How will the Covid-19 pandemic impact Nifty companies' earnings in Q4FY20?

Margins in some sectors could improve due to soft raw material prices.

In Q4FY19 Nifty sales/EBITDA/PAT grew nearly 10 per cent/6 per cent/16 per cent year-on-year (YoY), respectively. Hence, the base as far as earnings before interest, taxes, depreciation, and amortisation (EBITDA) and profit after tax (PAT) is concerned, is high in Q4FY20. However in Q4FY19, profitability was driven largely by banks. Excluding banks, the PAT growth was slow at <2 per cent. The topline growth for Nifty companies in Q4FY19 was the slowest since Q3FY17.

COVID 19 would impact the performance of Nifty companies and overall corporate sector in Q4FY20 and Q1FY21. In Q4FY20, we could see a decline in both the topline and bottomline in Nifty companies on a YoY basis. Analysts will rework their FY21 estimates lower after Q4FY20 results and management commentary.

Will margins benefit from lower input costs?

Margins in some sectors could improve due to soft raw material prices. However, this advantage could be partly nullified by lower operating leverage, especially due to lockdown in the last 10-11 days of March.

Which sectors may be relatively better, which will be worst affected?

Telecom would report better performance due to tariff hike wef December and higher data usage in March, both of which could pull up the average revenue per users (ARPUs) of telecom companies. FMCG (essential categories) could do well, aided by lower input costs. Pharma companies could report better numbers but their Q1FY21 performance could get impacted due to lack of patient visits to doctors and delayed surgeries and also disruption in manufacturing. City Gas distribution companies could do well, especially those who are less dependent on CNG volumes.

Indian-American steps in to help WeWork sustain itself

Sandeep Mathrani replaces Artie Minson and Sebastian Gunningham, the co-chief executives.

WeWork, the troubled operator of shared office space, has named Sandeep Mathrani, a senior executive at the commercial real estate company Brookfield Properties, as its new chief.

Mathrani replaces Artie Minson and Sebastian Gunningham, the co-chief executives. Minson and Gunningham took over in September from Adam Neumann, the WeWork co-founder whose growth-at-all-costs strategy brought the company to the brink of financial collapse last year.

In a statement, Mathrani said WeWork had “redefined how people and companies approach work with an innovative platform, exceptionally talented team and significant potential if we stick to our shared values and maintain our members-first focus”.

The appointment of Mathrani, who is set to start on February 18, would be an important part of WeWork’s attempts to build a business that could sustain itself in the fast growing but highly competitive market for flexible office space.

Mathrani has been chief executive of Brookfield’s retail division since August 2018, according to his LinkedIn page.

The naming of an experienced real estate executive is a clear indication that WeWork is moving on from Neumann’s strategy of building a sprawling company with lofty aims that included transforming how people work and live together.

He had promoted WeWork as if it were a groundbreaking technology company set on upending its industry. The firm had also branched out well beyond office space, establishing sleek dormitories for working professionals and even a private school in Manhattan.

International News

DHFL diverted Rs 12,700 cr into 79 shadowy firms linked to promoters: ED

In its books, these loans sanctioned to 100,000 fictitious retail customers.

Dewan Housing Finance (DHFL) diverted Rs 12,773 crore of loans to 79 shadowy companies allegedly associated with its promoters in the garb of retail loans to about 100,000 fictitious customers between 2010 and 2015, according to the Enforcement Directorate (ED).

The ED, which is probing the DHFL promoters' role in financing funds to gangster Iqbal Memon (alias Iqbal Mirchi), said Kapil Wadhawan, former chairman and managing director of the debt-laden company, played a very crucial role in these “nefarious transactions” by way of money laundering.

Wadhawan was arrested by the agency earlier this week in connection with the money-laundering case linked with properties involving Mirchi. He was remanded in ED custody till Friday.

“This appears to be a scam of wider ramifications wherein the preliminary investigation conducted indicates that more than Rs 12,700 crore have been diverted illegally, and the ‘orchestrator and prime conspirator’ for the scam was Kapil Wadhawan,” the ED said in its enquiry report. The agency said the search operation was underway to unearth further incriminating documents and records, and that it was suspected that the quantum of scam might increase.

