India Inc gives a glimmer of hope

India Inc gives a glimmer of hope
Business Standard, May 1, 2009, Section II, Page 10

B G Shirsat / Mumbai

Though the net profit of the 514 companies that have declared results so far has fallen by 16.3%, it is far less than the 32.7% plunge they reported in Q3.

The performance of 514 companies, which have declared their fourth quarter results so far, indicates that cement, construction, fertiliser, personal care, power, telecom and two-wheeler sectors would do well in the final count. An in-depth analysis of these results by Business Standard Research Bureau has also found that software services and pharmaceutical sectors are poised to post a modest growth in sales and profit, while trading, metals, automobiles (heavy) and engineering sectors are expected to fair badly in the quarter ended March 2009.

Sales and margin performances of the 514 firms have been better than expected, though a clear picture would emerge once more results came in. These firms have reported a 0.4 per cent decline in sales, while their net profit has gone down by 16.3 per cent.

The decline in sales of the sample companies has been caused by private sector petrochemical and oil & gas giant Reliance Industries (RIL), which has reported a 24 per cent drop in sales due to subdued gross refining margins. If RIL is taken out, the average sales of the remaining sample firms have increased by 5.5 per cent. Though it is still too early to project any growth rate for the fourth quarter, initial trends suggest that corporate earnings are likely to be better than the third quarter.

On the operating margin front, India Inc has done better quarter-on-quarter (q-o-q) but faltered year on year (y-o-y). While the operating margin of the sample companies has shot up by 256 basis points (bps) q-o-q, the same has fallen by 190 bps y-o-y. This jump in operating margin points to easing of commodity and input prices as well as effective cost management by the corporate sector. A noteworthy point here is that the fourth quarter operating margin of the 514 companies is higher compared to the preceding three quarters.

During the third quarter ended December 2008, the same sample of companies had posted a 32.7 per cent decline in net profit, despite a sales growth of 14.2 per cent. The sales of the sample companies grew by around 30 per cent each in the first two quarters, but the net profit rose by only 5.8 per cent in the first quarter and 0.8 in the second.

The decline in sales growth in the fourth quarter means deflation, but corporate houses appear to be managing it fairly well by controlling the cost of production. Though sales growth has plummeted by 0.4 per cent compared to a growth rate of over 27.2 per cent a year ago, the total cost of production has gone up by 1.9 per cent compared to a 26.7 per cent increase during the same quarter last year.

A major saving for India Inc has come from the cost of raw material (RM), which declined by 17.5 per cent. In the first two quarters, the RM cost was 1,000-1,200 bps higher than the rate of sales growth. Also, the raw material, which accounted for 50 per cent of the production cost in the first two quarters, made up for 38 per cent in the third and 36.6 per cent in the fourth quarter. This was mainly because the corporate sector went for production cut due to demand recession.

However, the performance of the sample companies, excluding 95 loss-making firms, looks better in terms of profitability. However, excluding the loss-makers, the net profit of the remaining sample declined 4.9 per cent compared to 25 per cent decline in the third quarter. The operating margin looks healthy at 18.8 per cent, down by 19 bps y-o-y and 327 bps q-o-q. Interestingly, the fourth quarter operating margin of the non-loss making companies was the highest in the last eight quarters.

There was no surprise from software services companies, which have posted a single-digit growth in quarterly revenues, probably the first time in history. However, their net profit rose by 18 per cent, thanks to a 250 bps improvement in y-o-y margins due a cut-down in cost of salaries and wages and depreciation of the rupee against the US dollar. If software companies are excluded from the total sample, the decline in sales of the remaining firms stands marginally higher at 2.8 per cent, but their net profit witnesses a sharp decline at 17.4 per cent. Among frontline software companies, Infosys Technologies outperformed TCS and Wipro with robust growth in sales and profit. TCS and Wipro have reported a fall in net profit due to slower revenue growth.

The cement companies have given a pleasant surprise in the fourth quarter with a 17.5 per cent rise in sales and a robust 25 per cent growth in net profit. These firms have been benefited by the cost of production which was lower by 80 bps compared to the sales growth rate. But in the first three quarters, the production cost was 900-1,000 bps higher than the sales growth rate. Therefore, the q-o-q margin of the cement companies rose sharply by 575 bps, though the same was lower by 50 bps y-o-y. Among cement companies, Shree Cement recorded a robust 473 per cent rise in net profit, while ACC reported a decent double-digit growth in sales and net profit.

