Indian realty in 2011, bidding adieu

The Indian realty in 2011. Someone asked me to write a piece so this what I came up with...


The Indian real estate sector faced heavy headwinds from various corners throught out the year, making it a replica of 2008 when realty market went for a toss.

The trend that topped the chart for the entire year, was exponential drop in home sales across the country. The residential sector which had witnessed upturn in 2010, could not manage its dream run as the central bank, Reserve Bank of India (RBI) hiked interest rate thirteen times in last ten months . Coupled with rising borrowing cost, developer's held on to sales prices and in some cases increasing their rate cards, forcing home buyers away.

According to data released by real estate research firm, Liases Foras, for Mumbai, Delhi and Bangalore indicates that residential sales have dropped significantly in last six months in the metro cities.Home sales in Mumbai have lagged the most, as the city clocked in merely 17.4 mnsft at the end of the second quarter of this financial year as compared to 24.7 mnsft during the same period last year, a fall of 29.55 per cent. In Delhi, sales have plunged by 18.75 per cent, recording sales of 39.9 mnsft in April-September period this year as against 49.11 mn sft in the same period last year. Joining the bandwagon, is the information technology hub, Bangalore, which recorded sale of 16.1 mnsft in the first half of this financial year as compared to 20.6 mnsft in the corresponding period last year, a drop of 21.84 per cent in last six months.

Gulam Zia, National Director-Research and Advisory Services, at Knight Frank India, says, " There is no uncertainty that all across the country the residential sales numbers for last 2-3 months have come down. Volume dips in most of the cities like Ahmedabad, Chennai, Pune, Hyderabad has been in the range of 15-20 per cent, whereas Delhi has seen a fall of 20-25 per cent and Mumbai sales have plummeted by 60-70 per cent."

As home sales plummetted across the country, realtors were left with lower cash flow generation and more debt on their books. Except for Delhi based Unitech and Bangalore based Sobha developers all the realtors in the listed space have ended up adding more debt at the end of financial year 2011 as compared to financial year 2009. To add to it, the debt has been raised at higher interest cost , ranging between 12-14.5 per cent rates from banks. Non banking financial services (NBFC's) and private lenders have lent at 18-24 per cent on commercial borrowings.

To add to the woes of realty sector this year, the realty stocks were battered by both institutional and domestic investors with stocks hitting their 52-week low on the Bombay Stock Exchange (BSE). Infact, the combined price of shares of most of the players trades lesser than a combo meal at any fast food outlet.

Foreign Institutional Investors (FII's), the much coveted investors for realtors have started knocking off realty stock holdings since last six months.
Two realtors who have seen maximum sell off has been Mumbai based players, Indiabulls Real Estate (IBREL), which has major investments from Steel baron Lakshmi Niwas Mittal and Pujit Aggarwal promoted Orbit Corporation.
FIIs have also shown the door to other realtors like D B Realty, Housing Development and Infrastructure Ltd (HDIL), Sunteck Realty and Bangalore-based Nitesh Estates. As investors dumped these stocks and share prices continued their free fall, promoters of real estate majors Parsvnath Developers, Nitesh Estates, Orbit Corporation, Peninsula Land and Sunteck Realty increased their personal holding in the company. Though increasing in holding is considered to be a positive move, these realtors ended up pledging more shares to financial institutions.
For example, Pradeep Jain’s Parsvnath Developers has witnessed a continuous rise in promoter holding since March, from 67.66 per cent to 70.16 per cent at September-end. On the other hand Jain had pledged 86.47 per cent of his promoter share as of June. After raising his stake, the pledge came down to 71.24 per cent of his holdings at the end of September. Last month, he pledged an additional 16.4 per cent to various funds. Similarly, Rajeev Piramal, promoter of Peninsula Land, took his promoter holding to 55.72 per cent in June as compared to 55.18 per cent at March-end whereas his pledged shares more than doubled to 26.75 per cent at the end of September, against 13.35 per cent in June.
As investors gave a thumbs down to the developers, according to international property consultants, Jones Lang LaSalle India, private equity players infused close to USD 1.5 billion in calendar year 2011, nearly same to what it received during the down turn in calendar year 2009. International realty funds made an exit of 72 per cent in capital values and rest was made by domestic funds. But its realty promoters who have ended up buying the PE investor's stake, giving away close to USD 3 billion, 67 per cent of the total exits made this year.
As funds, investors and buyers shunned the realty space, developers across the country focussed more on monetisation of assets to raise money than depend on their core operations. DLF, the largest realtor according to market capitalisation, has already raised more than rs 1750 crore, by the end of this year from selling off its land assets. Following the same, is Mumbai based player, Housing Development and Infrastructure Limited (HDIL) which sold off its Navi Mumbai parcel for Rs 105 crore. Emaar MGF sold off its Kolkata property for close to Rs 120 crore. Even DB Realty, have put a few of its hotel assets on block too.
This year, realtors across the country have focussed their energies on consolidating their businesses and hiving off ancillaries where they can not scale up any further. Also some developers have resorted to only land or plotted sales to scale down its operational costs.

