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| Pension funds can help housing |
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Housing loan account for only about 7% of the country’s GDP. Housing finance regulator National Housing Bank’s executive director RV Verma says that pension funds can help channelize long-term funds for the housing sector. In a freewheeling interview with ET’s Dheeraj Tiwari, Mr Verma talks about NHB’S plants as a regulator as well as development financing institution. Excerpts:
Unlike the Reserve Bank Of India, you have not directed housing finance companies (HFCs) to come out with base rates. Why?
First, we need to see and analyse the impact of the base rate on the cost of funds for HFCs. Unlike banks, HFCs are a more heterogeneous group with wider variation in their cost and landing profile. They also have diverse source of funding and are more exposed to changes in the liquidity conditions in the market. So their cost of funds varies more. The impact of the ‘base rate’ approach vis-à-vis their housing loan portfolios, which are typically long term in nature, will also need to be closely examined from the asset-liability mismatch perspective before introducing a base rate regime.
What are you plans for the residential mortgage-backed securitization (RMBS) market?
Securitization is a very powerful instrument to augment funds for the housing sector. Home loan portfolios are good quality assets and these securitised portfolios will have high acceptability among the investors. National Housing Bank has to play an important role as an intermediary, market-maker and a credit enhancer. Pension and provident funds are natural investor in RMBS papers, which would help channel long-term funds for housing. NHB has done 14 issues of RMBS in the past and we will be scaling this up.
Are you looking at raising more capital? What has the bank’s financial performance been like?
Besides capital, we have raised funds through different sources that include term loans, issue of bonds, and public deposit scheme. We are also exploring other international borrowings including from the World Bank for low-income housing. During the current year 2009-10 ending on June 30, 2010, our funds mobilization is Rs 11,600 crore. On the assets side, we are likely to close with disbursements of about Rs 8,000 crore. We should be closing the current year with growth in loans and advances of about 18-20%. National Housing Bank’s profit after tax is likely to be about Rs 290 crore, an all time high, marking a 22% growth over last year. Our business model is that of a development finance institution operating on a high-volume and low-margin system.
Courtesy by: The Economic Times Dtd: June 23, 2010 |
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| Bull and Bears |
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Among major sectors Real Estate is also
continuing to perform well on sensex and nifty from early 2004 and also builder
are selling new projects on the name of affordable housing insubrubs of metro
cities, tier I and tier II cities but from last two months seeing slow on sensex
and nifty but selling of project is good
Big real estate company showed better results in last quarter in respect of last
year same quarter and loss also picked up money from private equity players
through. QIP (Qualified Institutional Placement) and reduced their debts.
Private Equity Players also learned handsome amounts. In case of Unitech,
India’s second real estate company by market capitalization was placed its share
with ---@ 40 in last year and this time is stable with @ to plus with high Rs
95+ in Dec 2009 from low Rs 25-40 in Mar 2009
On the operational front for the Dec 2009 quarter, the company
has been able to record revenue growth of 76% year on year to Rs 774 crore
largely on sales which have occurred in the previous fiscal
The company is focusing on affordable homes and expects the segments contribute
about half of the overall volumes in 2010-11 about 16 million sq. ft and also
focusing on Mumbai were It has tied up with Mumbai-based developers for slum rehabitation projects and expecting to will sell 40 millon sq. ft area.
The company is now standing on a debt of Rs 6200 cr. I.e. debt to equity ratio
is 0.3 times
The company also hived off its non-core businesses like power, telecom, hotels
and SEZ’s to improve sentiments towards the stocks |
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| Bottom-Fishing with Caution |
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The market has been recovering from the meltdown,
but a few stocks are languishing at lower levels. Some of these stocks can turn
out to be good bets for the long run.
In the advanced stages of any rally, experts often dig much deeper to find
stocks, which still can provide some value to investors. With frontline stocks
already factoring in one or two years of expected growth, the focus shifts to
stocks, which have not done well over the course of the rally. There could be
many reasons for some stocks to languish during the rally. The first and the
simplest is that they are simply off the investor’s radar. The other reason
could be that their financial performance is wanting. Whatever may be the
reason, one thing is for sure that there is an eye keenly going over the stock
charts and finding out which of these stocks, can be a good investment. Seizing
these opportunity, ET Intelligence Group analysed the stocks,
which haven’t done well ever since the current rally started on March 09, 2009
to find out if there are good value picks for investors.
