Winning Strokes: Think Different

Unitech Ltd (Rs.5.86), continued its upward journey even yesterday, as the stock made an intra-day high of Rs.5.91 in the BSE before closing at Rs.5.86; with a whooping volume of 170.01 lakhs. According to my close sources, the company is taking various measures to bring it back to track. The stock is expected to double in the next 30-45 days. The Wikipedia says: "Unitech Limited is India's second largest real estate investment company, and has recently claimed to be the largest real estate builder in the country". Moreover, there are hopes that the capital market regulator, the SEBI will consider proposals for relaxed norms for the REITs and an easier set of compliance rules for foreign fund managers keen to relocate to India.

The scrip of Jaiprakash Associates Ltd (J P Associates Ltd) today moved to Rs.7.65, before cooling down at Rs.7.51, in the BSE. The stock would have closed near Rs.7.57-7.59 ranges, however, late selling pulled the price down.  The total loans of Jaiprakash Associates, the real estate and infrastructure company, stand at Rs.58,250 crore against a market capitalisation of less than Rs.2,000 crore. The RBI recently came up with Sustainable Structuring of Stressed Assets, a system that allows banks to partly own borrower companies. Most of the analysts have pointed out that many lenders may be forced to opt for a “haircut” or forego part of their principal and interest rates to prevent these loans from turning bad - - this is indeed music to the shareholders of J P Associates Ltd. The promoters holding in the company stood at 39.38 % while Institutions and Non-Institutions held 27.02 % and 33.59 % respectively. All time high of Rs.308.86 on 4 January 2008. Today the percentage of Deliverable Quantity to Traded Quantity was whooping 41.40%, indicating huge accumulation, by the prudent investors. Moreover, the formation of Doji, with a long upper shadow, indicates that bullishness in its share price is likely to continue, for more time. Therefore, the investors are suggested to buy the scrip in every decline; as it is likely to test Rs.10.5 - 14 soon.

Jaiprakash Associates Ltd has withdrawn itself from some of its cement markets in north India as part of streamlining its operations even as lenders continue to prod the firm to shed assets and pare debt.

My another recommended counter, Lanco Infratech Ltd today made an intra-day high of Rs.4.79, before closing at Rs.4.73. The Economic Times, today wrote: "The government is mulling an additional Rs 25,000 crore allocation to roads, railways and power sectors over and above the allocation made to them in the Union Budget, potentially providing a mid-year boost to public spending". This stock will make new highs in this fiscal and hence add it on all declines. 

Meanwhile, the union Finance Minister Arun Jaitley participated in the First Annual General Meeting of Asian Infrastructure Investment Bank (AIIB) held at Beijing in China on last Saturday. Outlining Indias development paradigm, Jaitley said that India has undertaken reforms in FDI and initiated large investments in rural infrastructure, national highway, inland waterways, shipping, power sector and smart cities etc.

Speaking on the role of AIIB, the Finance Minister said: AIIB presents a much needed additional financing window dedicated to infrastructure projects and meeting the financing gap that may be beyond the capacity of the individual countries and the existing MDBs. India has a huge unmet demand for investment in infrastructure and is preparing basket of projects worth US$ 2-3 billion for AIIB funding in the areas of Urban Development (including Smart Cities), Energy, Urban Transport, Railways, Inland Waterways and Water Supply.

India’s infrastructure output grew an annual 8.5% in April, at its fastest pace in 17 months, mainly helped by a favourable base effect, government data showed.

The output expanded 2.7% for the fiscal year 2015/16 that ended on March 31, compared with a 4.5% growth in the previous fiscal year, the data showed on Tuesday.


Electricity production grew 14.7% and fertiliser output jumped 7.8% in March from a year earlier, the data showed.

In another significant development, highlighting that LIC's core focus would be infrastructure investment, the life insurer has decided to be a partner in India's first sovereign wealth fund earmarked for infrastructure sector, reported Press Trust of India. The Rs.40,000-crore National Investment and Infrastructure Fund (NIIF) will be owned by the government and other partners in a 49:51 ratio. 