Fitch withdraws Unitech and Parsvnath from its rating coverage

The lack of information from realtors have grappled the realty industry since long, but now it has come to haunt the realtors themselves.

International agency, Fitch Ratings, has withdrawn ratings for various debt programmes for two north-based listed real estate companies, Unitech and Parsvnath Developers Ltd, from its coverage. It has also removed them from analytical coverage.

Fitch's report says, "the ratings have been withdrawn due to lack of adequate information. Fitch will no longer provide ratings or analytical coverage of Parsvnath and Unitech."

Parsvnath Developers Ltd was migrated to the 'non-monitoring' category on June 2 this year, whereas Unitech was moved to the same category in March. They were moved to the non-monitoring category due to unavailability of clear information on the debt programmes.
For Unitech, the rating agency has withdrawn its national long-term rating of 'Fitch B-(ind)nm'. The agency has also withdrawn Unitech's bank loan ratings on various instruments which includes "short term debt of Rs 1,100 crore which entailed Fitch A4(ind)nm. Rs500 crore, Rs 2,000 crore and Rs 1,900 crore long-term debt programmes with 'Fitch B-(ind)nm rating, Rs 100 crore short-term bank loan programme with a Fitch A4(ind)nm rating, and Rs 300 crore non-fund based bank limits with Fitch A4(ind)nm rating."
Unitech had mandated Fitch to rate a total of Rs 5,900 crore for its various debt instruments.

An official from Unitech who did not wish to be identified, said, "it is not a negative move for us, they have just withdrawn their rating. We had not sought their rating on the debt programmes and they had already moved us to the non monitoring category in March." There was no official comment from the developer.
Due to inadequate information, Fitch Ratings had put both the companies in the non-monitoring category. Once a company is put on non-monitoring, it falls under survelliance. After six months if adequate information is not available from the company, Fitch withdraws its rating on the company and its entire instruments which it was mandated to rate.

Analysts on the street who have Unitech under their coverage consider this move to be a negative development.
A research analyst with a domestic brokerage said, "It is a negative move because Fitch has clearly stated that they do not have enough information on the debt programmes. It is a concern why Unitech has not disclosed how the debt is being taken care of, how stressed are they keeping in mind that they have been paying off their debt in the last one year. Also the promoter pledging has slighlty gone up at the end of the September quarter. "
Parsvnath has been raising best part of its money through private equity route since last year, but hardly any analysts track the company.

The rating agency said in its release, "Fitch Ratings has withdrawn India-based Parsvnath Developers Limited's national long-term rating of 'Fitch B-(ind)nm'. Simultaneously, the agency has withdrawn the 'Fitch B-(ind)nm' rating on Parsvnath's long-term loans of Rs 200 crores and Rs 900 crores, and the 'Fitch A4(ind)nm' rating on its short-term loan of Rs 200 crores." It turns out to be a total debt burden of Rs 1300 crores.
As promoter and chairman of Parsvnath, Pradeep Jain, is travelling, the company declined to comment on the development.

Note: The copy was half published by my employer Business Standard Ltd.

FII's cutting down realty exposure

Foreign Institutional Investors (FII's), the much coveted investors for realtors have started knocking off realty stock holdings since last six months.
Two realtors who have seen maximum sell off has been Mumbai based players, Indiabulls Real Estate (IBREL), which has major investments from Steel baron Lakshmi Niwas Mittal and Pujit Aggarwal promoted Orbit Corporation.

At the end of March, 2011 FIIs held a 53.73 per cent stake in IBREL, which has fallen to 45.33 per cent in the September quarter of this financial year, a drop of 8.4 per cent. The heavy selling by institutional investors has battered the stock too .

The stock hit its new low since listing at Rs 60, down 5.06 per cent at the end of the day on the Bombay Stock Exchange (BSE).

FIIs have also shown the door to other realtors like D B Realty, Housing Development and Infrastructure Ltd (HDIL), Sunteck Realty and Bangalore-based Nitesh Estates.