Books of accounts of DHFL showed that Rs 2,186 crore loans (of the Rs 12,773 crore) were given to five companies — Faith Realtors, Marvel Township, Able Realty, Poseidon Realty, and Randon Realtors, which later got amalgamated with Sunblink Real Estate, a company which has been under the ED lens for its transactions with Mirchi properties.

Kapil Wadhawan first diverted huge funds from DHFL to the five shell companies and later amalgamated them with Sunblink to cover the alleged diversion of loans acquired from DHFL, the ED said. These five entities and Sunblink are inter-related and have been used and controlled by Kapil Wadhawan to layer and obfuscate the origin on monies, it noted.

These loans were disbursed and diverted in five to six years (2010-2016), when in 2010, Kapil’s brother and DHFL promoter Dheeraj Wadhawan bought three properties in Worli, Mumbai, from Mirchi in the name of Sunblink. This deal was allegedly finalised for surrender of tenancy rights in favour of Sunblink for Rs 225 crore. The source of the amount paid in India towards the deal, Rs 111 crore, was arranged by DHFL and RKW Developers.

RBI's policy surprise: Pause on rate cuts may hit real estate, auto sectors

Real estate developers were expecting a rate cut of 50 to 100 basis points.

Business Standard : The Reserve Bank of India’s (RBI’s) move to pause rate cuts will hit the beleaguered real estate and auto sectors hard. These sectors were expecting another rate cut by the central bank to help revive sagging consumer demand.

CEOs said benefits from the previous rate cuts are yet to play out completely and the real estate industry is still reeling from the liquidity crisis as consumers are not coming forward to buy new houses or cars.

Real estate developers were expecting a rate cut of 50 to 100 basis points which would have provided a boost to the government’s recent initiatives to rev up the economy.

“One-time roll over to restructure bad loans would have been a logical step across industries. Thus, the decision to wait and watch the outplay of the previous cuts will go against the current sentiments,” said Niranjan Hiranandani, MD of real estate firm Hiranandani Constructions.

A rate cut would have helped the balance sheets of builders, which are defaulting on bank loans as customers are not booking under-construction flats as they fear the developer won’t be able to complete the project in time. Several builders like Peninsula Land in Mumbai have failed to repay bank loans. Customers are not booking new homes even though builders have reduced prices of their under-construction flats by 20 per cent in Mumbai.

“Customers don't want to take any risk with an under-construction project which, in turn, has stopped the cash flow to builders,” said a Mumbai-based developer. The automobile companies said a further cut in the interest rates would have helped them sell cars to fence-sitters, who are waiting for a better deal. India’s largest carmaker Maruti Suzuki’s domestic sales fell 1.6 per cent year-on-year in November. Other carmakers, too, reported fewer sales.

“With the RBI cutting the GDP growth forecast by a whopping 170 basis points, the industry is again staring at an uncertain future,” said a luxury auto dealer in Mumbai.

At the same time, a rate cut would have helped banks and NBFCs (non-banking finance companies) to revive their sagging credit growth. Sale of new home loans and auto loans from NBFCs have slowed down after the DHFL scam came to light. 

The retail loan growth rate had slowed to 7.3 per cent in the first half of 2019 -- slowest growth in the last five years. On the other hand, personal loan growth accelerated to 17.2 per cent in October 2019, from 16.8 per cent in October 2018, the RBI data showed.

Moody's lowers Macrotech Developers' rating again, this time to Caa1

The earlier B3 rating was itself a downgrade, by Moody's this August, and indicating hightened credit risk.

Global rating firm Moody's Investors Service has downgraded the corporate family rating (CFR) of Macrotech Developers (earlier known as Lodha) to Caa1, from B3. A rating of Caa1 is given to entities with high credit risk.

The earlier B3 rating was itself a downgrade, by Moody's this August, and indicating hightened credit risk. On Tuesday, Moody's also downgraded the backed senior unsecured rating of the dollar-denominated bonds issued by Lodha Developers International and guaranteed by Macrotech, to Caa1 from B3.

"The downgrade to Caa1 reflects continued uncertainty with respect to the refinancing of Macrotech's upcoming debt maturities," says Sweta Patodia, a Moody's analyst. "While the company has made some progress in its refinancing efforts, its measures to date do not completely alleviate the significant refinancing risks." She is also Moody's lead analyst for Macrotech. MDL now has in place an executed loan agreement for $155 million, secured against the unsold inventory at Lincoln Square, one of its London projects. However, drawdowns under this facility remain subject to receiving the practical completion certificate for all units at the property, expected by next month.