The NIIF was set up to attract foreign and domestic investments into the infrastructure sector, and is effectively a government-owned investment manager.While an initial budgetary allocation of Rs 4,000 crore has already been made to NIIF, more funds will be allocated going forward, the government said in a release on Monday. The NIIF could soon operationalise initiatives along with the Qatar Investment Fund, the Abu Dhabi Investment Authority and JSC Rusnano of Russia.

The Economic Times, wrote June 29, 2016: The performance of the corporate sector has improved in the past year as the number of leveraged companies has fallen and the amount of debt in companies' books has also declined, Reserve Bank of India (RBI) said in its bi-annual Financial Stability Report (FSR). 

There is no stopping of Punjab National Bank and Allahabad Bank Ltd. Punjab National Bank made an intra-day high of Rs.105.50, before closing at Rs.104.20. The stock of Punjab National Bank Ltd, which recommended at Rs.79 and later asked to accumulate on all declines, is looking slightly overbought on the chart. 

Winning Strokes: Think Different

Unitech Ltd (Rs.5.86), continued its upward journey even yesterday, as the stock made an intra-day high of Rs.5.91 in the BSE before closing at Rs.5.86; with a whooping volume of 170.01 lakhs. According to my close sources, the company is taking various measures to bring it back to track. The stock is expected to double in the next 30-45 days. The Wikipedia says: "Unitech Limited is India's second largest real estate investment company, and has recently claimed to be the largest real estate builder in the country".

The scrip of Jaiprakash Associates Ltd (J P Associates Ltd) today moved to Rs.7.65, before cooling down at Rs.7.51, in the BSE. The stock would have closed near Rs.7.57-7.59 ranges, however, late selling pulled the price down.  The total loans of Jaiprakash Associates, the real estate and infrastructure company, stand at Rs.58,250 crore against a market capitalisation of less than Rs.2,000 crore. The RBI recently came up with Sustainable Structuring of Stressed Assets, a system that allows banks to partly own borrower companies. Most of the analysts have pointed out that many lenders may be forced to opt for a “haircut” or forego part of their principal and interest rates to prevent these loans from turning bad - - this is indeed music to the shareholders of J P Associates Ltd. The promoters holding in the company stood at 39.38 % while Institutions and Non-Institutions held 27.02 % and 33.59 % respectively. All time high of Rs.308.86 on 4 January 2008. Today the percentage of Deliverable Quantity to Traded Quantity was whooping 41.40%, indicating huge accumulation, by the prudent investors. Moreover, the formation of Doji, with a long upper shadow, indicates that bullishness in its share price is likely to continue, for more time. Therefore, the investors are suggested to buy the scrip in every decline; as it is likely to test Rs.10.5 - 14 soon.

My another recommended counter, Lanco Infratech Ltd today made an intra-day high of Rs.4.79, before closing at Rs.4.73. The Economic Times, today wrote: "The government is mulling an additional Rs 25,000 crore allocation to roads, railways and power sectors over and above the allocation made to them in the Union Budget, potentially providing a mid-year boost to public spending". This stock will make new highs in this fiscal and hence add it on all declines. 

Meanwhile, the union Finance Minister Arun Jaitley participated in the First Annual General Meeting of Asian Infrastructure Investment Bank (AIIB) held at Beijing in China on last Saturday. Outlining Indias development paradigm, Jaitley said that India has undertaken reforms in FDI and initiated large investments in rural infrastructure, national highway, inland waterways, shipping, power sector and smart cities etc.

Speaking on the role of AIIB, the Finance Minister said: AIIB presents a much needed additional financing window dedicated to infrastructure projects and meeting the financing gap that may be beyond the capacity of the individual countries and the existing MDBs. India has a huge unmet demand for investment in infrastructure and is preparing basket of projects worth US$ 2-3 billion for AIIB funding in the areas of Urban Development (including Smart Cities), Energy, Urban Transport, Railways, Inland Waterways and Water Supply.

When the Smart City mission was launched in June last year, the Prime Minister had set a target of creating 100 Smart Cities by 2022 with an initial government investment of Rs 50,000 crore.


On the first anniversary of the Smart City mission this Saturday, PM Narendra Modi launched a slew of new proposals in Pune. The proposals range from plain slum rehabilitation, sewage treatment plants and plastic bottle recycling to new-age Information and Communications Technology (ICT) solutions such e-pathshalas, intelligent transit management system, intelligent street poles and multi-purpose smart cards across all modes of public transport. 