The real estate sector has been grappling with interest rate hikes, slowdown in sales and an increase in debt burden of developers. Even though sales have dried up developers are not ready to cut prices and they are borrowing at a higher cost.

An analyst with a foreign brokerage who did not wish to be identified says, “Indiabulls Real Estate has failed to generate any cash flow earnings and most of its net asset value lies with its power venture where it will take time before any concrete results can be seen. The company has bought land parcels from National Textile Corporation (NTC) at very high prices where they are not able to capitalise. Even in its existing projects cash flow is a concern, and the sales slowdown in Mumbai is a negative sentiment.”

IBREL isn't the only case. Following the footsteps are fund managers who had bought stake in Orbit Corporation promoted by Pujit Agarwal.

Pujit Agarwal, managing director, of the luxury realty company said, “The realty market has been hit badly, FIIs have sold our shares but as I understand in the last two weeks FIIs have started re-investing. Our stocks have fallen down considerably but sales are slowly picking up now.”

The company's FII holding has fallen from 11.97 per cent in the March quarter to 6.73 per cent in the June quarter and stands at 2.26 per cent at the end of the September quarter, a fall of 9.71 per cent. Orbit's stock hit its 52-week low at Rs 26.05 per share at intraday, finally closing at Rs 26.40 down 1.12 per cent.

R Sridhar, group director, DB Realty, said, “I think the problem with the Indian market is that the FIIs are under a lot of pressure and they are trying to cut their exposure. But the shares at these prices are quite attractive and real estate is a long term story.”

DB Realty's promoters who are embroiled in the telecom 2G- scam, has seen a drop in FII holding from 5.46 per cent in March, 2011 to 4.54 per cent in September, 2011, a drop of 0.92 per cent.

Kamal Khetan, Managing Director of Sunteck Realty, indicated that institutional investors own close to 14 per cent stake.

The FII holding in the company has fallen from 6 per cent to 4.44 per cent, a drop of 1.56 per cent in the last six months.

The FII holding in Nitesh Estates has fallen to 21 per cent in the September quarter as compared to 23.07 per cent by March-end, a drop of 2.07 per cent.

An analyst from a domestic brokerage said, “Some funds had started selling IBREL shares in the open market, which has pulled the stock price to its new lows and we expect this to continue for sometime. Also the stock price of all the realty stocks have fallen to the same levels as it had hit when market was trading at 8000 points and at present we are trading at 16,065 points, if markets falter any further the funds will continue their heavy selling. This time around not only the Mumbai based players but Delhi based players will also bear the brunt.”

Real estate promoters increase their stake as share prices continue their freefall

Amidst a challenging business environment and falling share prices, promoters of real estate companies have shown faith in their businesses by increasing their shareholding by up to three per cent this financial year.

However, poor cash flows and high debt have made their lenders jittery. While some have raised the collateral requirement for existing loans, margin calls resulting from falling share prices have also led to additional pledges.

Real Estate majors Parsvnath Developers, Nitesh Estates, Orbit Corporation, Peninsula Land and Sunteck Realty are among the entities which witnessed promoters raising stake in the company over the past six months.

Pradeep Jain’s Parsvnath Developers has witnessed a continuous rise in promoter holding since March, from 67.66 per cent to 70.16 per cent at September-end. Rajeev Piramal, promoter of Peninsula Land, took his holding to 55.72 per cent in June as compared to 55.18 per cent at March-end.

Kamal Khetan, promoter of Sunteck, said, "We have been doing creeping acquisitions and our financial institutions’ holding is always around 14.5 per cent. The company's promoters hiked holding to over 70 per cent from around 67 per cent."

Pujit Aggarwal of Mumbai-based Orbit, who raised his holding from 46.99 per cent in June to 47.51 per cent in September, said: “We have been increasing our stake and are trying to bring down our share pledging. Though the stock has fallen significantly in the last one year, we are hoping things will improve from the next quarter. Even FIIs (foreign institutional investors) have started looking at us, so we are hopeful.”

Normally, buying back of shares from the open market is considered a positive indication. But, analysts are not very bullish, as a significant portion of these shares are marching to the financial institutions to meet additional margin requirements. Earlier, realty developers had to provide collateral worth three times the loan. Now, bankers are asking for collateral of up to five times against existing loans, say experts.

“Cash flows are drying up, while debt is on the rise for the sector. As stocks have plunged, triggering margin calls, promoters need to pledge more shares as collateral with the lenders,” said an analyst.

For example, Jain of Parsvnath had pledged 86.47 per cent of his promoter share as of June. After raising his stake, the pledge came down to 71.24 per cent of his holdings at the end of September.

