Source (USIBC)
Policy/ Market News:
1. Price no bar,FIIs raise stake in realty cos (Press Trust of India, August 13)
2. Future realty IPOs to be valued more realistically (The Financial Express, August 9)
3. Strong Q1 show from realty, despite concerns (The Hindu, August 8)
4. OUTSOURCING, THE NEW BUG TO BITE REALTY (The Financial Express, August 11)
5. Now realtors look for roof over head (Times News Network, August 12)
Corporate News:
1. Shapoorji Pallonji realty targets $300m from PEs (Times News Network, August 13)
2. TCS to commission TRIL to develop properties (Press Trust of India, August 10)
3. Saffron to float Rs 300 crore domestic real estate fund (Private Equity Watch, August 10)
4. Mantri plans Rs 2,500-cr hospitality biz foray (Press Trust of India, August 5)
Policy/ Market News:
1. Price no bar,FIIs raise stake in realty cos (Press Trust of India, August 13)
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An analysis of the holding pattern of FIIs in 22 major realty firms shows a majority of them raised their stake in the April-June quarter as compared to the previous three-month period.
The FIIs increased their stake in 15 firms, including Unitech, Ansal Housing, DS Kulkarni and Indiabulls Real Estate. However, they decreased their holding in seven firms — DLF, Atlanta, Era Construction, Lok Housing, Mahindra Gesco, Madhucon Projects and Unity Infrastructure.
The share buying comes at a time when a few analysts believe that the country’s realty stocks are among the costliest in the world. Global investment services firm S& P has said real estate stocks in India are the most expensive and give lower returns than most emerging and developed markets such as China, Singapore, Hong Kong and Australia.
2. Future realty IPOs to be valued more realistically (The Financial Express, August 9)
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Experts feel that taking cue from Bangalore-based Purvankara Projects Ltd (which scaled down its issue price from Rs 500-525 to Rs 400-450 and even extended its closing date due to lack of investor interest), many realty IPOs that are scheduled to hit the market in the next few months will be “forced to price their shares at low rates”. Some of the developers who are planning launch their IPOs in the next few months are Emaar-MGF, BPTP and the AEZ Group.
Says stock analyst, Ashish Kapur, CEO, Invest Shoppe (I) Ltd, “The Purvankara IPO story is definitely going to have an impact on the forthcoming IPOs of realty companies. This will, in effect, bring back the valuation parameter. Valuations will now be normal and more realistic, a trend that is bound to benefit the investor.”
Adds Sanjeev J Aeren, MD, AEZ Group, “This has happened because of market situation and there is nothing to worry about at this moment. In fact, this can actually prove to be a blessing in disguise for future IPOs in the realty sector because now the companies will be extra cautious in evaluating their IPO price band.”
3. Strong Q1 show from realty, despite concerns (The Hindu, August 8)
Growth in revenues 65%, reported profits 119%
Our analysis of 20 prominent realty companies (excluding recently listed companies that do not have comparable quarterly numbers) reveals that revenues and reported profits grew by 65 and 119 per cent respectively over the previous year. Operating profits surged by 147 per cent over the same period. The sector appears to be enjoying super normal profits; attributable to a good number of companies having locked into low-cost land in earlier years.
Flat revenues
Quarterly earnings, however, may not be representative of the full-year prospects for real estate and construction companies, as they book revenue based on the progress of the projects, rather than units sold. Revenues as well as margins, therefore, tend to be lumpy. Companies such as Mahindra Gesco Developers and Ansal Properties & Infrastructure have reported flat revenues for the quarter. Bigger players such as Unitech, Parsvnath Developers and Anant Raj Industries witnessed sharp increases in their operating profit margins (OPMs), either aided by low-cost land or a move into high-end projects. On the other hand, Peninsula Land and Mahindra Gesco Developers witnessed a decline in OPM as a result of flat sales.