The management estimates that practical completion certificates have come for about 75 per cent of the units in the development, Moody's said.

Macrotech expects to secure another credit facility of around $195 mn against the unsold inventory at Grosvenor Square, its second London project. Documentation for this facility is in progress and likely to be completed over the next few weeks, it said. "These two facilities constitute the company's primary source to refinance the upcoming bonds. However, given that the facilities cannot be drawn down immediately, and remain subject to the fulfilment of certain conditions, liquidity risk remains elevated," says Moody's.

In addition, the company plans to set up a rupee-denominated facility, to be secured against the inventory at its Indian operations.

Business Standard

Fresh funds likely to help housing projects move out of 'stuck' status

The completed and sold projects will start the repayment cycle, reducing bad loans.

The permission to use the Rs 25,000-crore fund for the real estate sector announced by the Union government on Wednesday to revive projects declared non-performing assets or even sent to the National Company Law Tribunal (NCLT) is likely to reduce the stress on the books of lenders.

Senior officials of public sector banks said the fine print was still awaited, but the new fund will help move projects out of the “stuck” status.

The completed and sold projects will start the repayment cycle, reducing bad loans. Bankers said while lenders were getting repaid, clear rules should be in place about who gets paid first.

Amit Goenka, managing director and chief executive officer at Nisus Finance, said the alternate investment fund proposed by the government should have a bottoms-up approach.

The affordable housing projects stuck or delayed should get priority in funding, as that would bring in a large number of competed dwellings in the market.

Along with the AIF, the regulator and the government need to work on a one-time restructuring scheme for good projects which are stuck or delayed for want of funding and approvals.

This will unclog many problem accounts and lead to substantial reduction of stress for banks and NBFCs, said a source who did not want to be named.

Business Standard

Realty firms may raise over $25 bn in 3 years via REITs: Anarock report

Earlier this year, global investment firm Blackstone and realty firm Embassy group launched India's first REIT to raise Rs 4,750 crore.

Real estate developers may raise more than $25 billion over the next three years by listing their rent-yielding commercial properties through the Real Estate Investment Trusts (REITs) route, according to realty consultant Anarock.

Earlier this year, global investment firm Blackstone and realty firm Embassy group launched India's first REIT to raise Rs 4,750 crore. Their joint venture firm Embassy Office Parks listed its rental assets on the exchanges.

"Commercial REITs may raise over $25 billion for Indian real estate over the next three years. This involves the listing of more than 150 million sq ft of rent-yielding Grade A office properties across top seven cities - covering 25-30 per cent of the overall Grade A office space in these cities," said Shobhit Agarwal, MD & CEO Anarock Capital.

Currently, the top seven cities -- Delhi-NCR, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad and Pune -- have close to 550 million sq ft Grade A office supply - of which 310-320 million sq ft is 'REITable' as of now, he added.

"The recent success of India's first listed REIT offers much-needed hope to the beleaguered real estate sector. The enthusiastic response to Embassy Office Parks' REIT launch - and its more-than-satisfactory performance - is priming investors for similar REIT opportunities, which in turn will open up more funding avenues for the sector," Agarwal said.

Several large developers are keen to list their commercial assets, he added.

According to Anarock, Prestige Group is planning to list its first commercial REIT very soon and has already started segregating its residential, office, retail and hospitality businesses. It may also launch a retail REIT as and when the opportunity arises.

Other players in the REIT fray are RMZ Corp, K Raheja Corp, Godrej Properties and Panchshil Realty.

"REITs would help commercial developers improve their liquidity by unlocking the value of their assets to raise capital. For big and small investors, it is a highly de-risked investment route offering annual returns of as much as 12-14 per cent over the long-term - an attractive proposition when viewed against more volatile asset classes," Agarwal said.

Business Standard

Danger ahead: $63-bn stalled real estate projects a threat for Indian banks

As lenders stop new credit, builders are forced to offload properties.

Business Standard : Ashish Shah is caught in the middle of India’s latest financial crisis. As chief operating officer of Radius Developers, he’s struggling to fund construction of apartment complexes because of a liquidity crunch in the nation’s bloated shadow-banking sector.

