Don't stunt real estate growth: K P Singh to RBI

New Delhi: Realty giant DLF's Chairman K P Singh has said that RBI's monetary policy should not stunt the growth of real estate sector and uninterrupted access to affordable finance is vital for this business.

High input and interest costs have already had an adverse impact on profits of DLF in the last fiscal 2011-12, while the entire real estate sector has faced formidable challenges due to global and domestic factors, Singh said.

"In my view, care should be taken in formulating monetary policies to ensure that tightening of credit aimed at combating inflation does not have the unintended side-effect of stunting the growth of the real estate development industry," Singh said in his annual letter to shareholders.

"Uninterrupted access to affordable finance is vital for the health of the urban infrastructure and housing sector," DLF chairman said.

Interest costs have increased significantly in the country in past couple of years, as the Reserve Bank of India (RBI) has cut its policy rates just once (in April 2012) after as many as 13 hikes since March 2010.

"During the year gone by, higher input and interest costs resulting from continuing high inflation had an adverse impact on profits," Singh said, while adding that DLF has managed to maintain operational stability with its strong market position and low-cost land banks in prime locations across India.

DLF recorded a marginal increase of one percent in its revenue to Rs 10,224 crore in 2011-12, while net profit plunged 27 percent to Rs 1,200 crore.

The company said that its profits were adversely impacted due to higher input cost with higher constructions costs due to continuing high inflation.

"At a time when Indian economy is experiencing a slowdown due to global and domestic turbulence and policy formulations aimed at curbing inflationary pressures having a depressing impact on productivity and growth, the real estate sector too is faced with formidable challenges," Singh said.

Singh said that the company has put in place prudent corporate strategies to mitigate risks by off-loading non-core assets and focusing on its strengths.

DLF unlocked Rs 1,774 crore during 2011-12 by divesting certain non-core assets, which included hotel plots, SEZs and IT parks.

"It is my firm belief that the housing and construction sector is poised to become the next big driver of growth in India ... With linkages to more than 250 ancillary industries, the housing and urban infrastructure sector has a major multiplier effect on the entire economy," he said.

DLF has said in its annual report for 2011-12 that the current economic and business environment are expected to stay challenging over the next few quarters.

Source: zeenews.india.com

Canada Firm Shakes Up Indian Stock Research

Reports by Veritas Investment Research has shaken
up Indian Stock Research. Shown, the Bombay Stock
Exchange in Mumbai, Aug. 8, 2011

Canadian equity research firm Veritas Investment Research has lately shaken up the usually complacent world of stock research in India by publishing several reports that question corporate governance at large Indian companies.

Stock analysts are sometimes loathe to write negative reports on companies in the clubby world of Indian business. Veritas, however, has written a number of scathing reports about Indian companies, making it a slew of enemies along the way.

The latest is the Indiabulls Group, a Mumbai-based company which itself began in broking but branched out to real estate and other business.

Indiabulls this week filed a police complaint against Veritas following a report from the research firm advising investors to sell stocks of Indiabulls-owned companies. Veritas alleged that disclosures at group companies Indiabulls Real Estate and Indiabulls Power are unreliable, and that “institutions and individuals should Sell all Indiabulls group stocks on the principle that corporate governance has been sacrificed to enrich the controlling shareholders.” Stocks of these and other group companies, including Indiabulls Financial Services, fell promptly thereafter.

Indiabulls has refuted these allegations, saying the Veritas report is “mala fide” and carries “gross incorrect data,” according to a regulatory filing on Thursday. Indiabulls has filed a police complaint against Veritas’ Canada-based executive vice president and head of research Neeraj Monga and analyst Nitin Mangal, the authors of the report, it said in its regulatory filing. Indiabulls alleges that Mr. Monga demanded money from the group for holding back the report.

Gagan Banga, a group spokesman and chief executive of Indiabulls Financial Services, said the complaint filed by the group alleged that Veritas intentionally stated wrong facts in its report. He also mentioned that the company plans to approach the Securities and Exchange Board of India, the capital markets regulator, to investigate the matter.

Mr. Monga and Veritas officials, based in Toronto, couldn’t be reached for comment. Mr. Monga told cable news channel ETNOW that information in the report was publicly available. “We have looked at publicly filed financial statement of Indiabulls groups entities over last five years, including 57 group companies including some private companies of controlling share holders,” Mr Monga said.

Mr. Monga has previously said that their reports are based on publicly available data, such as the company’s regulatory filings.

Veritas, which is not affiliated to a big bank or financial services company, prides itself on making bold calls. Its website says its clients include some of North America’s largest institutional and pension fund managers.

The Canadian company is no stranger to controversy in India, where it has raised questions about corporate governance at well-known firms.