There is no stopping of Punjab National Bank and Allahabad Bank Ltd. Punjab National Bank made an intra-day high of Rs.105.50, before closing at Rs.104.20. The stock of Punjab National Bank Ltd, which recommended at Rs.79 and later asked to accumulate on all declines, is looking slightly overbought on the chart. 

In a spectacular move, one of my earlier recommended counters, ARSS Infrastructure Ltd (Rs.83.60), hit the upper circuits yesterday, continuing its winning run; after the company's JV won a Rs.44 crore order from the Indian Railways for earthwork in Odisha. The scrip had gained 20% in the previous session too.

Today's Calls: 

1. Buy Axis Bank Ltd at Rs.515, T: Rs.540, SL: Rs.507.

2. Buy Jaiprakash Associates Ltd (J P Associates Ltd) at Rs.7.58, T: Rs.10.5-12.40, SL: Rs.6.7 (on closing basis).  

3. Buy JSW Energy Ltd at Rs.80.40, T: Rs.91-97, SL: Rs.76.

The Economic Times, wrote today: 

The government is mulling an additional Rs 25,000 crore allocation to roads, railways and power sectors over and above the allocation made to them in the Union Budget, potentially providing a mid-year boost to public spending. 
All three ministries — road transport and highways, railways and power — are currently in advanced talks with the finance ministry to secure additional allocation. 

This is going to push up the demands for the stocks in the Infrastructure, Banking and Power Sectors. Those who are already holding the shares of J P Associates Ltd should further accumulate, on intra-day declines. 

Moreover, both Unitech Ltd (Rs.5.85) and J P Associates Ltd (Rs.7.58) have good land reserves. Unitech Ltd has a whopping land reserves of 300 mn sq. ft or 30 crore sq. ft. Now if we put Rs.3000 per sq.ft  and then calculate the value of the land bank of Unitech Ltd, how much does it come? Just do it please... :)  

Today's Calls: 

1. Buy Axis Bank Ltd at Rs.515, T: Rs.540, SL: Rs.507.

2. Buy Jaiprakash Associates Ltd (J P Associates Ltd) at Rs.7.58, T: Rs.10.5-12.40, SL: Rs.6.7 (on closing basis).  

3. Buy JSW Energy Ltd at Rs.80.40, T: Rs.91-97, SL: Rs.76.

The Economic Times, wrote today: 

The government is mulling an additional Rs 25,000 crore allocation to roads, railways and power sectors over and above the allocation made to them in the Union Budget, potentially providing a mid-year boost to public spending. 
All three ministries — road transport and highways, railways and power — are currently in advanced talks with the finance ministry to secure additional allocation. 

This is going to push up the demands for the stocks in the Infrastructure, Banking and Power Sectors. Those who are already holding the shares of J P Associates Ltd should further accumulate, on intra-day declines. 

Moreover, both Unitech Ltd (Rs.5.85) and J P Associates Ltd (Rs.7.58) have good land reserves. Unitech Ltd has a whopping land reserves of 300 mn sq. ft or 30 crore sq. ft. Now if we put Rs.3000 per sq.ft  and then calculate the value of the land bank of Unitech Ltd, how much does it come? Just do it please... :)  

Axis Bank Ltd: Buy

CMP: Rs.515

Edelweiss maintains a buy rating on Axis Bank Ltd with a 12-month target price of Rs.585. 

The brokerage house says, even in a tough scenario, the bank will deliver a return on equity of 16-17%. The strong operating metrics and strengthened liability franchise also lend comfort.

Meanwhile, Axis Bank has sought approval of shareholders to raise Rs.35,000 crore through multiple instruments including green bonds and from overseas markets. The approval would be sought at Axis Bank’s 22nd Annual General Meeting of shareholders on 22 July. The funds, which would be within the overall borrowing limits of the bank, will be raised in one or more tranches on a private placement basis. 

The Reserve Bank of India (RBI) on 31 May 2016, notified that Foreign Institutional Investors (FIIs)/Registered Foreign Portfolios Investors (RFPIs) can now invest up to 62% of the paid-up capital of Axis Bank, from existing 49% under the Portfolio Investment Scheme (PIS). 

