Real Estate Intelligence Service, Tuesday, December 15, 2009

In the green : Going green is good for the bottom line

In the green : Going green is good for the bottom line
Business Standard, December 15, 2009, Page 9

Business Standard / New Delhi

Going green, as a series of feature articles in this newspaper have shown, is not just good for the environment, it is good for corporate bottom lines also. If energy costs form a tenth of all costs, for instance, then anything which reduces energy intensity can only be good. The question, of course, is whether the energy-saving devices cost so much that they negate the effect of the annual saving. While most purveyors of energy-saving equipment say payback periods are under four years, the companies featured seem to suggest this is indeed true — some, like ITC, claim to have delivered extra returns of up to a fourth to shareholders as a result of various environment-friendly measures. And these benefits are without taking into account the possibilities of tapping into the multi-trillion dollar opportunity for environmental products and services that are likely by 2020. Just the likely environmental credits that Indian industry can earn on the basis of the 1,400 Clean Development Mechanism (CDM) that has been approved so far, can earn a little over $6 bn by 2012.

While ITC has always been known for its pioneering work in the field, this got a fillip with US Secretary of State Hillary Clinton visiting ITC’s Green Centre in Gurgaon and calling it a “monument to the future”. A little over a decade ago, ITC’s paper business was bleeding and what turned it around was a greening project over 100,000 hectares involving tribals and small and marginal farmers — the company gave them saplings for commercial forestry which helped the environment (part of this programme is registered as a CDM project) and aided the bottom line from 15 to 30 per cent. The group as a whole is the only company of its size to be carbon positive for four years in a row, water positive for seven years in a row and solid-waste recycling positive since last year. Maruti Suzuki India Limited, the country’s largest auto-maker, similarly, has cut electricity consumption by a fifth between 2000-01 and 2008-09, water consumption by half and, since 2002-03, carbon emissions by 30 per cent. Apart from what it does to the company’s bottom line, it complements its marketing effort. In a market like Europe that is increasingly getting fanatic about the environment, the company’s A-Star is the first out of the country that meets the European end-of-life vehicle norms since 87 per cent of the car can be recycled at the time of scrapping; the rest, according to the company, can be put in incinerators and used in other forms. Though few power utilities have gone green, the potential is large since, as L&T’s sustainability report puts it, a watt saved is worth three watts generated, taking into account both the large transmission and distribution losses, apart from the losses due to the thermal inefficiency of equipment using this electricity. Few of the smaller units across the country are looking at going green, but the ones that have used energy-efficient furnaces or biomass gasifiers from Teri will testify, this has reduced costs and increased efficiency. So, whatever the view on whether Environment Minister Jairam Ramesh was right to talk of India needing to take on some non-binding commitments of her own at the Copenhagen global warming summit, the path for corporate India is quite clear.

Inflation up, but govt sees no RBI rate hike

Inflation up, but govt sees no RBI rate hike
The Financial Express, December 15, 2009, Page 1

fe Bureau, New Delhi, Mumbai

The slingshot rise in headline inflation to 4.78% for November led equity and bond markets on Monday to expect a tightening of the monetary tap by RBI, but senior government officials indicated that nothing was likely to happen soon. Finance minister Pranab Mukherjee told reporters he was concerned by the rise, attributing it to higher food prices.

While the rate at which the wholesale price index has risen prompted analysts to reckon it could handsomely breach the 6.5% target “with an upward bias” set by the RBI for March, finance secretary Ashok Chawla said there is no cause for emergency action. “The government is concerned about inflation rising, but it is not as if we are taken by surprise,” he told reporters.

This puts paid to the chances of an imminent rate hike by RBI as the government feels inflation is fuelled by shortages created by the worst rainfall in 40 years, which monetary tightening can do little to prevent. Instead, it expects an improved supply of grain after December to moderate prices as the rabi crop is harvested.

Explaining the government position, cabinet secretary KM Chandrasekhar told FE he preferred administrative measures to boost supply and contain food price inflation in coming weeks. He also hoped that the need for monetary policy action would not arise as it could deal a “sledgehammer blow” to the economy.