Earlier this year, it issued a “Sell” call on Reliance Communications, saying the firm “is a house of cards.” Veritas said in its report that RCom’s accounting policies are “whimsical” and don’t provide a clear picture of the underlying operating and business trends, and added that the firm’s governance practices were “sub-optimal.” Reliance Communications said Veritas’ report was “full of factual inaccuracies and baseless allegations” and that its “report lacks any credibility and is mala fide.”

In March, it said DLF Ltd, India’s biggest realty company by sales, is a “A CRUMBLING EDIFICE,” adding that claims made by the management about its ability to execute projects were fanciful.

Some analysts find Veritas’ aggressive approach a refreshing change in India’s stock research world, where most analysts tend to agree with each other. “Veritas has barged in with research that has a strong emperor-has-no-clothes attitude to it,” said Dhirendra Kumar, chief executive of fund research firm Value Research India in a newspaper column earlier this year.

“The emperors in question are not just the actual target of the reports but also the entire activity of stock research in India,” wrote Mr. Kumar.

Analysts broadly agree that corporate governance at Indian companies needs to improve.

Mr. R. Jayakumar, of Institutional Investor Advisory Services, or IIAS, said analysts should verify data with the companies. But companies must give detailed explanations to investors, especially in cases where the management’s business practices or intentions are in question. He declined to comment specifically on Indiabulls Group.

In recent times, stocks of Indian companies that Veritas has written about have witnessed sharp falls in value, at least over the short term. The volatile movement in these stocks has mostly happened after Veritas’ observations are reported by financial media, including television news channels.

On Thursday, Indiabulls Real Estate stock closed provisionally up 0.8% at 54.85 rupees, Indiabulls Power was down 2.4% to 12.70 rupees, and Indiabulls Financial rose 0.8% to 211.45 rupees.

Source: blogs.wsj.com

DLF sees no respite from debt overhang, PAT down 38.5% in Q4

DLF has been trying to sell non-core assets including luxury resorts and windmill biz for the last two years without any success.

DLF Ltd, the country’s largest real estate developer by market cap, is not able to match its plans to deflate its ballooning debt through asset monetisation. The firm managed to cut its gross debt by a mere Rs 33 crore last quarter and ended with debt of Rs 24,238 crore as of March 31, 2012.

Higher debt on the books is eating up margins and DLF saw an interest outgo of around Rs 2,246 crore for the year ended March 31, 2012, up 30 per cent over the previous financial year.

In an earnings conference call on Thursday, the company management tried to assuage analysts that the firm would soon see through asset sale to deleverage the balance sheet. The company said it is expecting to close the transaction for its windmill portfolio, the Bombay Mills property (the land acquired from National Textile Corporation in Lower Parel, Mumbai) and Aman Resorts business in the next six months.

But, analysts tracking the real estate sector feel the firm needs to show some concrete moves in selling assets. For the fourth quarter ended March 1, 2012 the company managed to shrink its debt by a mere Rs 33 crore to end the quarter and fiscal with net debt of Rs 22,725 crore. The company's gross debt at the end of the March quarter stood at Rs 24,238 crore.

The windmill asset and Aman Resorts put together have a debt of Rs 1,700 crore.

DLF has been trying to sell these assets for the last two years without any success. The Gurgaon-based realtor has indicated that whatever amount it will generate from the asset sale it will use around Rs 1,000 crore for investing in further land acquisitions and construction costs. This means even if the asset sale materializes not all of it will go in paring the outstanding debt.

The company had earlier launched its Mall of India retail project spread across 3.5 million sqft area in Gurgaon but it has now been pushed to the backburner.

Under its commercial property business it has undertaken net leasing of 1.41 million sqft in FY12 as against 4.38 million sqft in FY11. In its residential segment, the developer clocked gross bookings of 13.5 million sqft in FY 12 as opposed to 10 million sqft in FY11.

For the quarter ended March 31, 2012, the firm reported 38.5 per cent decline in net profit over the year ago period to Rs 211.7 crore while sales were down 2.5 per cent to Rs 2,616.78 crore. In the last quarter, DLF took a one time hit of Rs 300 crore as construction cost after it moved its construction contracts to other third party firms like L&T and Shapoorji & Pallonji.

For the full year ended March 31, 2012, the company reported 26 per cent drop in consolidated net profit over the previous year to Rs 1,208 crore while net sales inched up 0.7 per cent to Rs 9,629.3 crore.

The debt laden company is also going to undertake a change in accounting method policy in coming quarters and it has re-introduced cost escalation charges in its agreements. The cost escalation will take place in proportion to the RBI index on raw material rate escalation for construction of projects. It is the first time the company will take this methodology and will implement on its next project.

Source:www.vccircle.com