And we didn’t have to dig deep to find, as leading stocks of the FMCG sector – Hindustan Unilever (HUL) & Britannia - have been gross
underperformers over the course of the past one year. HUL, in fact, didn’t move
at all during the year. HUL it has underperformed most of its smaller peers
since the past four consecutive quarters. Its performance is also way below its
own track record also. For instance, its current operating margin of 14% is
lower than its own peak margin of 18%(achieved in 2002) and below than other
FMCG players, such as Nestle and Dabur that
have operating margins of 19% and 17%, respectively. Rising competition has
become a double-edged sword, as it has not only eaten into HUL’s market share,
but has also made it necessary for the company to spend more on advertisement.
Much like HUL, Britannia too fared poorly vis-à-vis its peers, such as Dabur and
Marico. If Britannia’s stock price fared poorly compared to Sensex, its
performance was equally subdued. The spiralling cost of wheat and sugar, key
ingredients for the company, has adversely impacted its bottomline. Rising
commodity prices amidst inflationary conditions are likely to be major hurdles
for the company to deliver growth in earnings. Since the near-term prospects of
both HUL and Britannia look bleak, investors are advised to stay away from them
even though they are available at seemingly reasonable valuations.
Similarly, oil marketing companies (OMC) are facing tough operating environment.
All three of them - Indian Oil, BPCL and HPCL, have grossly under performed the market over the past one year due to their
continuing inability to control their profitability. They face a peculiar
predicament as they can’t decide the selling price of most of their products
despite rising costs. What is more, they can’t even curtail their sales even if
higher sales lead to higher losses. In the meantime, the government has cut down
on its aids to OMCs for selling products below cost. These three companies,
which have launched expansion projects that may be dubbed as ambitious
considering their cash generation capacity are likely to become debt-ridden,
unless some bold decisions are made. The government’s past attempts at bringing
in reforms in the oil industry have failed miserably. Investors should shun
these stocks too even though they are available at bargain prices.
Bargain hunters may, however, find value in the power sectors with the country’s
two largest utilities-NTPC and Power Grid-
available at significant discount to their peers. While NTPC’s stock price, the
country’s largest power generator, has suffered due to a delay in the
commissioning of new projects due to various issues; Power Grid stock continues
to languish despite a robust financial performance by the company in the first
quarter of FY 10. However, the recent lull in NTPC earnings growth is about to
end as it recently commissioned a 490 MW units in Delhi and is expected to
augment its product capacity by nearly 60% in a phased manner by the end of FY
13. This will not only double the company’s revenues and net profit but would
also improve its return ratios such as return on equity (RoE) and return on
capital employed (RoCE), which suffered in the past two years due to a sharp
increase in capital expenditure. The stock is currently trading at just 19 times
its trailing net profit. In contrast, its peers, such as Tata Power and Neyveli Lignite are trading in the range of 30-40 times.
This makes it a value buy for long-term investors though immediate gains may be
difficult.
Power Grid is working on equally big capacity expansion and
implementing projects, which will nearly double its transmission capacity by 60%
in the next three years. This will help maintain earnings momentum in the near
to medium term. Power transmission is a highly scalable business, and once a
project gets commissioned, operating profit can be as high as 90% with hardly
any operational risks. At its current price, Power Grid is down nearly 18% from
its 52-week peak and looks undervalued with a price-to-earning multiple of 21x
and looks a safe bet for investors.
Then there are stocks, which seem to be poised to yield good returns for their
shareholders going forward. For instance, Koutons Retail’s
stock price has largly remained flat in the current rally. This is despite the
factors like improved inventory management, lesser markdowns and higher volumes
have enabled this retailer to post a 16% growth in its profit in the nine months
ended December 2009. Moreover, the company is expected to gain from ladies and
kids segment, which have higher margins. On the other hand, improved inventory
management will result in lesser working capital thereby improving the cash
flows. Given the expected improvement in financial, Koutons Retail can be a good
bet for investors at current levels.
Similarly, investors can take a sigh of relief as far as India Cements is concerned. It has been one of the worst performing stocks due to a tough
operating environment in its markets in Tamil Nadu, Andhra Pradesh and
Karnataka. The region is facing a glut in cement supply, which has depressed
prices. However, worst seems to be over for the company. In May last year, the
company opened a grinding unit in central Maharashtra to lessen it independence
on South India and enter central and west India where cement prices remained
firm. The stock is currently trading at just 1.2 times its book value. In
contrast, most of its peers are trading at 2-5 times their book value. At this
level, a lot of bad news is already factored into the stock price, and any
improvement in financial may lead to a rally in the stock’s price.
