Realty firms likely to see muted sales, profits in March quarter

 Property market in Delhi NCR remains under pressure; Mumbai continues to see sales volumes only in select residential projects

Top real estate companies are expected to post muted sales and profits in the January-March quarter compared to a year ago due to limited project launches, tepid cash flows and weak consumer sentiment.

The property market in the national capital region (NCR) remains under pressure, while Mumbai continues to see sales volumes only in select residential projects. Demand for Rs.1 crore-plus houses is weak in Bengaluru and Pune, while mid-income housing continues to see reasonable offtake.

However, even as residential sales remain lacklustre, a key positive that has emerged over the past four quarters is a pickup in leasing activity for office space, especially in Bengaluru.

“New project launches remained subdued during the quarter, with developers focusing on clearing existing inventory rather than launching new projects at a time when demand is sluggish,” said Sandipan Pal, an analyst with Motilal Oswal Securities Ltd.

Some of the launches in the quarter were Godrej Properties Ltd’s second phase of The Trees in Mumbai, Mahindra Lifespace Developers Ltd’s Vivante in Mumbai and Sobha Ltd’s International City in Gurgaon.

“While a general slowdown prevails in real estate markets across the country, NCR remains the worst-affected,” Pal said.

So far this year, the BSE Realty Index has fallen 0.51%. On Monday, it closed at 1,337.41 on BSE, up 4.4% from the previous close. India’s top two developers, DLF Ltd and Oberoi Realty Ltd, are expected to post lower sales and profits for the three months ended March, due to the lack of new launches and limited revenue recognition from projects.

DLF, the largest developer by market value, may see its March quarter net profit fall by 16.5% to Rs.143.25 crore compared to the corresponding quarter a year ago, according to a Mint poll of six brokerages. Its revenue is likely to marginally rise by 3.61% to Rs.2,023.5 crore.

“While DLF’s revenue is expected to be driven by older projects, operationally, we expect a weak quarter in terms of pre-sales with no new launches. Net debt is likely to increase on account of weak operating cash flow. The key monitorable will be update on progress of promoters’ stake sale in the annuity business,” said a report by IDFC Securities Ltd.

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DLF recently sought expressions of interest from top global investors to sell a 40% stake in its rental assets arm as it seeks to pare debt. The rental assets arm holds about 20 million sq. ft of leased-out office space and is valued at about $2 billion. Multiple investors are likely to buy stakes in the office rental unit.

Sequentially, DLF is expected to post a drop of 17.1% and 24.4%, respectively, in net profit and revenue, according to the Mint poll.

On Monday, shares of DLF rose 2.4% to Rs.124.95 on BSE.

Mumbai-based Oberoi Realty is expected to post a 14.1% drop in net profit to Rs.88.48 crore from a year ago, while its revenue may see a sharp drop by 31.3% to Rs.235.80 crore.

“Oberoi didn’t have any launch in the fourth quarter, and will see a decline in sales booking on a year-on-year and quarterly basis. The third quarter was an eventful one for Oberoi, which launched its big Borivali project then and witnessed revenue recognition from its Esquire project,” said Adhidev Chattopadhyay, an analyst at Elara Securities Ltd. Quarter-on-quarter, Oberoi Realty may see a 53.1% and 67.9% fall in net profit and revenue, respectively.

Oberoi Realty rose 17.7% to close at Rs.279.85 on BSE after The Economic Times reported that Swedish furniture retailing giant Ikea is in talks with the developer to buy a built-to-suit retail space for more than Rs.900 crore in suburban Borivali. Oberoi Realty told BSE said that no transaction has taken place yet.

Slowdown woes apart, developers also struggled to meet their annual sales guidance owing to delays in approvals, making it tough to launch projects on schedule.

“FY16 is the third consecutive year where Sobha Ltd has missed its annual sales guidance with 3.4 million sq. ft of sales worth Rs.2,010 crore versus guidance for 4 million sq. ft of sales worth Rs.2,600 crore,” said an Elara Securities report. Even Prestige Estates, which had set an annual sales target of Rs.5,500- 5,800 crore for 2015-16, revised it in the course of the year.

While Godrej Properties continued to sell well in projects such as the second phase of Trees, a key monitorable will be if its debt levels remain in check, said analysts. Developers such as Oberoi Realty and Kolte-Patil Developers Ltd, among residential players, have low debt even as sales remain tepid.