“Real estate is a sitting duck,” said Shah. “The timing is very crucial as the slowdown has hit the real estate market quite hard. The industry can’t service interest, new interest, additional interest, because there is no cash flow.”

Radius and hundreds of other developers relied on loans from what India calls non-banking financial companies (NBFCs) to fuel a five-year property boom. That came to a halt a year ago with the default of one of the shadow banking sector’s leading lenders, Infrastructure Leasing & Financial Services Ltd. The resulting credit squeeze has left builders such as Radius and Omkar Realtors & Developers Pvt. looking for support, or, like scandal-hit Housing Development & Infrastructure Ltd., filing for bankruptcy.

There are $63 billion of stalled residential projects across the country, according to Anarock Property Consultants, and their developers have become locked in a downward spiral with shadow banks. As lenders stop new credit, builders are forced to offload properties. Prices fall, causing more real estate loans to turn sour, pushing more shadow banks toward default.

In turn, that has cast a shadow on traditional banks and dried up funding to other businesses, putting more stress on an already slowing economy.

For Radius, the crunch started when one of its main lenders, Dewan Housing Finance Corp., shut off new loans as it attempts to restructure some $12.7 billion debt to avoid bankruptcy. Shah said he gained a temporary reprieve by selling a project to Blackstone Group Inc., but like all builders, his company needs cash to operate while projects are being built.

Edelweiss Financial Services Ltd. and Indiabulls Housing Finance Ltd., which have some of the largest exposures to the sector, are also tightening funding.

The risks of exposure to real estate were underlined by the scandal surrounding HDIL. The Reserve Bank of India abruptly imposed withdrawal curbs on a small cooperative bank that it said had under-reported loans to the developer. The decision triggered panic withdrawals from the bank, prompting the RBI to issue a statement to reassure the public that the banking system is “safe and stable.”

India's mini-Lehman moment: Bankruptcies double at real estate developers

The growing number of insolvencies highlight Indian property developers' inability to complete apartments and meet their debt obligations amid the funding crisis.

The number of Indian real estate companies tipped into insolvency has doubled in less than a year since the collapse of a key shadow bank, an event often compared to the Lehman crisis that squeezed American funding markets a decade ago.

As many as 421 developers entered bankruptcy court by the end of June, up from 209 in September 2018, around the time when the government seized control of Infrastructure Leasing & Financial Services Ltd.

The move triggered a credit crunch for smaller financiers and property firms, which depend on funds from shadow lenders.

The numbers will probably increase, according to Vivek K. Chandy, joint managing partner at law firm J. Sagar Associates.

Of the 421 cases, 164 have been closed, he said, which means they were resolved, withdrawn, or the companies faced liquidation.

The growing number of insolvencies highlight Indian property developers’ inability to complete apartments and meet their debt obligations amid the funding crisis. The crunch is feeding into -- and worsened by -- an economic slowdown that is hitting Indians’ demand for goods and services.

“Banks have become more vigilant. Markets are not too good, money is tight, compliance has increased,” Chandy said. “Home owners have now become financial creditors by legislation, so they will be able to put more pressure on real estate companies and can start insolvency proceedings.”

Business Standard

Tax saving tips: Invest in real estate and save tax on LTCG

Taxpayers can save the taxes on the gains by availing the benefit of tax exemptions allowed under the Indian tax laws.

Investments in real estate are borne out of savings made out several years of earnings. These investments have both monetary value and emotional value for investors. 

Individuals buy and sell real estate to reinvest in upcoming real estate projects, to meet growing family needs, to move to another location of choice etc. Since real estate investment involves a large amount of money, the sale of property results in large gains. Tax may have to be paid on these gains unless they have been invested. Let’s find out how to save tax on sale of a property.

Taxpayers can save the taxes on the gains by availing the benefit of tax exemptions allowed under the Indian tax laws. The law allows a taxpayer to invest in real estate and avail the benefit of exemptions on taxable gains realised on the sale of assets or real estate.

A.Tax saving exemptions:

I.Investment in real estate upon exit from a real estate property

Individuals who have earned gains upon exit of a residential house and wish to reinvest in another residential house can avail of an exemption from taxation of the capital gains.