Prime Minister’s Economic Advisory Council chairman C Rangarajan also told FE it was cost-push inflation.

“At present, the higher inflation is largely supply driven. If this supply-driven inflation in primary articles persists, it can develop into a generalised inflationary tendency,” he however cautioned.

Among all commodities, prices of food items rose the highest. Pulses (35.2%), potatoes (101.6%) and onions (32.4%) saw the steepest increases in the month. “We need to find ways to check food inflation, which in turn would help curb prices of manufactured goods,” Rangarajan added.

The worrying trend from the November data is from the manufacturing sector. Prices here rose 3.9% year-on-year for the month from 1.3% in October, suggesting that core inflation is picking up. Nomura Financial Advisory & Securities noted in a report, “Core inflation is starting to rise. Rising global commodity prices are pushing up input cost pressures, beyond just food prices. With demand picking up as well, we expect firms to have a greater ability to pass through higher costs.”

The inflation data pulled down stock market indices. The Sensex lost 21.48 points to end at 17,097.55 while the Nifty ended 11.60 points lower at 5,105.77.

Planning Commission member Saumitra Chaudhuri also said he was not surprised by the latest data. “Inflation is driven by prices of primary and some manufactured food products,” he said.RBI will conduct the next quarterly review of monetary policy at the end of January. Most bankers that FE spoke with also ruled out any immediate rate hike. Punjab National Bank CMD KR Kamath said, “I will go by the statement made by the finance secretary that there was no need to panic.”

Indian Overseas Bank CMD SA Bhat added: “I don’t think RBI will be in a hurry to touch its key policy rates at this point of time, as everyone in the industry knows (inflation) is happening more due to supply-side constraints.”

Easy loans may be over as inflation hits 4.78%

Easy loans may be over as inflation hits 4.78%
The Economic Times, December 15, 2009, Page 1

Monetary Tightening Looks Imminent

Our Bureau NEW DELHI

ANNUAL inflation climbed to a 10-month high fuelled by rising commodity prices, pulling shares off their highs on fears of a possible tightening of monetary policy, even as stocks across the globe rallied after Abu Dhabi agreed to fund Dubai to avert a debt crisis.

Inflation, as measured by the Wholesale Price Index (WPI), rose to 4.78% in November from 1.34% in the previous month, government data showed.

The government and policymakers, who have been saying there would be no reversal of easy policies immediately and that stimulus measures will continue, reiterated the stand on Monday.

“It is not as if we are taken by surprise or that there is any cause for any special emergency measure at this stage,” finance secretary Ashok Chawla told the media in New Delhi.

Prices have been rising at a fast clip in the past few months because of easy monetary policies and falling production of agricultural commodities due to a poor monsoon. But the government and the central bank are hesitant to change the policy stance, fearing that a rollback of easy measures could derail the revival of an economy that grew at 7.9% in the second quarter of 2009-10. Sales of automobiles and consumer durables are zooming due to low interest rates.

However, policymakers may not be able to hold on for long to the current policies if inflationary expectations remain at elevated levels, experts say.

India is the only emerging economy where inflationary expectation is high and the central bank will be compelled to tighten the liquidity scenario from January onwards to stay ahead of the curve, said Manoj Vohra of the Economist Intelligence Unit.

“Though the monetary policy tightening will have an impact only with a time lag of six months, it will help in anchoring the expectations,” said Mr Vohra.

The BSE Sensex fell from a high of 17,275, to end 0.1% lower at 17,097.55 after the inflation data were released on Monday. However, stock indices across the globe rose, with the MSCI World Index rising 0.5% in New York in early trading, after Abu Dhabi provided $10 billion to prevent a default by Dubai’s construction company Nakheel.

In the days ahead, inflation may quicken as many service providers hurt by rising commodity prices start passing on and charging their customers more for their services.

“This is a direct impact of the spike in food and commodity prices and the second-round impact of inflation is yet to set in,” said Indranil Pan, chief economist at Kotak Mahindra Bank.