The central bank further notified that the total foreign investment from all sources i.e. Foreign Institutional Investors (FII)/Registered Foreign Portfolios Investors (RFPIs)/Foreign Direct Investment (FDI)/Non-Resident Indians (NRI)/ Persons of Indian Origin (PIO)/American Depository Receipts (ADR)/Global Depository Receipts (GDR) in the bank shall not exceed 62% of paid-up capital. The central bank has stated that Axis Bank has passed resolutions at its board of directors' level and a special resolution by the shareholders, agreeing for enhancing the limit for the purchase of its equity shares and convertible debentures by FIIs/RFPIs. The purchases could be made through primary market and stock exchanges, RBI said. 

Axis Bank is a high beta stock (1.16) and is trading well above its 50-day, 100-day and 200-day moving average of Rs.500.17, Rs.456.33 and Rs.460.02, respectively, as per data collated by ETMarkets.com. The stock is trading with a P/E of 14.89 and P/B of 2.29.
 

Reliance Power Eyes Rs 714 Crore From Tilaiya Procurers

[Editor: Buy the shares of Reliance Power Ltd at the CMP of Rs.48.80, for a short term target of Rs.53, SL: Rs.47.60.

Reliance Power reported 15.8% rise in consolidated net profit at Rs..20.16 crore for the fourth quarter ended March 31, 2015-16 on the back of higher power generation. It had posted net profit of Rs.276.47 crore in the January-March quarter of 2014-15.

The promoters holding in the company stood at 74.98 % while Institutions and Non-Institutions held 10.48 % and 14.21 % respectively. At Rs.48.80, the stock traded above its 200 DSMA.]

New Delhi. June 27, 2016: After pulling out of Tilaiya UMPP on a host of issues, Reliance Power is looking to secure a total of Rs 714 crore as bank guarantees and compensation from 18 procurers of the electricity project.

Of this, Rs 600 crore will be in the form of bank guarantees the procurers had offered to buy electricity and another Rs 114 crore as compensation for various expenses incurred by the Anil-Ambani led company.

The formalities with the 18 procurers in 10 states for the release of money are at final stage and the company hopes to achieve closure very soon, a person familiar with the matter said.

The power producer had in April last year given up the project, saying the host state, Jharkhand, had not co-operated in land acquisition, captive blocks and related infrastructure over the previous five years.

If it can get the bank guarantees of the procurers encashed, it would be a big relief for Reliance Power, which on June 21 was served a show-case by the Coal Ministry asking it to explain the reasons for delays in developing coal mines allocated for the Tilaiya project.

"You are called upon to show cause... as to why the delay in the development of the coal block should not be held as violation of the terms and conditions of the allocation of Kerandari B&C coal block and why the bank guarantee should not be deducted for non-achievement of milestones," the ministry said in the notice.

The Coal Ministry has a bank guarantee of Rs 208 crore for Kerandari B&C coal blocks allocated for the Tilaiya project.

Responding to the notice, Reliance Power has said it "terminated PPA for Tilaiya UMPP entered into with 18 procurers nearly 14 months ago. The PPA termination was due to prolonged delay in fulfilment of the procurers' development period obligations in respect of land for the power plant and coal mine for more than 5 years".

"The procurers led by the Lead Procurer, Jharkhand, Urja Vikas Nigam (JUVNL) have already accepted the termination in November 2015," it added.

The company further said the Power Finance Corporation (PFC), the nodal agency for ultra mega power projects (UMPPs), has also recommended PPA termination due to procurers' event of default and communicated the same to the Ministry of Power and the Ministry of Coal.

The company also added that it had replied to a similar notice from the Coal Ministry in January 2014 and there was no communication from the ministry on this thereafter.

A person involved in the settlement process said the procurers are in the last lap to acquire Jharkhand Integrated Power, the special purpose vehicle for Tilaiya UMPP, from Reliance Power.

In November 2015, the offtakers of Reliance Power's 4,000-mw Tilaiya UMPP in Jharkhand had agreed to terminate their power purchase agreements (PPAs) and compensate Reliance Power for costs and bank guarantees aggregating Rs 714 crore.

Reliance Power had bagged the project in 2009 through competitive bidding by quoting a tariff of Rs 1.77 per unit.