As was expected, two wireless services providers have done well with a strong revenue growth, but faltered on profitability due to a decline in average revenue per user (ARPU). Bharti Airtel, the leader, reported a 30.4 per cent growth in revenues, but its net profit grew by 7.8 per cent. Idea Cellular recorded a robust 47.9 per cent growth in revenue, but its net profit declined by 0.88 per cent. The Mahanagar Telephone Nigam Limited (MTNL), the basic telephone, mobile telephone and Internet service provider for Delhi, Mumbai, New Mumbai and Thane, suffered a setback as it posted a net loss of Rs 83.8 crore on account of a 7.5 per cent decline in quarterly revenue.

Puravankara Q4 net down 80%

Puravankara Q4 net down 80%
Business Standard, May 1, 2009, Page 5

Puravankara Projects Limited, a Bangalore-based real estate developer, has posted 80 per cent drop in its fourth quarter net profit to Rs 14.5 crore from Rs 72.7 crore for the corresponding quarter of last fiscal. Net sales were down 56 per cent to Rs 67.9 crore for quarter ending March 31, 2009.

End-users win the race, finally

End-users win the race, finally
ET Realty, May 1, 2009, Page 24

With investors disappearing from the market, end-users can now enjoy tailor made projects made especially for them. ET Realty explores

FOCAL POINT

Now, as investors have disappeared from the marketplace, endusers are the main customers. This has forced developers to focus on the need of endusers The recent slowdown in the sector has given a push towards affordable and low-cost housing projects. Many developers are focussing on smaller square footage houses now

Prabhakar Sinha

The present downturn has resulted in a boon for endusers. Not only have the prices of apartments declined drastically, but today, end-users can also bargain hard with developers to get a better location and amenities. Earlier, when investors used to constitute the major portion of the customer base, end-users could not influence developers to meet their requirements, during the construction of the building. Till six months ago, real estate was attracting huge investment from investors, who bought properties to sell them later for a profit. Investors are hardly interested in the quality of construction and other amenities, which are necessary for those who plan to live in those buildings.

But, now, as investors have disappeared from the marketplace, endusers are the main customers. This has forced developers to focus on the need of endusers. However, endusers in the present market must ensure the genuineness of a builder before buying from his projects. Most of the developers are overstretched and are under huge debt. Therefore, the advance money they take might be diverted to pay off the debt they have already taken. This will delay the project.

The global realty consultant Cushman and Wakefield (C&W) says the present downturn will result in the consumer gaining trust, which was lost in the developer community earlier with homes being made for investors. Houses will now be designed keeping endusers' budget in mind.

Developers are also adopting regional strategies to account for local conditions. In Haryana, developers are launching independent floors, especially after the policy change by the state government, where independent floors can be registered. This will lead to reduction in prices with independent floors now available in the range of Rs 20 lakh to Rs 50 lakh, which has seen a strong absorption.

The recent slowdown in the sector has given a push towards affordable and low-cost housing projects. With government becoming proactive in formulating policies to this effect, viz, by reserving certain homes for BPL families, reducing stamp duty and registration costs across various states, reservation of economically weaker section (EWS) homes in townships (generally 10% reservation), etc, it has been a boon for endusers, says C&W.

Year-2009 has seen the rise of affordable housing. Many developers are starting to focus on smaller square footage houses in order to bring down the ticket size of houses so as to bring them under affordable category for endusers. This move will additionally reap the advantage of the differential interest rates for loans under 20 lakh for endusers. The public sector banks are giving loan up to Rs 20 lakh at 9.25% as against 10.25% for more than Rs 20 lakh for 20 years. The change in the interest rate by one percentage point from 10.25% to 9.25% leads to reduction in the EMI by Rs 1,316 from Rs 19,633 to Rs 18,317 on Rs 20 lakh loan for 20 years.

However, despite all these good offers, endusers are not buying apartments. As the general expectation is that the sector and economy will witness a revival from the third quarter of 2009, prices will go up in due course. To catch those rising prices, some developers are considering undertaking projects without selling them to endusers at present and mobilising money for construction. And, this is a conscious strategy.

Real Estate Intelligence Report, Thursday, April 30, 2009

Core sectors rebound to hit 6-mth high growth of 2.9%

Core sectors rebound to hit 6-mth high growth of 2.9%
The Economic Times, April 30, 2009, Page 7

The economy is firmly on the recovery track. Infrastructure growth, which was lagging for the past six months, has bounced back. ICRA has forecast a 7.5% growth for FY10 while Mastercard sees a revival in H2

Our Bureau NEW DELHI

CORE sector growth is back on track. The index for six core industries—crude oil, petroleum refinery products, coal, electricity, cement and finished carbon steel—has turned in a growth of 2.9% in March 2009 over March last year. This has been the highest growth rate in the last six months, and higher than the average of 2.7% for 2008-09 as a whole.