Last month, he pledged an additional 16.4 per cent to various funds. Similarly, Piramal’s pledged shares more than doubled to 26.75 per cent at the end of September, against 13.35 per cent in June.

In Bangalore-based Nitesh Estates, too, while the promoters' stake rose from 43.64 per cent to 44.15 per cent in the September quarter, promoter Nitesh Shetty pledges had increased to 29.42 per cent of his holding by then.

The head of investment banking at a financial firm says, “Developers need to cut their debt and start selling their inventories. These developers are increasing stake just to pledge these against the old debt. A fresh loan is difficult for them. Unless they have a good relationship, bankers are unlikely to lend further.”

PLS Note- This story has been published by my employer Business Standard Ltd.

Combo meal dearer than realty stocks combo

I had written this on August 26, 2011.

One chicken burger, a cold drink and potato wedges, the combo meal at any outlet costs anywhere between Rs 120-200 per meal. That's still expensive, compared to real estate stocks.

The combo offer of North-based realtor Parsvnath Developers Ltd (PDL), South Mumbai-based prime property builder, Orbit Corporation and the country's second largest realtor according to market capitalisation,Unitech, all put together are cheaper than your combo meal. At the close of the day, their shares closed at Rs 46.05, Rs 34.85 and Rs 25.15 each, a combo price tag of Rs 106.05 each share on India's oldest bourse, Bombay Stock Exchange (BSE).

Share prices have continued to fall since last one year and in the last one week most of the stocks have hit their 52-week low. But mostly developers, who have pledged shares like Orbit Corp, PDL, Nitesh Estates have not let this chance slip by and have started accumulating shares from the open market. Promoters whose holding is already above the threshold limit of 75 per cent cannot participate in this race, as prescribed by the government. Thus Omaxe could not be a part of the race.

Orbit Corporation, promoted by Pujit Aggarwal, has been buying shares from the open market since last one month. A senior official privy to the development says, "Pujit Agarwal has bought close to 4 lakh shares from the open market in the last 3-4 weeks."

Ramshriya Yadav, the chief financial officer of the company confirmed the development.

As of June, 2011, the promoters own 49.99 per cent stake in the company, which will go up by the end of this quarter. It has also started paying back to Edelweiss and IFCI from whom it had raised Rs 150 crore by pledging promoter shares. It has started repaying the loan and has paid close to Rs 5 crore. It released 1.22 crore shares or 23 per cent pledged shares in July by placing three land parcels against those shares. The promoters earlier had to increase the amount of pledged shares to 77.22 per cent from the 67.67 per cent when initially pledged to raise the loan.

Not to be left behined, PDL promoters Pradeep Jain and his family members have also increased their stake in the company, by purchasing 23.75 lakh shares from the open market, an increase of 0.81 per cent. The promoter stake in the company has moved from 67.66 per cent at the end of Q4FY11 to 68.21 per cent in Q1FY12.

Nitesh Estates, promoted by Nitesh Shetty, has increased his stake from 42.48 per cent to 43.67 per cent in June quarter. An email sent to the company went unasnwered.

Another company, Sunteck Realty, promoted by Kamal Khaitan which is jointly developing properties with Ajay Piramal under the brand name Starlight Constructions, has seen an increase in its promoter stake too.

It owned 67.02 per cent shares in March 2011, which has gone up to 67.78 per cent in the first week of August.

Kamal Khaitan, managing director, Sunteck Realty, said, "We have been doing creeping acquisitions and we will continue to do so."

It is always considered favourable by bankers when realtors pick up shares of their company, but this time around analysts are skeptical. As developers increase their stakes in the company, their pledging towards financial institutions have also increased.

A senior realty analyst said, "Promoters are buying from the open market and increasing their pledging so they need more shares at their perusal. Also at this price point it is favourable for them to buy their shares as most of the promoters have less than 50 per cent holding in the companies due to stake sales through qualified institutional placements (QIPs) in the last two years."

Analysts also contend that financial institutions have increased the margin of pledging towards the loan raised, thus if the developer can't keep up to the commitment, they will start selling the shares in the open market, which means a realty combo meal will be cheaper than government's mid-day meal budget for a single child.

The only company to move otherwise is Dynamix Balwas (DB) Realty, where the Chairman,Vinod Goenka's brother, Pramod K Goenka, has sold his entire 1.15 per cent stake, thus, pulling down the promoter stake to 61.65 per cent in Q1FY12 from 62.77 per cent in the end of financial year 2011. The share hit its new low at the end of the day at Rs 61.95, a drop of 3.13 per cent on BSE.

