Realtors welcome passage real estate bill by Parliament

Realtors body NAREDCO on Tuesday hailed the passage of real estate regulatory bill by Parliament but said the new law should also have fixed the accountability of government agencies sanctioning the projects.

The Real Estate (Regulation and Development) Bill was passed by the Lok Sabha on Tuesday, five days after its passage by Rajya Sabha.

"The Bill seeks to protect the interest of the home buyers by enhancing transparency and fixing the accountability of developers, brokers and consumers, but it would have been more appreciated by the industry incase the accountability of financial institutions, Government and Government agencies, who have great role to play in project implementation, was also fixed," NAREDCO President Praveen Jain said.

He hoped that this would also be included at some stage.

Jain also said that the new law should have provision for single window process to facilitate quicker approval.

He also said that the provision of parking 70 per cent of the funds received from buyers for a project into an escrow account would "definitely pose a financial challenge to builders".

Gaurav Karnik, Partner & National Leader - Real Estate & Infrastructure, EY India, said "Real Estate Bill will bring greater transparency, timely completion of projects, reduction in fly by night operators in the sector".

It would also ensure that customers are treated fairly by ensuring no arbitrary changes in project plans, full disclosure on apartment size and fairer penalty provisions.

"Establishment of a regulator will give greater confidence to foreign investors in the sector. However, certain key asks of the sector such as introduction of single window clearances system, coverage of civic and other related authorities under its ambit, etc. are not covered under this Bill. Overall a welcome move for the sector," he added.

Sun Capital 

Waning hopes: Earnings drought in India is just getting extended

Third quarter earnings season is now running in full swings, with results of bluechips such as TCS, Infosys and banks such as IndusInd Bank already out.

Expectations from the quarter are already low, given the prevailing concerns globally and their impact on the domestic economy. Metldown in energy prices, delays in reforms and, thus, capex cycle, and weak demand in rural India, are all weighing in on the prospects of a rapid economic revival.

But if analysts were to believe, the wait for revival may just get extended and the two-three quarters, the time investors are expecting earnings to take to revive, could easily turn to two years. Analyst though expect falling energy prices may keep lifting overall profit margins going ahead.

India Ratings and Research believes that corporates will take at least two more years to report accelerated earnings and reach the peak level achieved in 2011-12.

In a recent report brokerage firm Ambit Capital in a recent report had predicted earnings growth to remain weak during FY2016 and FY2017.

"Earnings per share (EPS) growth in FY16 and is FY17 likely to remain in single digits (just as in the post 1991 world), we expect the Sensex to generate single digit returns in FY16 and FY17," said brokerage.

Ambit Capital pointed out India has witnessed healthy GDP growth averaging 10 per cent in nominal terms over the last six quarters, but this has not resulted into higher earnings per share (EPS) growth for the Nifty companies.

The reason has to do with three profound structural changes taking place in India: The 'Modi, Rajan and Technology' resets.

"The correlation breakdown between GDP growth and corporate revenues and earnings for the Nifty 50 companies, in our view, is a reflection that a significant portion of the economic growth pick-up is no longer being exploited by listed large cap companies. This, in turn, is because India is being fundamentally changed by an inter-play of the three dominant forces at work in the country today: Modi, Rajan and Technology," said Ambit Capital in a research report.

Ambit Capital report said that Prime Minister Narendra Modi is calling time on the traditional model of subsidy funded consumption growth and crony capitalism driven capex growth in India. So, the incumbents that have thus far enjoyed high earnings growth on the back of corruption and artificial suppression of competition will face increasing pressure on their revenues and earnings.

On the other hand, The RBI Governor Raghuram Rajan is increasing competition for traditional private banks through the introduction of new banks, deepening of corporate bond markets, the resurrection of PSU banks and reducing regulatory arbitrage between banks and NBFCs, the report cited.

Technology is the third factor playing spoilsport for some sectors such as IT and retail, said the report, adding, "New innovations are weakening the traditional offering of Indian IT services firms while increasing competition for retail lenders and B2C companies," said brokerage.

Meanwhile, India rating expects ebitda growth of BSE 500 corporate to range between 12-14 per cent for FY17, under a hypothetical scenario of fiscal loosening, compared to the 5-6 per cent growth expected for FY16.

Rating agency believes investment and commodity prices linked sectors will post muted EBITDA growth in FY17. Growth in sectors such as metals and mining (including volumes) and upstream oil & gas sectors would remain muted despite the base effect.

"However, the downstream oil & gas (refining) sector is likely to exhibit positive growth driven by the higher volume offtake of petroleum products and sustained refining margins. The top five sectors including auto and automotive suppliers, power (generation, transmission and distribution) and telecom contribute 55-60 per cent to the overall EBITDA of BSE 500 corporates, and any meaningful recovery in overall corporate profits would have to be driven by these sectors," said Ind-Ra.

Sun Capital

IFC to invest $60M in debt funding to DCM Shriram

The company is expanding its power and chlor-alkali capacity.

International Finance Corporation will provide $60 million (Rs 408 crore) in debt funding to DCM Shriram Ltd, the World Bank’s private-sector lending arm said in a disclosure.