Bengaluru-based Prestige Estates and Brigade Enterprises Ltd have robust annuity portfolios mainly due to their office projects, coupled with a strong residential launch pipeline.

DYK: How a good monsoon can impact you

Since inflation and interest rates are linked, the effects of a good monsoon season will have an impact on agricultural incomes, the overall market sentiment, and even policy action.

The three days that the equity market was open for trading in the previous week, S&P BSE Sensex went up 837 points. This cheer was on account of, among other things, a favourable monsoon forecast for the year. On 11 April, the government said that the El Nino condition is declining, and that La Nina effect is likely to takeover leading to a good monsoon. On 13 April, Sensex closed at its highest levels in nearly three-and-a-half months at the same time the India Meteorological Department (IMD) forecasted an above-normal monsoon. Stocks of agri-input and agri-equipment companies and those that depend on the rural economy for revenues (such as two-wheelers), saw an increase in share prices.

MONSOON AND THE AGRICULTURE SECTOR

El Nino is usually associated with scarce rainfall or even a shift in the monsoon season, i.e., late rains or a withdrawal. La Nina, on the other hand, usually has the opposite impact, and brings more rainfall.

The progress of monsoons is a key driver for the agriculture industry. A recent Kotak Institutional Equities report stated that the monsoons have been playing a bigger role, especially since financial year 2013, in the absence of high growth in the minimum support price (MSP) of key crops.

As per the Economic Survey 2015-16, 25 crops are covered by MSP. This is the minimum price that the government assures farmers for their produce in case of a steep fall in market prices. The government announces prices at the beginning of the sowing season. Due to failed rains in the past two years, MSPs have only risen marginally.

According to the Economic Survey, the agriculture sector employs 48.9% of the workforce, and its share in gross domestic product (GDP) was 17.4% in 2014-15. However, the growth in agriculture GDP and its allied sectors saw a fall of 0.2% during 2014-15. So, a good monsoon this year could translate into increased agricultural productivity and possibly an increase in MSPs.

IMPACT ON YOU

MSPs play a key role in driving cereal inflation, and also affects prices of other agricultural products (read more herehttp://bit.ly/1myXflv). Since inflation and interest rates are linked, the effects of a good monsoon season will have an impact on agricultural incomes, the overall market sentiment, and even policy action.

Do keep in mind that these are early days, and the monsoons are about two months away. IMD will release its final forecast in June-July. But if the rains are indeed good, agricultural GDP can see an increase, as will rural income and consumption. This will benefit stocks of companies in sectors such as fast-moving consumer goods (FMCG), agri-inputs, and even rate sensitives sectors such as auto and banking.

Good rains also bode well for borrowers. Reserve Bank of India (RBI) governor, Raghuram Rajan, has said that there will be room for cut in policy rates if inflation continues to ease and the monsoon is in line with the forecast. In 2015, RBI had cut rates by a total of 125 basis points, and on 5 April this year, it cut the repo rate by 25 basis points. One basis point is one-hundredth of a percentage point.

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Narrowing gap between WPI, CPI inflations

Commodity prices, with a large weight in WPI, have recovered a bit while food prices, which have a large weight in CPI, are coming down

Arvind Subramanian, the government’s chief economic adviser, should be pleased. Almost a year ago, he had made the point that the real rate of interest faced by Indian producers, based on the Wholesale Price Index (WPI), was much higher than that faced by consumers, based on the Consumer Price Index (CPI). At that time, the divergence between wholesale and retail price inflations was very high.

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But that is changing rapidly. The chart shows the trajectories of CPI-based and WPI-based inflations. Note that, for September 2015, the difference between the two measures of inflation was 9 percentage points. For March 2016, the difference has narrowed to 5.68 percentage points. The chart shows how the two inflation measures are converging.

The reason, of course, is that commodity prices, with a large weight in WPI, have recovered a bit while food prices, which have a large weight in CPI, are coming down.

While CPI-based inflation is expected to remain around 5%, it’s likely that WPI inflation will edge up, narrowing the gap further. The real rates of interest faced by producers and consumers will converge.