Jaiprakash Cement's acquisition of Andhra Cements irks street

The acquisition of total 27.19 crore shares in Andhra Cements by Jaypee Development Corporation — an associate firm of Gaur family-promoted Jaiprakash Associates(JPA) — has not augured well with the investors.


After the all-cash deal Andhra Cements will walk away with close to Rs 326.32 crore. Jaypee Group will pay Rs 12 per share for this transaction, which includes a controlling stake of 32.95 per cent, a proposed preferential allotment and an open offer payment which will trigger after the acquisition of the first block of shares.
According to analysts, this deal could become achillies heels for the North-based company unless there is clarity on the rational for this acquisition by JPA.
Jaypee Group has valued Andhra Cements at $115 enterprise valuation per tonne, a stark contrast to what other cement manufacturers were willing to pay which was close to $75-90 ev per tonne.
The deal does not specify if it includes the additional capacity that Andhra Cements was planning to add to its existing capacity of 1.4 million tonne per annum(mtpa). They were looking to expand to 3.5 mtpa, though sources confirm that Andhra Cements has not placed any equipment order for its plants. It effectively means JPC will have to start from the scratch to start operations in this unit.
A lot of questions have gone unanswered for investors as the deal fructifies in the corridors of Jaypee's New Delhi office.
According to an analyst with a foreign brokerage, "JPA has not clarified to its investors why it bought the company and put the acquisition burden on an associate company and not on the cement specific company, Jaypee Cement." Jaypee Cement, the third largest cement venture in the country, is the highest levered cement manufacturer. Its debt on the books is a humongous Rs 11,500 crore by the end of March 2011.
Since cement oversupply has hit the country, Andhra Pradesh has been the worst hit state with an oversupply capacity of 15 mtpa in the state.
Analysts also question that the deal does not clarify if the debt raised by Andhra Cements consists of any capital commitment for its brown field expansion or merely the company's existing loans which will show on JPC's books. The AP-based company has a debt burden of Rs 438 crore and an enterprise valuation of Rs 787.8 crore.
Andhra Cements, has been looking for a buyer since last five years, but none of the talks fructified as it was looking for a handsome valuation. Also the cement manufacturer has stopped production since financial year 2011.
On November 14, JPA had announced that it will demerge company's cement plants in Gujarat and Andhra Pradesh into its wholly owned subsidiary, Jaypee Cement Corporation Limited (JCCL) implementing 3 million tonne per annum (mtpa) cement plant in Karnataka.
An analyst tracking the company said, “The parent company had decided to hive off the AP and Gujarat plants in the run up to the divestment of its stake to a private equity group which was considered to be a positive move. And on the other hand it has gone ahead and bought controlling stake in a company which is based in Andhra Pradesh which is the most vulnerable state for cement production and that too a company which has shut down its production in FY11. It has sent very negative signal to the investors of the company.”
Last month, National Stock Exchange (NSE), has suspended the trading of shares of Andhra Cements due to non-compliance with listing agreement provisions.
At the end of the day shares of JPA fell by 4.49 per cent to Rs 67.05 per share whereas stocks of Andhra Cements went up by 4.97 per cent to close at Rs 10.98 per share.
The average amount paid for deals between 2005 and 2008 was around $168 per tonne as against $121 per tonne a decade before.
JPA's cement production has increased to 14.71 million tonne in 2010-11 as compared to 10.69 million tonne in 2009-10, a jump of 37.6 per cent. It is on a major expansion drive of increasing its capacity to total 35.5 million tonne by the end of this financial year.

Orbit's Pujit Aggarwal redeems 23 per cent pledged shares from Edelweiss

Orbit Corporation, the Mumbai based niche luxury realty developer's promoter Pujit Aggarwal has redeemed 23 per cent or 1.22 crore pledged shares from financial institution Edelweiss today. The company notified the same on the Bombay Stock Exchange (BSE).
The promoters Pujit Agarwal and his father Ravi Kiran Aggarwal have pledged 77.22 per cent of their holdings in Orbit as collateral to FI's Edelweiss and Industrial Finance Corporation of India (IFCI) for financing the acquisition of the last palace of Mumbai- the Kilachand House at Napean Sea Road. It had raised a loan of Rs 150 crore for the same.
An analyst tracking the company said, “It has total pledging of 4.06 crore shares between Edelweiss and IFCI, the promoter has pledged around three small chunk of land parcels and released their shares from Edelweiss.”
The company was earlier planning to put the Kilachand property as collateral and release the entire block of pledged shares from both the financial institutions. It has paid Rs 220 crore for acquisition of 50 per cent of the property.
A source close to the development said, “IFCI is not interested in having the Kilachand property as collateral due to the nature of the property as it was entangled in legal battle most of the time and the developer too is not keen to put up anything on that property in next one-two years. Though Edelweiss was ready to accept the deal, IFCI has clearly not given its nod. The promoters will release another substantial chunk soon.”
The promoters earlier had to increase the amount of pledged shares to 77.22 per cent from the 67.67 per cent when initially pledged which meant an additional two million promoter shares were pledged to the FIs. Orbit's share closed today at Rs 44.10 per share, it fell 3.50 per cent at the end of the day on BSE.