Economists pointed out that a recovery might be round the corner. “These are some positive signals. Benign cues from the global economy might add to the speed of recovery. But I will wait for another couple of months before taking a call on the strength of the recovery,” said DK Joshi, principal economist at ratings agency CRISIL.

The biggest surprise in the basket of core sectors was electricity generation, which touched a 13-month high. ”The availability of coal has improved and the units that were commissioned last year are working well, resulting in higher generation of power,” said Central Electricity Authority chairman Rakesh Nath. Giving further strength to Cabinet secretary KM Chandrashekar’s assessment that the economy is beginning to respond to the booster shots administered by the government, cement production surged 10.1% in March. JK Cement group executive president RG Bagla said, “Increased government spending on infrastructure led to higher demand for cement in March.”

Coal production grew 5.2% in the year and showed a cumulative growth of 8.1% for the fiscal. Annual growth in finished carbon steel production contracted 2.6% in March, raising concerns. But this is expected to pick up in the coming months. According to Naveen Vohra, partner at Ernst & Young, steel consumption and production is expected to pick up. ”Demand in the auto sector has also started looking up on the back of a marginal improvement in the credit situation,” he added. The steel industry staged a smart recovery in the first three months of 2009 on account of a revival in the auto, rural infrastructure and housing sectors, and is expected to gather further momentum hereon.

Petroleum refinery products recovered to grow 3.3%— the highest in last 5 months—while the drop in crude oil production recovered from a low of 8.1% in January to 2.3% in March.

ICRA pegs growth at 6.5-7.5% for FY10

ICRA pegs growth at 6.5-7.5% for FY10
The Economic Times, April 30, 2009, Page 7

Reuters NEW DELHI

THE Indian economy is likely to grow 6.5-7.5% in FY10, if the global economy comes out of the slump later this year and as government stimulus starts working, rating agency ICRA said in a report.

Last week, the Reserve Bank of India (RBI) forecast a 6% expansion in Asia’s third-largest economy but private analysts have pegged growth lower than that, as uncertainties linger across the globe even after a raft of rate cuts and fiscal stimulus measures.

“It is our view that the Indian economy will likely grow by 7% plus/minus 0.5% in the fiscal year 2009-10,” it said. “This is based on the assessment that the US economy will start to show signs of growth in the third quarter of 2009, which will strengthen overall global activity.” ICRA also assumes a normal monsoon and a “coherent and supportive” policy from the next government at the Centre. ICRA said India’s economic growth could be a modest 6.5% in the first half of FY10, with a 4% expansion in industrial output and close to a 9% growth in services sectors. The economy could later accelerate to a 7.5% growth in the second half of FY10, it added.

Earlier, the government estimated gross domestic product to have grown 7.1% in FY09, slowing from 9% or more in the previous three years as high borrowing costs and later a global slump trimmed output. Prime Minister Manmohan Singh has, however, reiterated FY09 growth could fall short of 7% after final figures are collated.

Economy to recover by 2nd half: Mastercard

Economy to recover by 2nd half: Mastercard
The Economic Times, April 30, 2009, Page 7

Our Bureau MUMBAI

INDIA’S economy will revive by the second half this year driven by a series of rate cuts by the Reserve Bank of India (RBI), a recovery in the Chinese economy, and strong growth in the outsourcing sector in the post-crisis period. “The spate of rate cuts will have a lag effect on the Indian economy and subsequently the country should witness healthy growth in 2010-11. Even China is rebounding faster than expected. These factors will fuel the recovery process of the Indian economy,” said MasterCard Worldwide economic advisor Yuwa Hedrick Wong.

A study by MasterCard shows that the policy rate in India has been higher than in China between 2000 and 2008, proving better quality of investments in India. This is because RBI has been vigilant in controlling inflation and the setting of commercial interest rates in India is more market-driven. Real interest rates in India, as a result, are more consistent with market conditions. However, the impact of the global credit crisis on India has been felt through capital flows, which turned negative as early as February 2008 despite the country’s low dependency on exports. Even remittances by Indian workers overseas, especially in Gulf Council Countries (GCC), shrank, affecting the country indirectly, the study stated.