Similarly, industrial cylinder manufacturer Everest Kanto Cylinders (EKC) had a disastrous run till now, as its consolidated profit fell by 76% in
the nine months ended December 2009. The company is facing pressures of high
cost inventory. However, it is expected to get a breather as its 3-lakh units
per annum plant in Kandla SEZ is expected to commission operating soon. The
profitability of EKC’s subsidiaries has drastically come down, particular those
in the UAE and US, while the newly acquired subsidiary in Kolkata, which holds
marketing rights for ONGC’s coal-bed-methane block in Jharkhand, is yet to begin
operations. However, this situation is likely to improve in the near future with
demand picking up and company getting rid of its high cost raw material
inventory. So, investors can make use of the current fall in stock price by
investing in the stock
Another stock, which has not done well of late but can be a good potential
investment, is EIH. The hospitability major is trading at a
significant discount to its rival- Indian Hotels. Indian Hotels. While EIH is
trading at a price-to-earnings (P/E) multiple of 48, Indian Hotels is trading at
a P/E of 78. This is despite the fact that EIH is known for lesser capital
dilution compared to its peers. The advantage of lesser capital dilution is that
its growth is fuelled by only internal accruals and not through more money from
stakeholders. As a result, its return on capital employed is much higher than
Indian Hotels. So, at current levels even EIH could be a good buy for investors.
Further the country’s largest non-basmati rice producer Lakshmi Energy
and Foods is trading at P/E of 8, while industry P/E is 10.5. This is
regardless of the fact that the company’s performance in the quarter ended
December 2009 was above the market expectations. Recently, it has ventured into
power generation from biomass and selling of branded rice to retail, thereby
safeguarding itself from the cyclically of the sector. No doubt, the stock is
not adequately priced at current valuations, which means retails investors can
take exposure to the stock.
As it seems from the analysis, not every battered stock is a good bet at current
levels. Investors should exercise caution and invest wisely in those companies,
which are going to show some recovery in fundamentals. |
| VITAL STATISTICS |
| |
CMP
(Rs) |
Mar 9 '09
(Rs)* |
Chg
%^ |
Sensex
Chg %# |
Underperformance
(%)** |
| BPCL |
521.3 |
353.4 |
47.5 |
115.4 |
-67.9 |
| Britannia Industries |
1585.5 |
1230 |
28.9 |
115.4 |
-86.5 |
| EIH |
121 |
94.3 |
28.3 |
115.4 |
-87.1 |
| HPCL |
320.8 |
256 |
25.3 |
115.4 |
-90.1 |
| Hindustan Unilever |
228.6 |
216.5 |
5.6 |
115.4 |
-109.8 |
| India Cements |
127.7 |
96.7 |
32.1 |
115.4 |
-83.4 |
| Indian Oil Corporation |
301.8 |
203.5 |
48.3 |
115.4 |
-67.1 |
| Koutons Retail |
342.7 |
347.2 |
-1.3 |
115.4 |
-116.7 |
| Lakshmi Energy & foods |
123.5 |
99.6 |
24 |
115.4 |
-91.4 |
| NTPC |
202.8 |
176.5 |
14.9 |
115.4 |
-100.5 |
| Power Grid Corporation |
108.3 |
90.7 |
19.4 |
115.4 |
-96 |
| *March 9 '09 was when the current rally had started |
| ^ it shows the percentage change in the stock price since the rally had
started |
| # it shows the percentage change in Sensex since the rally had started |
| **it shows the difference between stock price change and Sensex change |
|
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| Courtesy: ET – 22-03-2010 |
| FOREIGN DEBT STILL SEEPING INTO REALTY |
FOREIGN DEBT STILL SEEPING INTO REALTYhird, unlike FDI, here the foreign investor can fund even those projects which are not FDI-compliant,” said a lawyer familiar with such debt-raising. For a project to receive foreign equity or FDI, it should not have less than 50,000 square meters of built-up area, among other things. “These conditions don’t come in the way when a foreign fund buys NCDs,” he said. Interestingly, such NCDs have also been issued by a leading NBFC which, like property firms, are restricted from tapping the ECB market.
According to a real estate fund manager, some foreign investors reluctant to increase their equity exposure post the downturn, prefer secured debts with a decent interest return. Sebi’s listing regulations extend to debentures that have been privately-placed; and, the NCDs can be listed even if the real estate company or a project specific special purpose vehicle floated by it is a private firm or an unlisted public entity.