The margin of share collateral was thrice that of the loan value, and as its prices collapsed, the developer also faced an increase in interest rate by 100 basis points. Its interest cost for the loan is around 13 per cent.

Billionaire Rakesh Jhunjhunwala and Radhakrishna Damani enter Sterling Holidays

The Chennai based leisure hospitality and vacation ownership company, Sterling Holidays Resorts (India) Ltd, had a dream run in its stock prices in last one month. The shares of the company reached a 52- week high today and closed today at Rs 122.90 per share at the oldest bourse, BSE. The share ran up by Rs 20.45 or 19.96 per cent till the end of the day. Not too long ago, mere twenty days back the share was trading at Rs 55.10 per share. A bulk trading of 8lakh shares were undertaken for Rs 121.86 per share in the noon which is the highest single bulk trade for the company in last 10 months.

The investor duo of billionaire Rakesh Jhunjhunwala and Radhakrishna Damani which bought 11 per cent stake in Delta Corp last year, is set to buy stake in Sterling through preferential allotment , said sources close to the development.

The company had notified on BSE onJuly 15 that it will convene a board meeting on july 20, to consider various options of raising funds including issue of shares and issue of warrants on preferential basis.

Sources add, "The promoters, Rakesh Jhunjhunwala and Radhakrishna Damani will each be alloted shares at a price band of Rs 80-85 per share, which would help raise around Rs 120-140 crore for the company." The company has been looking to raise close to Rs 130-170 crore for its expansion in international destinations like South Asia Pacific region via acquisitions. Sterling is at present headed by Sidhartha Mehta, as non executive chairman of the company, who is also the Chief executive officer of Bay Capital, a private equity firm which already owns 31 per cent stake in the company. Till date Bay Capital has invested $13.8 million.

According to BSE, the promoters of the company, R Subramanian, Sidharth Shankar S and S Dhanalakshmi at present own 14.75 per cent in the company whereas mutual funds at and FII's own 17.46 per cent..

at the end of the day on BSE to close at Rs 122.90 per share.

Sterling has a network of 14 resorts in 12 holiday destinations in India, enabling over 100,000 Vacation Ownership members The company is slated to add six new destinations to its existing list of resorts.

Calls made to Ramesh Ramanathan, managing director of the company and Sidharth Mehta went unanswered. Rakesh Jhunjhunwala could not be reached for comment.

Reliance Cementation puts first step forward, enters into LOI with European companies

Reliance Cementation Private Limited (RCPL), the cement arm of Anil Ambani promoted Anil Dhirubhai Ambani Group (ADA), has put its first step forward to put its cement plant in place.
An official close to the development says, “Reliance Cementation has issued letter of intent (LoI's) for equipments for its Satna I unit in Madhya Pradesh. The LoI has been issued to European engineering majors Polysius, FL Smidth and Loesche.”
The European majors stole the show from Chinese equipment players as the price differential is not more than 5 per cent for European companies and also European insurance agencies charge 5 per cent of the debt raised as fees whereas the nodal insurance agency in China charges 7-8 per cent of debt raised.
RCPL, is at present a wholly owned subsidiary of reliance Infrastructure. The LoI has been signed for the Satna I unit where it has plans to put up a capacity of 5.08 million tonne per annum (mtpa) manufacturing unit. It has planned a clinker capacity of approximately of 3.6 mtpa. The game plan includes an integrated unit at Maihar, a blending unit at Gondavli and a grinding unit at Kundangang in Madhya Pradesh.
The source further says, “ A part of the site has received environmental clearance where work would start first and they have received Terms of Reference (ToR) clearance for the final stage. ToR is the first level of clearance from the environmental ministry before it gives the final nod for the project.”
Since the inception of the company in 2007, it has not yet placed any order for construction of cement units. The company has been focusing on setting up of two 5 million tonne (mt) greenfield plants in Mukutban in Maharashtra and in Maihar in Madhya Pradesh. The company website says that a grinding unit at Butibori, Maharashtra will be the first operational unit from the company's stable with an initial capacity of 0.6 mtpa. According to RCPL, this unit is slated for commissioning in March-April, 2012.
However the source adds, “Though the company has been saying the Butibori capacity will come first they have not placed any order for the same. So it would be difficult to say which one would come first. As of now they have just signed LoI, the final contract would be signed soon for the same.”
The first move from the company has come after joining of Sumit Banerjee, the erstwhile chief executive officer (CEO) of ACC cements. It is also looking at inorganic expansion and is in talks with Andhra Pradesh based Sree JayaJyothi Cements (SJJC). The group had an ambitious plan of setting up manufacturing plant of 50 mtpa capacity by both organic and inorganic route.