Strategies
The players are meanwhile, adapting their strategies to a possible slowdown in demand. A few bigger players, who run the risk of slow down in demand for their high-end (and high priced) housing projects have already forayed into middle-income housing. DLF has announced that its focus on middle-income housing would start showing up from the next quarter. Unitech has also stated that it is looking at developing mass housing to tap into this segment. With bigger players moving from the luxury to the middle-income segment, margins may be lower in the coming quarters, even if companies manage to clock higher volumes.
Interest rates impact
That realty companies are facing pressures from higher interest rates was visible from the two-fold increase in interest costs in the June quarter of 2007 over the previous year. This follows a similar expansion in 2006-07. Interest costs as a percentage of sales rose from three per cent for the June 2006 quarter to 4.5 per cent now. Bigger players, with ambitious plans, appeared to be more hurt than mid-sized players in this front. Unitech, Parsvnath Developers and Ansal Properties were among those companies where the impact was significant.
These companies may have been hurt after the Government banned the external commercial borrowing route for integrated township projects in May this year. Among the mid-sized companies, Prajay Engineers Syndicate has shown relatively more consistent growth than peers in that segment. Other income grew by 20 per cent; but was not driven by forex gains, which bolstered profits for many other sectors this quarter.
Despite the sterling show on earnings, realty stocks continued to be under pressure on the bourses, with concerns over the domestic interest rate scenario and the US sub prime market occupying centre-stage, rather than the quarterly numbers. While stocks of large companies hardly gained in response to quarterly earnings, smaller companies such as Prajay and Vijay Shanthi Builders witnessed some appreciation.
4. OUTSOURCING, THE NEW BUG TO BITE REALTY (The Financial Express, August 11)
Says Harinder Singh Hora, chairman and managing director of Realistic Realtors Pvt Ltd, a firm offering these services, "It's like the outsourcing trend which is followed in sectors like IT, food, HR consultancy, infrastructure, collection, manufacturing and logistics etc. Rather than getting into the hassles of hiring a team themselves, developers and investors alike now prefer to reap the advantages of outsourcing. The services provided include promotional activities, leasing, sales processes, accounting, finance, customer care and legal paperwork for a particular project." Internationally, transaction management has been successful in various areas of realty. The Indian realty sector being a booming but unorganised market today requires professional organisations who can implement transaction management and create a win-win situation for the client, developer, government and the end-user. The potential clients of this service include high-networth individuals, land parcel owners, corporates, investors, property funds or NRIs who have the funds but no relevant experience in real estate trade. Says Hora, "Transaction management reduces expenses, saves time, enhances efficiency, establishes a competitive advantage, and provides the necessary flexibility. Whether the client is entering in development, expanding, relocating, consolidating, looking to renew or restructure existing leases or trying to establish the best strategies for off loading its real estate investment, transaction management has all the answers."
5. Now realtors look for roof over head (Times News Network, August 12)
NEW DELHI: The supreme irony of life is that hardly anyone gets out of it alive. The anecdote couldn’t have been more spot on for real estate developers in India. For, real estate majors such as Parsvnath, Ansal API and others may be building housing and commercial projects for others but they themselves are struggling to find office space in the city.
Though now we have zeroed in on two-three locations, we’re still in dilemma where to move,” a senior official, who didn’t wish to be identified, told SundayET. The identified locations include a property in Gurgaon and their mall projects which are coming up at Delhi Metro Rail Corporation stations.
Ansal API is not far behind. The company has been jostling for about six months to find a place in Noida. “The negotiations are presently on. We don’t have enough space in our present office in Connaught Place. Hence, we have been exploring options. Our corporate office, in all probability, will come up in two years in Noida,” says Kunal Banerji, president, marketing, Ansal API.
Smaller players such as SNG Developers have also been trying to address the problem of office space since the past six months but it has met without any concrete result. “Limited supply of properties which match our requirements and unrealistic commercial terms has been the primary reasons for not being able to find a suitable place till now. We prefer the Central Business District (CBD). But then availability of a large area with all facilities such as parking, approachability etc is a problem in CBD. Hence we are now looking at Jasola, Noida and Okhla Phase II as alternative locations,” says Avneesh Kumar Singh, MD, SNG Developers.
