. However, 100% FDI is allowed for integrated townships and housing development projects. According to official sources, certain developers could be using funds raised through FDI to buy agricultural land for their projects, although the law does not permit this. Existing regulations also do not provide for the purchase or sale of undeveloped land for which FDI approval has been granted. Such land must be retained by the developer.

Officials said DIPP would now ask realty firms to submit quarterly reports on the end-use of foreign funds to ensure that the funds are not being routed to projects other than FDI-compliant ones.

Last year, the Foreign Investment Promotion Board, the nodal foreign investment approval body, had rejected an application from Vatika—Wachovia Corp of the US through subsidiary WDC Venture has invested in the Delhi-based developer—seeking to retain projects that do not comply with FDI guidelines in the real estate sector.

In another case, FIPB rejected a proposal by Keppel-Puravankara Development Pvt Ltd--in which Singapore-based Keppel Land Ltd holds 51%—which wanted to sell 1.5 acre of undeveloped land from a 62-acre tract acquired to develop an integrated township in Bangalore.

PNB extends special home loan offers

PNB extends special home loan offers
The Economic Times, December 18, 2009, Page 9

NEW DELHI: The country’s second largest public sector lender, Punjab National Bank (PNB), extended the festival offer of discounted interest rates on housing loans to borrowings up to Rs 50 lakh from Rs 30 lakh. “Punjab National Bank has announced extension of housing loan coverage from Rs 30 lakh to Rs 50 lakh under its festival bonanza offer 2009. PNB charges discounted interest rate of 8.50% for fixed loans,” the bank said in a statement. This fixed rate would be valid for the first three years up to December 31, 2012, it said. The offers would be valid till the end of this month. In subsequent years, the bank will charge 2-2.5% below the benchmark prime lending rate under the floating option, it said. Besides this, the bank would also offer complete waiver of processing fee and documentation charges. The margin on housing loans up to Rs 20 lakh has also been slashed to 15%.

DLF-DAL merger: Promoters to gain

DLF-DAL merger: Promoters to gain
The Economic Times, December 18 2009

Supriya Verma Mishra , ET Bureau

It’s that feeling of deja vu. Delhi-based real estate developer DLF has announced a merger of its commercial realty arm DLF Assets (DAL) with itself — a move aimed at repaying some of DAL’s debt.

This merger is also aimed at consolidating all commercial properties under DLF, which will help add an annual income of close to Rs 500-600 crore in the form of lease rentals from 2009-10. DAL currently earns around Rs 325 crore from lease rentals.

The new structure involves the merger of DLF subsidiary DLF Cyber City Developers with Caraf Builders and Constructions, which is the holding company of DAL. The valuation ratio approved by the board for Cyber City and Caraf is in the ratio of 60:40.

This means that DLF shareholders will have access to 60% and promoters to 40% of the merged entity. However, this will be a cashless transaction.

DLF sells commercial property to DAL, which is controlled by KP Singh who owns 78% in the latter along with his son and DLF promoter Rajeev Singh. DAL buys commercial property from DLF and collects lease rentals from it. With this merger, the debt on DLF’s books would be an additional Rs 2,460 crore.

Caraf, along with its subsidiaries, has four 3.3 million sq ft rent and a majority stake in DAL, which owns four SEZ properties with total leased area of 6.4 million sq ft. On the other hand, Cyber City has 6.7 million sq ft of built-out space across commercial buildings in Gurgaon and two operational malls in Delhi. Cyber City can further develop commercial and retail space in Gurgaon and Mumbai.

Due to non-availability of detailed numbers, we did some back-of-the-envelope calculations. Cyber City has a rental and development income of Rs 1,450 crore for FY09. The value of this company after the debt consideration comes close to Rs 11,300 crore, about 10 times its profit of Rs 1,100 crore. Capitalising DAL’s rental income at an average 10% capitalisation rate and considering a net debt of Rs 2,460 crore, DAL could be valued at roughly Rs 3,050 crore.

It shows that though the promoter’s share has come down in DAL, this merger provides access to high-rental yielding land. Whether the merger will really work out for the shareholders or not is yet to be clear, but it should certainly work out to the advantage of the promoters.

Cement prices move up as rail wagons get scarce

Cement prices move up as rail wagons get scarce
The Hindu Business Line, December 18, 2009, Page 2

Prices rise by Rs 5-8 in most parts of the country.

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“The Railways needs to give more priority to cement loading. Its interests are sidelined compared to many other goods.” – Ms Vinita Singhania
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Suresh P. Iyengar, Mumbai

A shortage of rail wagons is driving up cement prices at a time when demand from the realty sector is showing signs of revival.

Companies recently increased prices for the second time in December citing disruption in the distribution channel. As a result, cement is dearer by Rs 5 to Rs 8 for a 50-kg bag in most parts of the country from the first week of December.