McDonald’s is set to increase prices by 5-10% in the New Year and Yo! China may follow. Domino’s, KFC and Mainland China have already hiked prices. Food price inflation surged to over 19% in the fourth week of November as potato prices doubled, onions became 23% costlier, rice 11.75%, wheat 12.6% and pulses 42%. Fruit prices rose 13% while milk was 11.4% dearer. Taxi and autorickshaw drivers also plan to raise prices.

The WPI-based inflation may touch 8.7% by end of March, said Mr Pan.

Inflation trebles to 4.78%

Inflation trebles to 4.78%
Business Standard, December 15, 2009, Page 6

BS Reporter / New Delhi

Experts see inflation at 7 % at the end of 2009-10, expect increase in CRR by December.

The headline inflation rate, as measured by the wholesale price index (WPI), surged to 4.78 per cent for November, primarily due to rising prices of primary articles, especially food items.

The inflation rate for October was 1.34 per cent. It was 8.48 per cent in November 2008. The build-up of inflation in financial year 2009-10 has been 7.54 per cent, as against an increase of 3.86 per cent in the corresponding period of 2008.

Analysts and economists see inflation at around 7 per cent at the end of the current financial year and expect a rise in the cash reserve ratio (CRR) by then.

The Reserve Bank of India (RBI), in its October policy review, raised its WPI inflation projection on a point-on-point basis for the end of 2009-10 to 6.5 per cent with an upside bias. Its earlier projection was 5 per cent.

“The inflation rate for manufacturing has also climbed up along with that for primary articles, giving clear evidence that inflation is climbing. It will be on RBI’s radar and we maintain our earlier call of a cash reserve ratio (CRR) hike in December,” said Shubhada Rao, chief economist with Yes Bank.

The finance ministry also expressed concern over rising food prices but said the rise had been along expected lines.

“It is not as if we are taken by surprise or that there is a cause for any special emergency measure at this stage,” said Finance Secretary Ashok Chawla.


Primary articles rose 11.84 per cent during the month compared to 12.06 per cent in the corresponding period in 2008.

Manufactured products grew 3.99 per cent in November as against 7.81 per cent in the same month last year.

Food prices continue to rise and have registered a rise of 16.71 per cent in November, against 10.31 per cent in the same month last year.

Rise in the prices of cereals and pulses continued to be in double digits at 13.57 per cent and 35.22 per cent, respectively, for the month.

Sugar continued to be expensive with an inflation rate of 53.76 per cent.

Meanwhile, Finance Minister Pranab Mukherjee today said rising inflation, primarily due to dearer food items, was a matter of concern.

Fuel prices also rose by 1.25 per cent on a week-on-week basis, while the year-on-year inflation rate stood at -0.89 per cent for the month.

CMIE raises GDP growth forecast to 6.7% for FY10

CMIE raises GDP growth forecast to 6.7% for FY10
The Economic Times, December 15, 2009, Page 9

MUMBAI: The Centre for Monitoring Indian Economy has revised its GDP growth forecast for the current fiscal to 6.7% from 6.2% announced last month. The upward revision comes on the back of lower-than-expected damage to smaller crops due to drought and floods and a robust industrial growth in September, CMIE said in its latest report. “Real GDP growth for 2009-10 is revised upwards to 6.7% from a 6.2% growth projected in the previous month (November),” the report said. Further, the industrial growth is expected to continue to remain healthy in the remaining months of the fiscal, CMIE said.

Fiscal deficit to remain within 6.8% target : FM

Fiscal deficit to remain within 6.8% target : FM
Business Standard, December 15, 2009, Page 6

Press Trust Of India / New Delhi

Enthused by robust performance of the economy in the second half of 2009-10, Finance Minister Pranab Mukherjee today said fiscal deficit would not exceed the target of 6.8 per cent of the gross domestic product (GDP).

“With the prevailing trends in receipts and expenditure, coupled with better-than-expected performance of the economy in the second quarter, it is expected the fiscal deficit will remain within the estimate of 6.8 per cent,” he said while seeking the approval of the first batch of supplementary demands for grants in the Rajya Sabha today.