Uppal Housing and Omaxe may be ready to shift to their new office spaces in Jasola but not before exhaustive effort. Uppal Housing, which has its present office in Panchsheel Enclave in Delhi, has developed an office space in Jasola in an area of 25,000 sq ft and is expected to move there in October. Omaxe is also expected to move most of its staff to the new Jasola office in the next one and a half years.
Corporate News:
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Shapoorji Pallonji realty targets $300m from PEs (Times News Network, August 13)
Sources said the deal—amongst the biggest private-equity plays in the Indian real estate sector—was imminent and might also involve a few more investors. It is believed that PEs could pick 15-20% stake in the recently-created holding entity of the group’s realty venture.
When contacted, Shapoorji Pallonji & Company director Jimmy Parakh said: “We are in talks with PE investors. But we have not concluded any deal. We are raising $300 million.”
The Mumbai-based 140-year-old construction group is developing real estate worth about $2 billion across India. The group’s realty arm is managed by Shapoor Mistry, the elder son of Pallonji Mistry, among the wealthiest Indians.
ET had earlier reported that Mistrys could opt for a significant PE play in the realty business. But the group’s earlier plan involved attracting investment in a series of SPV-driven projects.
These projects are mostly FDI-compliant and located at prime areas, which will attract substantial premium. It is also working on over 10 real estate projects in Mumbai, Pune, Hyderabad, Chennai, Kolkata, Delhi, Nagpur and Mysore.
2. TCS to commission TRIL to develop properties (Press Trust of India, August 10)
TCS have entered into a Memorandum of Understanding (MoU) with TRIL for developing properties for the IT company on land owned or to be owned by it.
The MoU covers eight properties located at Pune, Trivandrum, Kochi, Ahmedabad, Hyderabad, Kolkata, Nagpur and Mangalore about 380 acres acquired or to be acquired by TCS, the company said in a statement to the Bombay Stock Exchange.
Under the MoU, properties would be developed in a phased manner over the next few years. The buildings would be constructed and owned by TRIL (or by Special Purpose Vehicles set up by TRIL) and would be leased to TCS.
TCS and TRIL are both promoted by and subsidiaries of Tata Sons Ltd.
Shares of TCS were last trading at Rs 1133.55, down 1.13 per cent on the BSE.
Tata Power orders equipment for Mundra from Japan's Toshiba
Mumbai, Aug 10 (PTI) Tata Power Company Ltd today announced it has given a contract to Japan's Toshiba Corp for supply of five 800-MW steam turbine generators for the 4,000- MW Mundra ultra mega power project in Gujarat.
The scope of work for Toshiba would include design, manufacture, test and supply of equipment related to the steam turbine generators.
The Japanese power equipment manufacturer would also supervise the commissioning of the turbines.
"This partnership will provide an excellent technical solution for Mundra which is also cost competitive," Tata Power Managing Director Prasad R Menon said in a filing to the Bombay Stock Exchange.
However, the company did not divulge financial details of the deal.
The Tata Group company has already placed an order for boilers with Korea's Doosan Heavy Industries and Construction Co Ltd. The contract included supply of super critical boilers for five 800-MW units that the Mundra project contains.
The company bagged the Mundra project in December last year. It had acquired Coastal Gujarat Power Ltd, a special purpose vehicle formed for Mundra by the Power Finance Corporation.
Toshiba Corp Vice President (Thermal and Hydro Power Systems and Service Division) Atsuhiko Izumi said: "We are happy to partner with Tata Power for first of the ultra mega power projects."
3. Saffron to float Rs 300 crore domestic real estate fund (Private Equity Watch, August 10)
Saffron Asset Advisors, which manages investments of NYSE Euronext-listed real estate investment company Yatra Capital, is planning to raise a domestic realty fund of Rs 300 crore and a bouquet of offshore sector-specific funds in logistics, hospitality, health care, retirement homes and infrastructure.