In Maharashtra, including Mumbai and Pune, prices are set to increase by Rs 5 a bag from Monday. The average price in Mumbai is Rs 240 a bag, now likely to be hiked to Rs 245-248 in a week, according to a city-based dealer.

Dealers in Gujarat have already increased prices by Rs 5 a bag from Tuesday. The average price in Ahmedabad, Vadodara, Bharuch, Mehsana and Surat has gone up to about Rs 200-205 a bag.

In the north, prices have remained almost unchanged but dealers expect a hike if logistics problems persist. In Delhi, cement is quoting at Rs 227 a bag.

Ms Vinita Singhania, Managing Director, JK Lakshmi Cement, and President, Cement Manufacturers Association, said that railway wagon availability has been a key concern in some markets.

“The Railways needs to give more priority to cement loading. Though cement is one of its largest revenue contributors, its interests are sidelined compared to many other goods,” she added.

Companies in Andhra Pradesh, the country's cement manufacturing hub, will have cause for cheer.

In November, prices had touched a low of Rs 130 a bag but have hardened since to Rs 140-145 a bag and now set to reach the Rs 150-mark by the end of this week, a dealer said.

Cement prices are a direct offshoot of demand-supply coupled with the fact that market forces play a key part too. Even short-term surpluses and deficits in a particular market can affect prices there, said Ms Singhania.

Mr Gaurav Dua, Head of Research, Sharekhan, said, “The recent price rise is sentimentally positive. Going ahead, volumes may improve due to a pick up in demand from infrastructure projects”.

Steel companies may raise prices in January

Steel companies may raise prices in January
Business Standard, December 18, 2009, Page 4

Press Trust Of India / New Delhi

To cash in on the demand surge in domestic markets as the threat from cheaper imports weakens.

Leading steel companies like SAIL, JSW, Essar and Bhushan Steel may increase prices next month to cash in on the demand surge in domestic markets.

The country’s second largest steel producer JSW Steel today joined others in the industry gunning for a price hike in January.

“Internationally, steel prices have improved by about $30 a tonne (to $450 a tonne) in the past one month. There is a possibility of JSW increasing its prices,” JSW Steel Director (Sales and Marketing) Jayant Acharya told reporters here.

Steel producers have cut prices by Rs 2,000 a tonne in the past two months following a fall in global prices and threat from cheaper imports. “There is no threat of cheaper imports now. Globally, prices have bottomed out,” he added.

Bhushan Steel yesterday said the price increase could be in the range of Rs 500-1,500 a tonne. However, none of the steel makers confirmed the quantum of the hike.

An Essar Steel official said the prices could be revised upwards next month but refused to give a figure to the possible hike. SAIL Chairman S K Roongta said prices are likely to be increased in January.

Bank deposits set to give negative return

Bank deposits set to give negative return
Business Standard, December 18, 2009, Section II, Page 1

Manojit Saha & Neha Pandey / Mumbai December 18, 2009, 0:30 IST

With inflation on the rise and projected to rise further, the real return on your fixed deposits could soon turn negative.

At present, most banks offer 6-6.5 per cent interest on one-year deposits, which is the lowest in recent times. Headline inflation, based on the wholesale price index, touched a 10-month high of 4.78 per cent in November.

In a report, ICICI Securities said inflation could average 7 per cent this year, while Citi said it could cross 6 per cent by the end of the month to hover above 8 per cent by March.

With 70 per cent of the recent deposit flow concentrated in the one-year bucket, a host of retail depositors could be staring at a situation when they begin to lose money in real terms by the end of the month. Bankers said that with rates expected to rise over the next few months, depositors were unwilling to lock in their deposits for longer tenures.

In this scenario, bankers said they faced a Catch 22 situation due to their inability to raise lending rates to make up for the loss in margin due to an increase in deposit rate.

“If deposit rates are to be increased, the cost of funds will go up. The problem is that credit is not picking up, and if you increase lending rates credit pickup will be further affected,” said an executive director of a large public sector bank. Loan growth in the year to December 4 was estimated at 10.5 per cent, the lowest in more than decade.

Though some banks may increase rates on longer-term maturity deposits, mainly to narrow the gap between their assets and liabilities, it will be difficult for them to increase one-year deposit rates.

Over the last 12 months banks have lowered deposit rates from 8.75-10.50 per cent to 6-7.50 per cent now to realign costs. The reduction was the outcome of several rounds of reduction in key policy rates and enhancement of liquidity in the banking system.

Investment advisors said depositors should realign their risk portfolio and opt for hybrid products, such as, monthly income plans. “As they have a cap on equity exposure, your investment will be more towards the less-risky fixed income funds,” said Hemant Rustagi, CEO of Wiseinvest advisors. Alternatively, he said, since rates were likely to move up, investors should opt for short-term debt funds with tenures of six to 12 months.