The company in April 2015 announced its exit from the project, citing a five-and-a-half-year delay in handing over of land for the project.

The project, which required 17,000 acres, was offered the Kerendari B&C coal block as a captive mine. The company had also said the project, which was to come up by 2015-17, would not be completed before 2023-24, given the prevailing status of land acquisition.

The termination of the PPAs will reduce Reliance Power's future capital expenditure burden by nearly Rs 36,000 crore, thereby avoiding an additional debt burden of nearly Rs 27,000 crore as well as an equity commitment of Rs 9,000 crore.

This fits in well with the parent Reliance Group's larger business architecture for future as it focuses on the capital-intensive defence manufacturing.

The group is also making efforts to lighten its financial load in telecom and other sectors. Reliance Power too has shifted its focus to renewable energy.

Courtesy: NDTV Ltd

“Bracksies”: how Brexit could wind up not actually happening...

Please Click on the Photo to Expand

June 25, 2016: Fun fact: Brexit, the United Kingdom’s narrow vote to exit the European Union, is not actually legally binding.

The Prime Minister, be it David Cameron (who has resigned but could remain in office until October) or his successor (almost certainly pro-Brexit former London mayor Boris Johnson) can simply decide to ignore the result. 

In practice, it’s hard to see that happening; the voters have spoken, and politicians are loath to overturn the express will of the people.

But Cameron still hasn’t done the one thing he needs to do to ensure that the UK actually exits: invoke Article 50 of the Treaty on European Union. And until he does, there are still ways he could keep Brexit from happening.

What is Article 50?

Here is the meat of Article 50, which establishes the procedures for a member state to withdraw from the EU:

1. Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.

2. A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.

3. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.

No country has ever invoked Article 50 before, so it’s still a little unclear how the whole process will work. But it appears that the order of operations is as follows:

The Prime Minister informs the European Council — the EU body comprising the heads of state/government of its member nations (Angela Merkel, François Hollande, etc.) — that the UK intends to leave.

The Council would then meet amongst itself and agree on a framework for the United Kingdom’s withdrawal.

Using that framework, the European Commission (the appointed executive branch of the EU, led by former Luxembourgish prime minister Jean-Claude Juncker) negotiates the precise technical terms of exit with the UK.

Once the deal is reached, it enters into force if the Council and the European Parliament both agree.

This whole process is supposed to take no longer than 2 years; after that period of time, if no deal has been reached, the UK automatically exits the European Union without any special deal letting it retain trade preferences or other benefits. However, the Council and UK can unanimously decide to extend that two-year period if they like.

Does this mean Brexit could just, like, not happen?

Absolutely — as long as Article 50 isn’t invoked. "Once Article 50 is invoked, the process is irreversible," Slate's Joshua Keating notes. "The UK can't back out."

But there’s no requirement that the UK invoke Article 50 in a timely fashion. Indeed, both Cameron and Johnson have said they think it’s appropriate to dawdle; Cameron says he’ll leave the decision to invoke to his successor, and Johnson has said there’s no rush.

It wouldn’t be tenable for the government to just completely ignore the vote forever, even though that is legally permissible. That said, there are some more plausible, clever ways that the government could get around actually exiting.

Scenario 1: Let Scotland save you. Under the Scotland Act 1998, it appears that the Scottish Parliament has to consent to measures that eliminate EU law's application in Scotland. At least that was the conclusion of a report on Brexit released by the House of Lords, the upper house of Britain’s parliament:

Jo Murkens, an associate professor of law at the London School of Economics I spoke with about this, told me that this isn’t actually an iron-clad veto. The Scotland Act was passed by the UK parliament, and parliament can amend it on its own to reduce the Scottish parliament’s powers.

To exit the EU and avoid a binding Scottish veto, "Parliament would have to repeal the European Communities Act 1972 (by which it became a member) and would also have to amend the devolution legislation pertaining to Scotland, Wales, and Northern Ireland," Murkens said. "That strikes me as technically easy, but politically difficult."

If the Conservative Party is insistent on Brexiting and is willing to overturn decades of law giving Northern Ireland and Scotland (both of which voted overwhelmingly to stay in the EU) local control over their affairs, then it can totally do so.