The funding will support the Indian company's capital expenditure plans of $122 million (Rs 830 crore). The remaining will be funded through loans from other banks or financial institutions and internal accruals.

The company plans to expand its cogeneration power plant at Ajbapur sugar factory in Uttar Pradesh and its chlor-alkali facility at Bharuch, Gujarat. It also plans to spend on routine annual maintenance across four sugar plants in Uttar Pradesh, its chemical complex in Kota (Rajasthan) and its Bharuch plant.

Besides, the company is planning to take up modernisation of technology of its chlor-alkali facilities in Bharuch and Kota, and expansion of captive power plant to support expansion of the chlor-alkali capacity, the IFC disclosure said.

DCM Shriram is owned by brothers Ajay S Shriram, Vikram S Shriram and Ajit S Shriram, who have a 63.9 per cent stake in the company.

It has two main business lines – agribusiness, which includes fertiliser, seeds, sugar and trading of agricultural inputs, and chloro vinyl, which includes caustic soda, chlorine, carbide and polyvinyl chloride.

It also has other smaller businesses such as Fenesta Building Solutions, which makes value-added PVC products, and cement as well as a joint venture with Axiall Inc for PVC compounding.

According to the disclosure, the company had revenue of $922 million for 2014-15 and had a market capitalisation of about $296 million as of March 11, 2016. 

Sun Capital

Analyzing ConocoPhillips’ Return on Equity (COP, XOM)

ConocoPhillips (NYSE: COP) reported return on equity (ROE) of -2.04% for the 12-month period ending in September 2015. This represents a sharp drop from its 2014 ROE of 13.21% and an even bigger drop from its 2013 figure of 18.3%. The company has a trailing 12-month net loss of $1 billion, down sharply from a net income of $6.9 billion in 2014. Its shareholders' equity, which stood at $44.2 billion as of September 2015, has declined more modestly. It was $51.9 billion at year-end 2014.

ROE Analysis

ConcoPhillips' precipitous drop in ROE from 13.21% in 2014 to -2.04% for the 12-month period ending in September 2015 came as a result of a commensurately sharp decline in net income. Like all large-cap oil and gas companies, ConocoPhillips has struggled amid a crash in oil prices throughout 2015. Oil, which traded as high as $147 per barrel for a time in 2008, fell below $30 per barrel in 2015, its lowest price since the 1990s. The company's main competitors, Exxon Mobil Corporation (NYSE: XOM) and BP PLC (NYSE: BP), also saw their net incomes and ROE fall considerably from 2014 to 2015 -- though Exxon Mobil managed to keep both figures positive.

DuPont Analysis

A typical ROE analysis looks at net income and shareholders' equity separately and evaluates the effect that each has had on changes in ROE. The DuPont analysis, by contrast, breaks ROE into its constituent components of net margin, asset turnover ratio and equity multiplier and seeks to determine the influence each has on ROE.

ConocoPhillips' net margin for the 12-month period ending in September 2015 was -2.82%, down from 12.37% in 2014. A February 2016 press release from the company acknowledges that low commodity prices have squeezed its margins and, as a result, it is taking active steps to bring expenditures in line with its reduced revenue. It cut its quarterly dividend from 74 cents per share to 25 cents per share, lowered capital expenditures by $1.3 billion and reduced operating costs by $700 million.

Its competitors suffered falling margins as well, with Exxon Mobil's dropping from 7.89 to 6.73% and BP's declining from 1.05 to -3.06%. ConocoPhillips had the largest drop of the three, making it reassuring that the company has acknowledged the root of the problem and taken quick and decisive steps to address it.

ConocoPhillips' trailing 12-month asset turnover ratio is 0.32. This figure, which measures how efficiently a company generates revenue from its assets, has fallen steadily from 1.62 in 2011. Its influence on ROE appears moderate, though not as pronounced as that of net margin. Exxon Mobil and BP, both with asset turnover ratios of 0.85, have seen their asset turnovers slow down as well in the wake of the oil price collapse.

ConocoPhillips' equity multiplier for the 12-month period ending in September 2015 is 2.4. This figure has remained steady for a decade. While the company's equity position has fallen slightly, the company has also reduced its debt load, keeping the ratio between the two consistent. A silver lining for ConocoPhillips amid the oil collapse is, at least, the company is not overleveraged. Its equity multiplier sits squarely between those of Exxon Mobil (2.0) and BP (2.7).

Conclusions

ConocoPhillips' steep drop in ROE resulted from severe declines in net income and net margin, both symptoms of broader oil market malaise. On the bright side, the company has come forward with the steps it is taking to counter its declining revenue resulting from low oil prices, which involve slashing expenditures in several areas, such as dividends, capital expenditures and operating expenses. Every large-cap oil and gas company has suffered in the wake of the oil crash. Investors in ConocoPhillips should at least be comforted that the company is being proactive in responding to it.

Govt manages to raise just Rs 1,400 cr via gold bonds

The third and final tranche of the gold bonds fetched about Rs 400 crore in March 8-14 as against Rs 1,050 crore in second tranche in January and Rs 246 crore in November.