It also indicated that prices of services such as management consulting, legal, computer consulting, healthcare and education were rising in the US despite the recession there. This implies severe supply constraints in such services. At the same time, India’s IT outsourcing sector is best positioned to supply, the study noted. “In spite of the increasingly shrill political rhetoric of protectionism, service outsourcing will become more of a necessity than a nice-to-have option for many American businesses once they have survived the global crisis.”

US housing still has a way to fall

US housing still has a way to fall
Business Standard, April 30, 2009, Money & Markets, Section II, Page 1

Robert Cyran

Is the US housing market approaching bottom? The rate of decline in US house prices moderated in February. Prices fell 2.1%, according to the Case-Shiller composite index of ten cities. That sounds like great news for housing-hobbled banks. After all, real estate prices are a key factor in the stress tests the biggest banks are undergoing, right? Not so fast.

Better isn’t synonymous with good. The decline is less dramatic than January’s 2.6% fall, but it’s still an awful figure. Prices have fallen 18.8% over the past year, according to the index.

But let’s be optimistic and say the moderation continues, with prices gradually approaching a bottom. The improvement was half of one percent in February (that’s to say a 2.1% decline instead of a 2.6%). Now assume the rate of decline slows to a quarter of a percent in March and continues this trajectory. At the end of the year, prices would be 19% lower – worse than the baseline case under the stress tests.

And while the idea that price falls are moderating makes sense – prices cannot fall to zero – the evidence they are is feeble.

ONE month doesn’t make a trend, even for a journalist or desperate realtor. Spring is also the busiest time for selling homes, so prices tend to be a bit stickier than they are at other times of the year. Finally, the worst declines in February predominantly took place in cities where prices have fallen the most. For example, home prices in Phoenix have already fallen by more than half from their peak. They fell another 4.5% in February, according to Case-Shiller. That seems to point to a trend that hasn’t yet petered out. Home prices will eventually reach bottom. But it’s not yet in view.

US growth slumps to 5-decade low

US growth slumps to 5-decade low
The Financial Express, April 30, 2009, Page 1

Washington: The US economy plunged again in the first quarter, capping its worst performance in five decades, reflecting a record slump in inventories and further declines in housing. GDP dropped at a 6.1% annual pace after contracting at a 6.3% rate in the last three months of 2008, the commerce department said on Wednesday.

The performance marks the weakest six months since 1957-58. Smaller stockpiles may set the stage for a return to growth in the second half of the year amid signs Fed efforts to reduce borrowing costs and unclog lending are starting to pay off.

Zoom Developers back in Vizhinjam port bid

Zoom Developers back in Vizhinjam port bid
The Financial Express, April 30, 2009, Page 2

fe Bureau

Thiruvananthapuram: Kerala Cabinet on Wednesday decided to include the bid of Zoom Developers for participating in the tender process of the Rs 5,348-crore Vizhinjam port project, which is slated to come up on a BOT basis. This is in deference to the Supreme Court verdict on Zoom Developers’ petition. “The letter given by Lanco Kondapally will be under consideration, till Zoom Developers’ bid is also examined. This is the State Government’s directive to the Bid Evaluation Committee,” Chief Minister VS Achuthanandan told reporters after a meeting of the State Cabinet here.

However, no deadline has been fixed for vetting the bids submitted by the companies including Zoom Developers and Lanco Kondapally. After getting the Central clearances, Kerala Government had awarded the contract to Lanco. Zoom Developers had promptly challenged this award dragging Kerala Government to court for rejecting its bid.

Congress-led Opposition United Democratic Front (UDF) had alleged that Zoom was kept out of participation, despite it offering to pay the government Rs 447 crore after ten years of operations. Lanco, they pointed out, offered only Rs 115 crore for the same period. On Tuesday,the State Secretariat of the main ruling party CPI(M) had directed the Government to re-examine Zoom’s bid.

Vizhinjam port project, set on world’s deepest natural port location at 24 metre depth, is envisaged to handle 4.1 million containers annually. Built close to a busy international shipping route, the proposed port is to be handed over to Kerala Government after the 30 years once the concession period is over.

Kerala Cabinet, which met here, also approved the guidelines for starting IT parks in private sector in the state. A minimum of 30,000 sq feet land was necessary for starting an IT park, according to the State’s IT policy. As much as 70% of the land available must be used for IT-related purposes, Chief Minister, who holds the IT portfolio, said.

The Cabinet also decided to celebrate the third anniversary of the LDF government’s rule by launching welfare and development works. Achuthandan said that the Rs 2 per kilo rice scheme for BPL families would be inaugurated, in the State capital, on May 18. In other districts, the scheme would be effective from May 19.