But, as Murkens also noted, such a dramatic action could risk a huge backlash. Scotland is already planning to hold another independence referendum, and seeing devolution curtailed would make its success much more likely. Northern Irish republicans would be emboldened to call for unification with the Republic of Ireland, which could occur, or they could just reignite the Troubles after decades of peace.

If the overriding objective of Conservatives, however, is to "preserve the integrity of the United Kingdom as a state," Murkens said, "the objective of keeping NI and Scotland in the United Kingdom would turn them into veto players … Scotland and NI have voted to remain and the cost of not listening to them would be to split the UK."

So here’s what Cameron or Johnson could do, in three steps:

Announce they are respecting the terms of devolution and allowing the Scottish, Northern Irish, and Welsh parliaments to vote before invoking Article 50.

Wait for one of them to vote against leaving. The Scottish and Northern Irish parliaments would be under a lot of pressure to do so, due to their constituents’ views. The Scottish National Party, which has the biggest bloc in Scottish parliament, could want Brexit to go forward to build support for Scottish independence, but it would be hard for them to vote that cynically. 

The Northern Irish Assembly’s biggest party, the Democratic Unionist Party, was pro-Brexit, but it could understandably flip if it fears that actually leaving the EU could lead to Northern Ireland leaving the UK. The Welsh Assembly is led by the Labour Party; Wales voted to Leave, but Labour could vote its own position and shoot down exiting.

Once one or more of the subnational legislatures votes to reject Brexit, the Prime Minister announces he’s not invoking Article 50 after all, using the regional veto to save face.

Again, Cameron or Johnson doesn’t have to do any of this. But it’s a plausible way to avoid leaving.

Scenario 2: Dawdle on invoking Article 50 by having another referendum. This would be a bit odd so soon after the first one, but there’s nothing preventing the government from calling a do-over, and there might be political willpower for it.

For one thing, there have been anecdotal reports from numerous Brexit supporters saying they didn’t realize their votes would actually count, and that they regret voting to Leave now that the results are in. Searches like "what does it mean to leave the EU?" and "what is the EU?" surged after the referendum. And more than 2 million have signed a petition calling for a second referendum.

It would require a monumental act of political courage for Cameron, or especially Johnson, to call for this — not least because Cameron ruled out a do-over before the referendum was held. But Cameron’s political career is over anyway, and could reverse himself for the good of the country.

Scenario 3: Dawdle on invoking Article 50 and have an actual general election. "There's a reasonable case to be made that this should go to an election given that the prime minister resigned," Adam Posen, president of the Peterson Institute for International Economics and a former member of the Bank of England's Monetary Policy Committee, told me in an interview. Then, if either the Labour Party (which strongly opposes Brexit) or a split-off faction of the Conservatives that opposes Brexit were to win the election, they could claim that as a mandate to cancel the results of the referendum.

The problem here is that there’s little reason for the Conservatives to want another election, especially since they have yet to actually split. If they don’t split their leader will probably be Johnson, who supports Brexit and whose election would not exactly be a mandate to overturn the referendum result. Unless they call an election, the Conservatives are safely in power until 2020, and calling an election to get Brexit overturned would not just risk a Labour victory, it would probably only work if Labour won.

"There's a very good incentive for the current Tory [Conservative Party] government to not call an election they'll lose, or which would make them have to share power with the UK Independence Party or the Scots," Posen noted.

But each of these three scenarios requires the current Tory government to do something drastic. Without Cameron or his successor’s buy-in, no effort to stop Brexit can succeed.

Courtesy: Vox.com

Is Unitech Ltd, a BUY?

Please Click on the Photo to Expand

After announcing the Q4FY16, result an upbeat MD of Unitech Ltd (Rs.5.43), Sanjay Chandra, said: “Balance expected receipts from (these) ongoing projects combined are sufficient not only to meet the remaining construction expense but to also to service the debt, if any, against these projects. Apart from improving collections, company is also mobilizing funds from banks and financial institutions".

From a peak valuation of $11 billion in 2007 (Rs.74,756 Cr), life has come a full circle for Ramesh Chandra, the Unitech founder, with his company reporting losses till Q4FY16 and the market cap plummeting to around Rs 1,420.65. 