The $150 million logistics fund will invest in warehouses, frozen houses, port capacity, airport cargo hubs and package houses across the country.
The fund manager is also planning a $100 million hospitality fund and $200 million-$ 250 million health care fund which will invest in the respective assets, said Ajoy Veer Kapoor, managing director, Saffron Asset Advisors.
“We want to become an end-to-end long-term fund management house for niche segments across the country. We believe in good operators, there is good liquidity available and are working in that direction. Within twelve months, we want Yatra to invest $1 billion in realty projects,’’ Kapoor said.
Though Yatra has been investing in FDI-compliant realty projects in the country, Kapoor said they wanted to invest in alternative assets which did not fall in the FDI, in less than 25 acre properties.
The fund manger is hoping to invest anywhere between Rs 4,000 crore and Rs 5,000 crore in the next five years and is expecting 20-25 per cent returns.
In order to make foreign investments in real estate more stringent, government had introduced Press Note 2 for foreign direct investment (FDI), which stipulates a minimum of 10 hectares for housing plots and 50,000 sq metres for development projects.
Even in terms of investments for foreign firms, it stipulates $10 million for wholly-owned subsidiaries and $5 million for joint venture with Indian developers.
“For tier IV or V cities there is no need of malls of 1 million sq feet or half-a-million sq feet. Malls of 75,000 to one lakh sq feet will suffice. We are looking to invest these kind of projects. We are actively looking at cities including Agra, Bhavnagar, Vishakhapatnam, Nagpur apart from metros including Bangalore, Kolkata, Hyderabad since prices are overheated in Mumbai and Delhi,’’ he said.
In December 2006, Yatra raised $100 million on the Amsterdam-based NYSE Euronext and invested the same in realty projects. Yatra also invested 3.73 million euros in The Phoenix Mills, thereby acquiring 0.88 per cent stake in the company.
Yatra is also raising $140 million in September from NYSE Euronext, which Kapoor is confident of investing in the 6-9 months. Yatra bought out Eredene Mauritius for 18.07 million euros from Eredene Capital PLC recently. Eredene had invested in realty projects in Indore, Nashik, Bangalore earlier with advice from Saffron.
Stagnancy in returns from property assets in western markets and better returns from Indian real estate have made many international investors including Goldman Sachs, Blackstone, Citigroup, Morgan Stanley to invest in Indian real estate. Indian entities including ICICI, HDFC and Kotak have also launched dedicated property funds.
According to industry estimates, as much as $2.5 to $3 billion has been committed by private equity funds to invest in Indian realty this year.
4. Mantri plans Rs 2,500-cr hospitality biz foray (Press Trust of India, August 5)
MUMBAI: Realty major Mantri Realty will foray into the hospitality business and has drawn up plans to set up two five-star hotels and a clutch of three and four-star hotels across India by 2010.
The total investment in the business is envisaged at around Rs 2,500-crore, of which Mantri will be bringing in Rs 800-crore as its equity investment. The remaining Rs 1,800-1,900-crore will be sourced through debt and strategic investors.
"We plan to invest Rs 800-crore as our equity in the venture and have a network of 10 hotels with 2,500-rooms pan-India by 2010," Mantri Realty's Chairman Sunil Mantri said.
Negotiations are currently underway with three leading hotel chains for managing its hotels. The three entities are a subsidiary of Hyatt, one Isreali-based company and an upcoming domestic hotel chain, Mantri said, without disclosing their identities.
A subsidiary will be set up for the business and around 25-30 per cent will be off-loaded to a couple of strategic partners. "We will finalise our financial partners by early 2008," Mantri said.
Two five-star hotels will be set up in Bangalore and Hyderabad, while three and four-star hotels would be set up in Sholapur, Nagpur, Goa, Pune and Hyderabad.
"Our hotels in Goa, Sholapur and Hyderabad should be up and running by 2009, while our five-star hotels should be ready by 2010," Mantri said.