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Indian rupee: choosing to remain the underperformer

 Foreign inflows picked up in a big way in the month of March when foreign portfolio investors bought over $4 billion in Indian equities, reversing outflows seen in the first two months of the calendar year

The monster rally in the US dollar, which started in mid-2014 and extended through most of 2015, has been steadily unwinding.

The Dollar Index, which measures the currency against a trade weighted basket, has dropped about 5.5% since December 2015. The drop in the dollar began after the US Federal Reserve indicated fewer interest rate hikes in 2016 than earlier expected. Since then, incoming data and the Fed’s concerns about the global economy have ensured that the dollar remains under pressure, although it traded higher in the US trading session on Wednesday.

The weakness in the dollar and the accompanying resurgence in risk-appetite have pushed up emerging market assets, including Asian currencies. Since the start of December, the Malaysian ringgit has gained 9%, the Indonesian rupiah has gained 5%, while the Thai baht and the Philippine peso have risen 2% each.

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In contrast, the India’s rupee’s flat performance over this period makes it seem like an underperformer. This underperformance, though, is largely by choice and it may stay that way for most of this year. The reason is that the Reserve Bank of India (RBI) has chosen to mop up most of the incremental dollar flows that have come in, partly to avoid volatility in the rupee but also as a way to tackle the domestic liquidity shortage.

Foreign inflows picked up in a big way in the month of March when foreign portfolio investors bought over $4 billion in Indian equities, reversing outflows seen in the first two months of the calendar year. As the direction of flows reversed, RBI was quick to step in and buy dollars. This prevented an unnecessary spike in the currency but, more importantly, helped infuse rupee liquidity into the domestic markets, where cash was in short supply. Some in the market even argue that it would be the latter that was guiding RBI’s interventions rather than the former.

While the precise data for how much the central bank bought in March is still to come, a $14-billion increase in forex reserves between the week ended 26 February and 1 April suggests that RBI absorbed a sizeable amount of the inflows. Forex reserves now stand at a record $360 billion.

Since then, RBI has altered its liquidity stance dramatically and said that it will move away from maintaining a liquidity deficit for ensuring that liquidity is neutral. It will do this through a mix of forex operations and bond buying.

In fact, RBI governor Raghuram Rajan explained that the amount the central bank infuses through bond buys will be the residual amount required after accounting for interventions in the forex markets. “Given our target growth rate for durable liquidity, the amount that we infuse or take out will be the residual amount after accounting for interventions in the foreign exchange market,” said Rajan in an interaction with the business journalists on 5 April, when RBI’s monetary policy was released.

Rajan, however, added that RBI won’t do forex interventions only to manage liquidity. “That would have its own logic,” he added.

Luckily for RBI, even the standalone logic of forex markets allows it considerable space to absorb flows, and in turn, add liquidity to the domestic markets. As this column has consistently argued, the rupee remains overvalued on a real effective exchange rate (REER) basis. As such, holding the currency near current levels or allowing it to depreciate slowly by absorbing any excess flows would be logical. Put differently, RBI’s new liquidity framework provides an implicit guidance to the forex markets, which suggests that the rupee may see little or no appreciation this year, even if the dollar continues to weaken and other emerging market currencies rally on the back of strong inflows.

Some currency strategists have started to adjust their forecasts following RBI’s changed liquidity stance. In a note on Tuesday, Nizam Idris, head of foreign exchange and fixed income strategy at Macquarie Bank, pegged down the 3-month forecast for the rupee to 67 against the dollar from 66 earlier. The six-month forecast has been adjusted to 68.50 to a dollar from 67.50 earlier.

What remains uncertain is how RBI would tackle a period of outflows. Given the unstable world we live in, the probability of an event that sparks off another bout of risk aversion remains high. If that happens and flows reverse, RBI may find itself in a spot.

The significant build up in reserves means that the central bank has sufficient firepower to intervene, but if it steps in to sell dollars aggressively, it will suck out rupee liquidity. The heavier the intervention through dollar sales, the greater will be the need to infuse liquidity through bond market operations.

This could mean that RBI will intervene by selling dollars only if absolutely necessary. In contrast, it will buy dollars far more willingly. The implication—the rupee may retain a neutral to depreciating bias this year.

While some (most notably, foreign investors and overseas borrowers) may complain about that, in the grand scheme of things, it’s a positive development.