So, will it be good to buy the shares of Real Estate behemoth Unitech Ltd at Rs.5.43, which is available at the price of penny? 

In one word, it would be YES, it is because like most of the major builders in India, Unitech Ltd plans to raise funds and at the same time it is selling off its non-core assets to cut its burgeoning debt. Not only that the company is looking to raise funds, through private placement to ward-off its tight cash flow conditions. 

Look at the case of Lodha Developers Pvt. Ltd, India’s largest unlisted developer which has the highest cash flow among all real estate companies in India with collection of over Rs.6,200 crore in 2015-16. Its land bank was valued at over $11 billion by Knight Frank in 2014. However, after  Moody’s Investors Service downgraded the corporate family rating due to high debt, the company has started evaluating a couple of significant private equity transactions and have already raised Rs.425 crore in May, to fund its ongoing projects. 

In the same way, HDIL (which I recommended at Rs.67 and which rose to Rs.100 plus), plans to further reduce its debt through a couple of transactions by selling additional floor space index (FSI) in its projects to other developers. 

Similarly, Bengaluru based developer, Prestige Estates Projects Ltd (Rs.178.45) which has Rs.5,500 crore in debt, aims to repay debt from the cash flows, generated from its yielding assets. 

Moreover, some of the fund management companies are offering preferred equity transactions, where they don’t charge interest or principal repayment for the first few years, giving developers some breathing time. Some of the real estate companies are even issuing warrants to promoters to reduce debt. Therefore, the sector as a whole is looking good after a long time. 

Unitech Ltd at present has a debt of around Rs.7,165.70 crore and land reserve of 300 mm sq.ft, as compared to 276 mn sq.ft of land bank and Rs.22, 202 crore debt of DLF Ltd, 5,500 acres of land and Rs.13,00 crore of debt of Lodha Developers Ltd and Prestige Estates Projects Ltd with Rs.5,500 crore of debt and 42 mn sq.ft of land bank. For more please look at the Figure above.  

This obviously makes the shares of Unitech Ltd, very attractive to buy at the CMP of Rs.5.43 in the BSE and Rs.5.45 in the NSE for short term targets of Rs.9.50-13-15.50. 

JSW Energy reopens talks with Jaypee Group for buying three power assets

Jun 24, 2016: Months after initial discussions fell through, Sajjan Jindal-controlled JSW Energyis said to have reopened talks with the Jaypee Group on acquiring three power assets. The two sides are in advanced negotiations for a deal involving two power generation units and a majority stake in a transmission joint venture for an enterprise value of about Rs 5,500 crore, two people aware of the development told ET. 

The two utilities are Bina Thermal Power in Madhya Pradesh with an installed capacity of 500 MW and the 400 MW Vishnuprayag Hydro Power in Uttarakhand. Bina can be ramped up further and its capacity trebled. The third asset is a 74 per cent stake in Jaypee Powergrid, a 74:26 joint venture with Power Grid Corporation of India Ltd. All three assets are held by Jaiprakash Power Venture Ltd (JPVL), a majority owned subsidiary of Jaiprakash Associates, and an acquisition agreement could be reached shortly, said the people cited above. 

JSW Energy denied that a deal was in the works. "Your query is completely speculative and baseless," a spokesperson said. "As a policy, JSW Energy does not respond to such speculative market rumors which may lead to misleading information in the market." 

A Jaypee Group spokesperson declined to comment. "We would not like to respond to market speculations," the executive said. 

Jaypee Powergrid has built a 214 km transmission line to connect the Karcham-Wangtoo project in Himachal Pradesh with the northern grid at Yamunanagar in Haryana. JSW had entered into a binding agreement with the Jaypee Group last September for Bina Thermal Power but they couldn't agree on valuation. The Vishuprayag project was part of an earlier buyout discussion but was damaged in floods in 2013 and needed to be repaired. In this case too, the two sides couldn't agree on a price. 

Under the terms now being discussed, a deal will primarily mean the transfer of debt to Jindal since the equity value would be about Rs 400 crore for the three assets. "Jaypee will transfer a combined debt of about Rs 5,100 crore," said one of the persons cited above. 