The supplementary demands for grants, which seek to raise the public expenditure by an additional Rs 25,727 crore, were approved by the Lok Sabha last week.

The government had pegged the fiscal deficit for the current financial year at 6.8 per cent of GDP.

While presenting the Budget for 2009-10 in July, Mukherjee had said the government took a conscious decision to provide fiscal stimulus to the economy to minimise the impact of the global financial meltdown.

“Overall financial performance in the first half of 2009-10 is in line with the Budget Estimate presented in July 2009. At the same time, impact of these stimuli have started showing results, with the economy recording a 7 per cent growth in the first half of 2009-10,” he added.

Banks may tweak sub-PLR if RBI raises cash reserve ratio

Banks may tweak sub-PLR if RBI raises cash reserve ratio
Business Standard, December 15, 2009, Section II, Page 1

Manojit Saha / Mumbai

Banks are exploring the option of increasing the sub-prime lending rate, mainly offered to companies, while keeping the benchmark prime lending rate (BPLR) untouched.

The move comes amid growing expectations that the Reserve Bank of India (RBI) will increase the cash reserve ratio (CRR) in the third quarter review of the monetary policy in January-end.

A 50-basis-point (bps) hike in the CRR will suck out about Rs 20,000 crore from the system. However, banks are not likely to face much pressure on the liquidity front as the system is flush with around Rs 1 lakh crore surplus liquidity. Banks do not get any return on cash kept with RBI. This is currently 5 per cent of the banks’ net demand and time liabilities.

“Banks will not do anything in the fourth quarter on the interest rate front. There may be some tweaking in the sub-PLR range if the central bank decides to hike the CRR. The extent of increase in sub-PLR loans will depend on how much RBI increases the CRR,” SA Bhat, chairman and managing director of Indian Overseas Bank, told Business Standard.

Around 70 per cent bank lending happens below the BPLR, which is 11-13 per cent.

The Chennai-based bank expects to meet its targeted net interest margin (NIM) for 2009-10, projected at 2.8 per cent. Currently, the bank’s margin is 2.74 per cent.

Bankers said their NIMs might not come under pressure on a sequential basis as they were able to re-price their high-cost deposits. A faster-than-expected rise in profit was making a strong case for the central bank to suck out liquidity, analysts said. However, some bankers say that since inflation is due to supply-side bottlenecks, hiking the CRR may not solve the problem. “Raising the CRR may not bring down inflation. If RBI hikes the ration, banks will not earn any interest. To compensate, we may have to hike lending rates. But that may affect credit offtake, which is already very low,” said A C Pereira, chairman and managing director of Bank of Maharashtra. Inflation based on the wholesale price index shot up to 4.78 per cent in November as compared with 1.3 per cent in October, mainly due to a surge in food prices and a lower base last year. Rise in food prices was on the back of the worst monsoon since 1972, which was followed by floods affecting the summer crops.

According to a research report of Citigroup Global Markets, headline inflation could touch 8 per cent by March, much above the central bank’s projected rate of 6.5 per cent. “If the current sequential uptrend is maintained, the WPI appears likely to cross 8 per cent by March, with primary products and fuel prices being the key risk factors.

However, we maintain our call of 125 bps tightening in 2010 for now, given that authorities have been stressing the importance of focusing more on asset price inflation rather commodity-induced inflation,” the Citigroup report said. The government, however, feels that there is no need for an emergency action even after this week’s sudden spurt in inflation. “The fact that food inflation was high and would reflect in the WPI was known. So, this is not something that has taken us by surprise. We need to watch further and see if this is purely due to the base effect or whether this trend will continue,” Finance Secretary Ashok Chawla told reporters in New Delhi.