Courtesy:- ET dt:- 04-Mar-2010 |
CONSTRUCTION SERVICES TAX TO RAISE COST OF APARTMENTS
The Budget proposals have thrown up a dampener
for the housing industry. Construction services have now been brought under the
ambit of the service tax in an unexpected move that would raise cost of
apartments that are still under construction. As per the Budget proposal, the
finance ministry has suggested that construction would be deemed to be a taxable
service if the building or complex is still under construction and approval from
the concerned regulatory authority — which in most cases is the resident
municipal authority — hasn’t yet been granted. The levy would cover all
construction of complex service or commercial or industrial construction
services, the Finance Bill suggested. The service tax levy would be 10.3% and
would also apply to additional services such as those offering preferential
locations for flats in multi-storey buildings where flats in each floor are
priced at a premium due to their location. This too has been described as a
service and hence taxable, according to the proposal which was tabled in
Parliament on Friday by finance minister Pranab Mukherjee. The premium is
typically levied on categories such as flats or apartments that are above a
certain floor rise or have other high value locations such as being in front of
a garden or a sea or any other preferred locality. “The proposal is to tax
construction if the entire payment for the flat is made before completion of
construction,” said consulting firm RSM Astute executive director K H
Viswanathan. “This would increase the cost of the apartment and may discourage
potential buyers.” The service tax would be 10% on 33% of the price of the
apartment, while on the remaining 67%, tax won’t be levied. Till now, for all
apartments under construction, customers paid in instalments based on plinth
level construction and also on the progress in building activity. Banks too lent
money to the customers according to the requirement of the builder. Now most
developers would ask customers to pay the entire value of the building if they
sought to lock in at a certain value. This would mean paying the entire sum
before the construction. Typically, in cities such as Mumbai, where there is a
pressure on space and hence apartments and flats are much sought after,
customers booking for flats in an under-construction building, is very common.
“The service tax and excise duty hike on cement would increase the overall cost
of apartment by about 10%,” said Dharmesh Jain, managing director of Nirmal
Lifestyles, a Mumbai-based developer. “It’s a negative step and we are
considering to meet the finance minister to plead for a relook on this measure,”
he added. But there are other positive measures that the Budget proposes such as
allowing pending projects to be completed within a period of 5 years instead of
4 years, for claiming deduction of profits, as one time interim relief. There is
also a suggestion that the commercial area included in a housing project would
now be 3% of the aggregate built-up area of the housing project or 5,000 sq. ft,
whichever is higher, compared to the existing limit of 2% and 2,000 sq.ft.
respectively. This would help developers and real estate companies to make their
projects more viable.
Courtesy:- ET dt:- 01-march-2010
PNB SHUTTERS LOANS AGAINST PROPERTY
Other Public Sector Banks Such As Bank of
India, Bank of Baroda & Indian Overseas Bank Go Slow On Mortgage Loans Banks
have started taking proactive measures to prevent defaults in their real estate
portfolio by cutting exposure to loans against property. State lender Punjab
National Bank (PNB) has taken a lead and has stopped giving such loans while
Bank of India, Bank of Baroda and Indian Overseas Bank have decided to go slow
on such loans. While banks have always been cautious and selective on real
estate loans, this is the first time a bank has taken a decision to avoid this
business. Banks' real estate exposure includes loan against property, and loans
to builders. Although home loans are a part of real estate exposure most of them
constitute priority sector loans and are not a part of bank's exposure to
sensitive sector.
Loan against property
popularly known as mortgage loans — is mostly availed by small businessmen and
trader community. Officials from PNB say the decision was taken a few days ago.
Other banks have been going slow on such loans for the past few months, although
they have not completely stopped it.
Bankers point out that this section of borrowers is typically the one which does
not have a balance sheet culture. This makes it difficult for lenders to
foreclose a property. "Most traders do not disclose their cash flows to banks
nor do they draw balance sheet. Traders avail loans based on property pledged
with banks. In case of defaults, banks are unable to gauge the cash flow
position," said a senior official from PNB, justifying the stand taken by the
bank.
Senior officials from Bank of India and Union
Bank of India pointed out that they are encouraging loans where the trader is
willing to avail a business loan with property as security. But for a business
loan, they need to draw balance sheet. "We are discouraging loan against
property by refusing to provide overdraft facility and charging higher margins,"
they added. Other banks are discouraging such loans by valuing the property at
distress level or by valuing the property at the price it was purchased.
Resistance towards such loans is also because
real estate loans attract higher capital requirement than other loans. "Besides,
if we have to take real estate exposure on our books we would prefer giving
loans to builders where we can charge higher interest rates rather than to loan
against property to traders," said senior officials. At present, most builders
avail loan at interest rates much higher than benchmark lending rates, while
loan against property is usually pegged at PLR or slightly higher. PSU banks'
PLR stands between 13.75% and 14% while private and foreign banks have pegged it
at 16-18%.
In the last two years, banks have been going
slow on loans to builders as on several occasions the Reserve Bank of India and
finance ministry had expressed concern over these loans. To discourage banks
from aggressive lending to builders, RBI had stipulated a higher risk weightage
of 150 basis points on loans given to them. This is much higher than 50-75 basis
points risk weightage on top-rated borrowers and retail loans
Courtesy: - ET dtd: - 25th Sep. 2008
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