Modi government to integrate 21 mandis in 8 states under online platform

NEW DELHI: The government will integrate 21 regulated wholesale markets, or mandis, in eight states under an online platform on Thursday as part of the proposed National Agriculture Market (NAM). "On April 14, on the 125 birth anniversary of BR Ambedkar, Prime Minister Narendra Modi will launch the e-trading platform — NAM — which proposes to integrate 585 regulated wholesale market or agriculture produce market committees (APMCs) under one electronic platform," said agriculture minister Radha Mohan Singh said on Wednesday.

This will ensure farmers get competitive returns and consumers get stable prices and steady availability, he said.

NAM is envisaged as a pan-India electronic trading portal that seeks to network the existing Agriculture Produce Marketing Committee (APMC) and other market yards to create a unified national market for farm commodities.

"The national e-market platform will allow transparent sale transaction and price discovery of commodities," Singh said.

Currently, there are more than 7,000 wholesale markets in the country. States selected for the pilot project include Gujarat, Telangana, Rajasthan, Madhya Pradesh, Uttar Pradesh, Haryana, Jharkhand and Himachal Pradesh.

"Initially 12 commodities, including chana (black gram), castor seed, paddy, wheat, maize, turmeric, onion, mustard, mahua flower, tamarind and shelling pea, will be traded on e-platform and not in the physical market," Singh said.

Government officials said while sale of agri produce shall continue through mandis, an online market would reduce transaction cost, provide single license valid across all markets, and maintain quality standard with provision of quality testing and single point levy of market fees.

The agriculture minister also said that food grain production in the country in 2016-17 will be better than the previous year. In 2015-16 (July-June), food grain production is expected to be 253.2 million tonnes from 252 million tonnes in the previous year, which was also a deficit monsoon year.

A bumper production will keep a check on inflation, ensure steady supplies of commodities and remunerative price to farmers.

Asked if he expected food grain production to touch the 2013 record of 263 million tonnes, Singh said, "that was a record food production the country had and we will make a comparison of production with the previous year."

PM Modi pitches for Rs 1 lakh crore investment for port development

MUMBAI: Pitching for making the country's 7,500-km long coastline an "engine of growth", Prime Minister Narendra Modi today said India wants to mobilise Rs 1 lakh crore investment to enable port development and invited global community to invest.



Inaugurating the first Maritime India Summit (MIS) here, Modi said it is the "right time" to come and better through the "sea route".

"Our vision is to increase port capacity from 1,400 million tonnes to 3,000 million tonnes by 2025. We want to mobilise an investment of Rs 1 lakh crore in the port sector to enable this growth," the Prime Minister said after opening the MIS 2016.

India, according to Modi, plans to add five new ports to meet increasing demand of Exim trade, which is expected to rise in line with the fast-growing Indian economy. New ports are also being developed by several coastal states of India.

Making out a strong case, the Prime Minister said Indian shipping sector is ready for "a long haul" and called upon investors not to miss out on "the pleasant journey and great destination".

Modi added: "It is even better time to come through the sea route... Once you are here, I assure you that I will personally hold your hands to see that your berthing is safe, secure and satisfactory."

Paying tribute to Baba Saheb Bhim Rao Amdedkar on his 125th birth anniversary, Modi said the architect of India's Constitution is also the architect of the country's water and river navigation policy.

Elaborating on the government's plans for the sector, Modi referred to the shipping ministry showcasing some 250 projects with investment opportunity in the maritime sector.

These projects include various infrastructure development opportunities in 12 major ports, projects in eight maritime states and other agencies, of which over 100 projects have been identified under the ambitious Sagarmala programme.

"With more than 14,000 kilometers of navigable inland waterways in the country, there is tremendous potential for development in this sector. My government is committed to integration in infrastructure. We are also committed to creating an enabling environment for investors and facilitating investments with an open mind," he added.

On the need for collaboration, the Prime Minister said it not just creates and facilitates economic activity, but connects countries and civilisations. He termed it as "the cleanest and cheapest carrier" of global trade.

"However, in this sector, no country can achieve the desired results in isolation. Nations have to collaborate to realise this potential and overcome challenges in this sector. The objective of this summit is to provide a platform and a forum for such cooperation," he stressed.