HDIL lowers TDR sale target for FY12

HDIL lowers TDR sale target for FY12

Analysts think its unlikely HDIL would be able to cut debt by 20-25 per cent


Housing Development and Infrastructure Ltd (HDIL), the Mumbai based realty player has indicated that it would clock around 0.7-1 msft of transfer of development right (TDR) sales for FY12, a drop of 20 per cent as compared to FY11 average sales run rate. Till date the biggest contributor to HDIL's balance sheet and cash in hand is TDR sales.
In FY10, it generated a total revenue of Rs 1492 crore and Rs 1396.6 crore came from its TDR business, a whopping 93.61 per cent of total revenue. In FY11, the TDR sales contribution was Rs 1242.5 crore, mere 68.91 per cent of the total revenue. Thus, TDR sales revenue contribution dropped by 26.38 per cent year on year.
Hari Prakash Pandey, Vice President- Finance, HDIL, said during the conference call, “ We would clock a run rate of 0.7-1 msft for FY12 and and the future will mainly depend on the whole approval process.”
Pandey expects the realisations to be better than the last quarter. With the on-going slowdown in the realty market , the realtor managed to sell only 0.9 msft of TDR at Rs 2500 per sft for Q4FY11 which is a drop of 32 per cent as compared to Q3FY11.
An analyst from a domestic brokerage in condition of anonymity says, “They have a left over TDR of 0.5 msft and even though the company has already included the TDR which would be generated from the Phase III of the Mumbai International Airport Ltd (MIAL) in its land bank asset the fact is they haven't yet received approval for Phase III. So in all they can expect around 2 msft for the year which is lesser than the company's expectation.”
Also lesser TDR sales will lead to more outgo on taxes as TDR attracts Minimum Alternate Tax (MAT) rates.
HDIL had also sold Floor Space Index (FSI) worth Rs 1300 crore and has received Rs 500 crore. The company expects to cut its debt through the FSI sales and new project launches. Last quarter it did not launch any project and sales have been sluggish as HDIL managed to sell only 30% in its new launch in April, 2011.
Another analyst adds, “The airport project is in limbo so selling off prime land areas in Andheri and Goregaon to its peers was not a right decision and the project line up for FY12 would not be sufficient to cut debt by 20-25 per cent. Also there is conversion of 26 million promoter warrants which was issued at Rs 272 per share. The present value of HDIL's share is Rs 166.95 per share.”
The realtor has a long term debt burden of Rs 4195 crore and has to repay around Rs 500 crore by FY12 and has cash reserves of Rs 226 crore. The company paid Rs 600 crore to its subsidiaries for acquisition of land and other payments. The present average cost of debt is 14 per cent.
　

HDIL's slum-rehab project gets a kicker

HDIL's slum-rehab project gets a kicker


Housing Development and Infrastructure Ltd (HDIL), the Mumbai based developer which is developing the slum rehabilitation component of gigantic Mumbai International Airport Ltd (MIAL) project finally received the nod from Mumbai Metropolitan Region Development Authority (MMRDA)after a delay of more than one and a half years.
HDIL announced in BSE , “MMRDA has started the process of shifting of eligible slum dwellers from MIAL to Kurla Premiere compound and have issued Allotment letters to the eligible slum dwellers for the 1st phase.”

Sources close to development said, “It is a positive news for the company as finally MMRDA has given some clarity regarding movement of slum dwellers. At present it has given eligibility letters to close to 400-500 slum dwellers. After the relocation, land will be cleared for proposed Sahar Elevated Road connecting international airport to western express highway. Though it is a smaller step as MMRDA wanted to clear the way for the highway, the company is hopeful that things will move from here on and expedite the Phase II of the project.”
HDIL acquired land for the last leg of this project when it bought a 105 acre land parcel in Kanjurmarg, central suburbs of Mumbai.
Suman Memani and Abhishek Kumar of Pinc Research wrote to their clients, “we expect that work on other phases of MIAL project to ramp up and see TDR generation exceed 1 msf post two quarters. This is likely to lead to higher cash generation which is likely to make tax rate fall marginally as TDR is taxed at minimum alternate tax (MAT).” HDIL had revised its TDR sales target due to delay in generation of TDR from the airport project, also it paid higher tax in Q4FY11 due to lower sales of TDR.