The third and final tranche of the gold bonds fetched about Rs 400 crore in March 8-14 as against Rs 1,050 crore in second tranche in January and Rs 246 crore in November.

The Centre managed to raise just Rs 1,400 crore through the sovereign gold bonds or only 9% of the target of Rs 15,000 crore in the current fiscal year, sources said.

The third and final tranche of the bonds fetched about Rs 400 crore in March 8-14 as against Rs 1,050 crore in second tranche in January and Rs 246 crore in November.

Even though the performance of the bond scheme was weak, it was even weaker for the gold monetisation scheme, both launched simultaneously to curb gold imports. Till March 15, sovereign gold bonds equivalent to a little over 5 tonne of gold were sold to investors while the mobilisation of gold was less than 2 tonne under the gold monetisation scheme (GMS).

“Both the schemes will be streamlined after taking into the performance in the pilot period. There may be some changes, especially, in the GMS,” one official said.

The finance ministry has convened a meeting on Friday to discuss how to make the GMS more attractive. The meeting, to be chaired by economic affairs secretary Shaktikanta Das, is expected to be attended by financial services secretary and representatives of the commerce ministry, the Reserve Bank of India, the World Gold Council, the Indian Banks Association and leading banks like SBI and ICICI Bank. Gold refiners are also expected to attend. The ministry had made some changes to the GMS, aimed at channelising household and temple gold, in January.

On gold bond scheme, aimed at weaning away investors from holding physical gold, officials said the response to the third tranche was probably weak due to cash shortages with people as it was fiscal year-end. The Centre has set a target of raising Rs 10,000 crore through sovereign gold bonds in 2016-17, as part of its market borrowing programme.

Sun Capital

Wilful default: 5,600 owe banks Rs 60,000 crore

SBI, the country’s largest lender, is owed Rs 12,091 crore, followed by another state-run lender PNB which has receivables of Rs 9,445 crore lent to 698 borrowers.

More than 5,600 borrowers, who owe banks close to Rs 60,000 crore, have been declared wilful defaulters by lenders as on December 31, data from credit information bureau CIBIL shows. 

More than 5,600 borrowers, who owe banks close to Rs 60,000 crore, have been declared wilful defaulters by lenders as on December 31, data from credit information bureau CIBIL shows. These instances of wilful default are those where banks have filed suits.

Not surprisingly, the country’s largest lender State Bank of India (SBI) is owed Rs 12,091 crore, followed by another state-run lender Punjab National Bank (PNB) which has receivables of Rs 9,445 crore lent to 698 borrowers. If the non-suit filed accounts are also considered, then close to a third of PNB’s gross non-performing assets (NPAs) of Rs 34,338 crore have resulted from wilful defaults. Of this amount of Rs 10,869 crore, the top 10 wilful defaulters together owe the New Delhi-headquartered bank Rs 3,554 crore.

Kotak Mahindra Bank has the highest amount of loans stuck with wilful defaulters among private sector banks at Rs 5,442 crore. Wilful defaults for private sector banks stood at Rs 10,250 crore and at Rs 463 crore for foreign banks.

According to RBI guidelines, a borrower is termed a wilful defaulter if he has defaulted in meeting the repayment obligations to the lender even when it has the capacity to repay, or has not utilised the money from the lender for the specific purposes for which finance was availed and has diverted the funds for other purposes.

Sun Capital

Hitachi invests Rs 100 crore to set up ATM making firm in India

Japan's Hitachi Group has set up an ATM manufacturing firm in India with an investment of Rs 100 crore to cash in on the growing number of banking users in the country.

Hitachi-Omron Terminal Solutions, which is globally developing the group's cash recycling ATM business, has set up Hitachi Terminal Solutions India in Bengaluru for manufacturing ATMs in the country.

The company will commence production in June and produce 1,500 ATMs per month by end of 2016, Hitachi said in a statement.

"To further accelerate the expansion of its ATM business in India, we have decided on local production," Hitachi-Omron Terminal Solutions President and Representative Director Tetsuji Shimojo said.

The move would allow Hitachi to accommodate the needs of the market, strengthen the cost competitiveness, shorten the production lead time from order entry to shipment and expand the business of ATMs, the company said.

Moreover, operations of the manufacturing company will contribute to job creation and economic development in India.

This initiative by Hitachi is aligned to the government's 'Make in India' program, it added.

"India is one of Asia's largest ATM markets on account of the country s high economic growth rate of (around) 7 per cent and because it is the world's second most populous country...

The Indian ATM market is expected to continue to expand in future," the company said.

Hitachi has deployed over 5,000 units of ATM in India by 2015 and at present, there are about two lakh ATMs and CDs (Cash Dispensing ATMs) operating in the country.

The Reserve Bank is promoting a financial inclusion policy, and financial institutions are increasing their investment in facilities and services. Therefore, further growth is expected in the ATM market in the future, Hitachi said.

Hitachi-Omron Terminal Solutions had entered Indian market on a full-scale basis in 2010 through sales of the cash recycling ATMs.

Sun Capital