"India has had a glorious maritime history. We are on the path of shaping an even better maritime future."

The overriding theme in Modi's speech was to modernise India's ports and integrate them with special economic zones, port-based smart cities, industrial parks, warehouses, logistics parks and transport corridors. 

Seeking partnership, Modi made a specific reference to rating agency Moody's recent appreciation of the Make in India initiative. 

"We have done a lot of corrections on the front of ease of doing business. We have jumped 12 ranks in the World Bank's ranking," the Prime Minister said, adding India has liberalised the licensing regime, including that of defence and ship-building sectors. 

Backing up his assertions, he said FDI inflows have gone up by 44 per cent since his government took over. 

"In fact, 2015-16 has seen the highest ever FDI inflow into India," Modi noted. 

In 2015, India saw the highest-ever volume of cargo handled by its major ports. Port efficiency parameters have improved and India notched up fastest average turnaround time in ports in the same year, he added. 

"In the last two years, our major ports have added 165 million tonnes of capacity with record addition each year. 94 million tonne capacity was added by these ports in 2015-16 alone, which is the highest ever," he said. 

The Prime Minister said the shipping ministry is showcasing about 250 projects with investment opportunity in the maritime sector. These projects include infrastructure development opportunities in 12 major Ports, projects in eight maritime states and other agencies. 

The initiatives would create employment opportunities of approximately 10 million jobs over the next 10 years, which includes 4 million direct and 6 million indirect jobs, he added. 

Modi also touched upon more than 14,000 kilometers of navigable inland waterways in the country with tremendous potential. 

Speaking at the same event, Union Shipping and Ports Minister Nitin Gadkari said: We've launched Project Unnati for major ports and already, there has been a 30 per cent increase in efficiency... We plan to double the port capacity in the next 10 years, which will include building 6-8 major ports at an investment of Rs 50,000 crore." 

Plans are also afoot for developing 40 coastal SEZs which would create 1 lakh jobs. 

Kim Young Suk, Minister of Oceans and Fisheries, South Korea, called for tapping similarities of both India and South Korea. 

"India is well endowed with growth through oceans and South Korea is well positioned to offer its technology and expertise to support India," Kim added. 

Governor of Maharashtra K Vidyasagar Rao, Chief Minister Devendra Fadnavis, Gujarat Chief Minister Anandiben Patel and Secretary General of IMO, Kitack Lim, were present.

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Patanjali’s success may lead to a FMCG rejig

At a time when most companies were charging a premium for organic products, the fact that Patanjali’s products are cheaper than most other competing brands did the trick.

ET Intelligence Group: Patanjali has emerged as a serious threat for mainstream FMCG companies especially for the likes of Colgate Palmolive, Dabur and Emami. Brokerages such as Credit Suisse have downgraded Colgate Palmolive to neutral as Patanjali toothpaste eats into the market leader's share.

There is a strong likelihood of more earnings downgrades to follow as Patanjali products continue to garner market share in packaged foods and personal products. The fourth quarter performance of FMCG companies could well provide the fresh triggers.

At a time when most companies were charging a premium for organic products, the fact that Patanjali's products are cheaper than most other competing brands did the trick.

"Besides adopting a different marketing model of starting with its own stores, Patanjali also appeals to the 'spiritual' lot thanks to its brand ambassador," said an analyst tracking the FMCG industry.

So, what are FMCG companies doing and is it enough to stave off the threat? They have responded with strategies ranging from rejuvenating old herbal brands (HUL with its Ayush brand) and acquiring new ones (HUL buying Indulekha and Emami buying Kesh King) to investing in brand building. Yet, these measures are unlikely to provide relief in the short term. The benefit of advertising starts trickling in after a lag. Same is the case with brand acquisitions and revival of old brands. A more immediate impact could be realised through price cuts on the mass market products. The recent industry drive of premiumisation introducing high value premium products could give way to introduction of more mass market products.

The moot question is will Patanjali, as the proverbial new kid on the block, turn out to be a game changer for the industry or just a new fad that may fizzle out soon. With multitude of products and plans to aggressively expand in more categories, Patanjali is running the risk of spreading itself too thin, too fast resulting in unsustainable growth. Besides, a good monsoon (as forecast) could improve the overall consumer sentiment increasing the size of the pie for all marketers.

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