As part of Phase I, HDIL's deadline to shift the families to the Kurla land parcel was September,2009, the project was first delayed by a few months and then due to unavailability of water connection the shifting of families had to be restrained. Later came the hurdle of eligibility of slum dwellers inhabiting the area.
In January this year, MMRDA had brought in SPARC) which works with the slum dwellers of Mumbai to reassess the entire eligibility issue. The government had earlier issued notification that the cut off for eligibility for slum dwellers is calendar year 2000 and any individual inhabiting after that date would not be eligible for rehabilitation.

HDIL will receive 65 acres after the completion of the first phase. It has constructed 7000 units for rehabilitation in the first phase.

During relocation under the phase I families from Bamanpada and Ambedkar nagar will be shifted. HDIL has officially sold transfer of development rights (TDR) of approximately 11-12 msft. After the completion of the first phase the developer would receive 65 acres.
The street reacted positively and shares of the company closed at Rs 169.40 per share, up by 4.92 per cent in BSE.

2010 Mumbai sales lower than 2007, though prices head north

The Mumbai real estate which had supposedly picked up pace is still not able to reach the sales highs of 2007, say industry experts. Though developers say otherwise.

A data collated by international property consultants Jones LangLa Salle India’s research team Real Estate Investment Services (REIS), says that the number of units sold in Mumbai from January to September 2010 is 6878 units as compared to 11,857 units sold in 2007 for the full year. Interestingly, the top seven metro cities which includes Mumbai, NCR, Bangalore, Chennai, Pune, Hyderabad and Kolkata has surpassed the total number of units sold in Q3CL2010 as compared to full year sales figures of 2007 when it booked sales of 85,810 units as compared to 1,38,331 units at present. The Mumbai data does not include Thane, Navi Mumbai, Vasai and Virar.

Another Indian realty data aggregator’s data which covers the entire Mumbai Metropolitan region (MMR) shows that in 2007, the peak sales figure was registered for the month of September with sales of 7.58 msft which has been the highest till date in last three years. In 2010, the peak sales have been of 5.63 msft, which was recorded for july whereas in 2009, the Christmas month had ring in sales of 6.42 msft, peak for that year.

Also the stamp duty registration data collected from the registrars office shows that the last quarter of every calendar year records peak in registration numbers for the entire year, but this year the registration data has been falling off since July. July had recorded registration of 7262 units, and since then the numbers have tapered off.

Even the 6258 documents registered for October failed to bring cheers.

Experts attribute the drop in property sales to sharp increase in prices across the city.

Ambar Maheshwari, director, real estate investment advisory, DTZ International, an international property consultants said, “Unit value wise I would say that 2010 sales were higher because the way people bought as if there was no tomorrow but in 2010 the price tag of transactions is quite higher.”

Abhishek lodha, one of the present generation developer, says, “For us as a company this year has been better, as we have sold approximately 7.5 msft till December whereas in 2007 we had sold approximately 4 msft. The average sale price of 2010 is higher by 2007 but by merely 2-5% not more than that though three years have lapsed.”

Vikas Oberoi, another developer from Mumbai says, “We have had a better 2010 with regards to profitability numbers than 2007, though our last quarter numbers are low we will be booking the numbers by the end of this fiscal.”

An analyst from top five brokerages in India, says, “In Mumbai, realty prices have shot up by 20-30% higher than 2007 prices which is quite steep in comparison to price hikes in other cities. In Bangalore and Chennai sales are up by 23% for this quarter whereas Mumbai hasn’t shown any improvement in sales. Even Delhi is showing upward movement only Noida is moderately down due to oversupply.”

A research note written by Unmesh Sharma and released by Macquire on November 25, says, “However, recent memories of the boom of 2007 (followed by 2008’s crisis) give rise to some scepticism. Note that residential prices in parts of Mumbai and the NCR are now higher than the 2007 peak despite a drop in affordability and hence volumes. On the other hand, some markets such as Bangalore are seeing an improvement in volumes even as prices inch up. In some areas in NCR suburbs, speculators have driven volumes to more than twice the historic high of 2007. We believe these liquidity-driven phenomena are unlikely to sustain beyond the next 6-12 months.”