For example:

Mr A sells his residential house on 5th April 2018 for Rs 50,00,000. Mr A had bought the house for Rs 20,00,000 on 25th March 2013. With the proceeds of the house, Mr A purchases a new residential house for Rs 60,00,000.

To claim this exemption the property which is sold should have held by a taxpayer for more than 2 years.

The above exemption is now extended w.e.f 1 April 2019 to investment in 2 residential properties (once in a lifetime benefit), the one condition being that the gains are not above 2 crore rupees.

II.Investment in real estate upon the sale of any other asset

Individuals who have earned gains upon sale of any other asset and desire to invest in a residential house can avail an exemption from taxation of the capital gains. Other assets would include land, gold etc.

Business Standard

Bengaluru, Gurugram among top 5 locations in APAC for tech firms: Report

The study has ranked 15 cities of Asia Pacific in three categories based on their performance with regard to business conditions, innovation environment, and cost and availability.

Bengaluru and Gurugram are among the top 5 preferred destinations in Asia Pacific to set up offices by technology companies because of better business conditions as well as availability of engineers and real estate for growth, according to a report.

The report by property consultant CBRE said technology companies continue to fuel office demand in the APAC region, despite absence of any principal city or cluster of the same status as Silicon Valley. Technology sector accounted for 23 per cent of total leasing activity in 2018.

Keep Reading : Business Standard

The study has ranked 15 cities of Asia Pacific in three categories based on their performance with regard to business conditions, innovation environment, and cost and availability.

Business conditions and innovation environment were each given a weightage of 40 per cent while cost, a relatively less important consideration for tech firms, was given 20 per cent weightage.

"Leading cities are Beijing, Bengaluru, Shanghai, Singapore and Gurugram. These cities score highly in terms of business conditions and innovation environment, as well as providing costs and availability that are supportive for business growth," the report said.

These cities are preferred destinations for a wide range of traditional and new tech companies seeking to establish a base of operations in Asia Pacific.

Hyderabad figures in the list of five competent cities along with Hangzhou, Shenzhen, Tokyo and Seoul. These cities already host tech industry sub-sectors and demonstrate solid performance across most categories.

Five 'supplement cities' are Hong Kong, Hsinchu, Sydney, Taipei and Auckland. These cities rate favourably on certain important aspects, but their most appropriate role is to serve as host for specific functions to complement larger hubs elsewhere in the region.

"India is home to an increasing number of tech unicorns and Asia Pacific is increasingly defined as the region leading in the rapid adoption of disruptive technology.

"However, there is still room for growth in terms of identifying locations where business conditions, innovation and talent come together to form a globally competitive digital hub," said Anshuman Magazine, Chairman and CEO, of CBRE India.

Magazine, who also heads South East Asia, Middle East and Africa business, said improved access to incubator and accelerator programmes and a vast pool of skilled IT talent based in Delhi-NCR and Bengaluru have supported the cultivation of new ideas.

Singapore home prices fall most since 2016, luxury hardest hit

The private residential property index dropped 0.6% from 2018's last quarter, preliminary data from the Urban Redevelopment Authority showed on Monday.

Singapore’s private residential prices fell the most in two-and-a-half years in the first quarter, with values of high-end homes have the biggest decline in a decade, following last year’s surprise tightening of property market curbs.

The private residential property index dropped 0.6 per cent from 2018’s last quarter, preliminary data from the Urban Redevelopment Authority showed on Monday.

It was a second consecutive fall after a 0.1 decrease in October-December.

Monday’s data showed that prices in Singapore’s prime districts fell 2.9 per cent - the biggest fall since the second quarter of 2009, according to consultancy Cushman and Wakefield. Prime districts include luxury homes in the Orchard Road shopping area and Sentosa, an island resort.

“Multiple dosage of cooling measures coupled with stronger headwinds in the macroeconomic condition has started to weigh down buying demand,” said Christine Li, Singapore head of research for the consultancy.

Li forecast overall prices to be flat this year.

To counter what they said was “excessive exuberance” in the city-state’s property market after a spike in prices last year, authorities in July slapped higher stamp duties on property purchases for individual home buyers and tightened housing loan limits.

They also unveiled stricter guidelines on the maximum number of units in new blocks of private flats and condominiums to tackle the development of so-called “shoebox units”.

Business Standard