DLF to sell wind energy business to French major

DLF to sell wind energy business to French major
The Financial Express, December 15, 2009, Page 4

Rajat Guha, New Delhi

The country's largest real estate company, DLF, is selling its wind energy business to the world's second-largest energy major, Gaz de France Suez, for around Rs 950 crore. The deal has been finalised and the sale is likely to be concluded by January end, a person involved with the transaction told FE. Ernst & Young is understood to have advised DLF on the deal. The sale is part of the company's plan to get out of non-core businesses.

When contacted, a DLF spokesperson declined to comment.

Companies, including Akuo Energy, Adani Power, IL&FS, UK's BG Group and Essar Power, were in the fray to buy out DLF's wind energy business. DLF had created a separate subsidiary called DLF Wind Power for its wind energy business prior to the sale.

The sale of the business is part of DLF's efforts to reduce its debt, which is more than Rs 12,000 crore at present.

DLF registered a 77% drop in its net profit during the quarter ended September, as demand for real estate continued to be sluggish compared to last year. The company registered a profit of Rs 439.7 crore during the quarter, compared to Rs 1,934.1 crore during the comparable quarter last year. Sales during the quarter also dipped 53% to Rs 1,751 crore.

While declaring the results, DLF MD Rajiv Singh had said that the company would focus more on leveraging on the core assets and sell its non-core business in a bid to generate revenue and subsequently retire its debts.

"We remain committed to deleveraging the balancesheet and actions on sale of non-core assets are currently underway," Singh had said.

On the wind power front, he had said it had met with a good response from strategic partners and due diligence of the assets was underway.

Besides, the company has also made an exit from long gestation projects such as hotels. It had already withdrawn from large township projects at Bidadi (Karnataka) and Dankuni (Bengal).

Earlier in the year, the company had sold assets worth Rs 1,000 crore and sold its stake in the joint venture with Ackruti City for Rs 200 crore. All efforts are directed at bringing down the company's debt burden. Apart from the sale of land and other non-core assets, the company has received Rs 336 crore from the West Bengal government after it exited the Dankuni township.

The management had also indicated that DLF will be refunded Rs 850 crore from the Delhi government for exiting the Delhi Convention Centre project. DLF's total area for development has fallen by more than 40%, from 751 million sq ft to 425 million sq ft, mainly due to its exit from the Bidadi township project in Karnataka and Dankuni project.

DLF is putting its house in order

DLF is putting its house in order
The Financial Express, December 15, 2009, Page 6

Akash Joshi

The DLF management's move to bring DLF Assets Ltd (DAL), a company owned by the promoters of DLF, into the fold of DLF CyberCity, has been on the cards for some time now. The Street believes the restructuring will improve transparency and bring to and end transactions between DLF and DLF Assets. According to analysts, there is unlikely to be any cash outflow from DLF and DLF CyberCity will issue warrants to the promoters. They are hoping that DLF should ultimately end up with stake close to 60% stake in Cyber City, the subsidiary in which the rental assets will be housed. The promoters of DLF will hold the remaining 40%. The merger will help monetise the combined rental assets, to be housed in the subsidiary DLF Cyber City, on the Singapore Stock Exchange. The management hopes to raise around $1.5 billion through the listing. Of course, investors will be looking forward to a swap ratio which is in favour of DLF.

DLF was selling finished properties to DAL, which, in turn, would rent them out. At the end of the September 2009 quarter, DLF Assets owed DLF around Rs 2,600 crore. In the June 2009 quarter, DAL had paid DLF Rs 2,500 crore. Analysts expect DLF's rental-yielding assets to increase by 20% from the existing 11 million sqft during 2009-10, thereby providing stability to the company revenues. The company's rental revenue, which in financial year 2010 stood at approximately Rs 500 crore, is likely to increase to Rs 750-800 crore by the end of the year. DLF's annuity income will increase as DAL currently has over 5 million sqft of lease-generating assets that are further expected to increase to 8 million sqft. DAL currently has 6.5 million sqft of commercial space earning rentals at an average of Rs 55-60/sqft. Besides another 6.5 million sqft is likely to be delivered over the next couple of years, say analysts at Prabhuda Lilladher. The stock closed at Rs 382.65, on Monday, marginally above its previous day close.