Jaypee Group has been looking to reduce its Rs 60,000 crore debt burden by selling assets. It has raised about Rs 15,000 crore from the disposal of units since 2013. In addition, it has already entered into a binding agreement to sell cement assets to Ultratech Cement for Rs 15,900 crore. If the deal takes place, this will be the second major acquisition by JSW Energy from the Jaypee Group. In September 2015, it bought the Baspa II unit Karcham-Wangtoo unit for Rs 9,700 crore. 

Courtesy: The Economic Times

Get REITs Right

Photo: Outlook Money

Jun 19, 2016: Ever since the idea of Indian Real Estate Investment Trusts (REITs) emerged, the capital market regulator has been putting in efforts, including the changes proposed in the week gone by, to attract REIT proponents and to make it work. Along with SEBI, it’s time now for state governments and tax authorities to make a cohesive attempt for the same.

The process, which started much ahead of SEBI notifying the regulations in 2014, is yet to see any REITs going in for listing. It’s given that any new market or instrument development will undergo its own dynamics. But, all related authorities need to move in tandem to ensure that this works.

After starting in the US in 1960, REIT regime is well established now in over 30 countries including Singapore, Australia and Finland. In India, it is still work in progress and investors here may have to wait a bit more to get an opportunity to invest in real estate securities.

REIT proponents have been seeking rationalization of stamp duty, which falls under the state government’s jurisdiction, for long. According to current regulations, transfer of income-producing commercial properties from any special purpose vehicle to a REIT will attract stamp duty, in case of direct transfer of land, and it would vary from state to state. This, among other factors, remains a key challenge for any REIT listing.

In a bid to smoothen the process of REITs registration, the Securities & Exchange Board of India has now proposed allowing REITs to invest up to 20%, in under construction assets as against earlier limit of 10%. It has also proposed change in the number of sponsors and removing the restriction on the special purpose vehicles (SPVs), when it is REIT’s holding company to invest in other SPVs holding the assets.

Just a few months ago, the government had removed Dividend Distribution Tax (DDT) through a proposal in the Union Budget 2016-17. The pace with which the authorities are moving gives a clear indication of its intention to make REITs a reality here. And it’s time now, for other stakeholders to chip in to ensure REITs kick off to offer commercial developers a liquidity option and retail investors a chance to participate in office realty market's growth.

Courtesy: ET Realty

Reforms making India real estate investments attractive

Picture: Unitech Ltd

Jun 15, 2016: The real estate sector that suffered much pain in the past two years is moving towards a more rational regime where developers, having learnt from their mistakes, now focus on project execution and delivery. This year is expected to gradually move towards better home sales and see a spurt in launches in some locations. The year will also see the sector moving from an investor-driven to an end-user driven cycle.

The recent reforms in the real estate sector have made investments into this sector even more lucrative. The recent passage of the real estate bill wherein the investors can look forward to far higher transparency and ease of doing business with developers, has led to a lot of warming up of NRIs and other FDI money towards Indian real estate. Also, now with the government permitting NRI investments into domestic AIF (Alternate Investment Funds), the availability of foreign capital will naturally increase. Coupled with the DTAA benefits available to the offshore investors, especially NRIs, it is a very lucrative time to invest in Indian real estate.

Last year India saw around $35 billion in private equity of which around $5 billion was into the real estate sector. This year, realty funds in India have already raised $470 million since January 2016 as compared to $520 million raised in the entire last year. It is possible that just real estate itself will see over $1 billion in inflows in the residential segment itself.

Affordable housing, for sure, will continue to remain at the center of these funds inflow activity.

There is a huge demand in affordable housing in most parts of the country and it’s the only option available for a common man to buy a house. This segment is backed by the initiatives announced by the government in this year’s union budget like additional exemption of Rs 50,000 for first time home buyers and 100% income and service tax exemption for construction of houses up to 30 sq meters in fourmetro cities and 60 sq meters for other cities have been allowed. Both these measures will spur affordable housing and help increasing supply in peripheral areas of cities. Real estate funds like ours will target on lending to developers with focus on affordable housing. Foreign financial institutions have also started investing into affordable housing projects as well as developers who are focused on this area, thus aiding the funding scenario as well.

Affordable housing will continue to get high traction in markets like Mumbai, Thane, Pune, NCR, Bangalore, Hyderabad, Chennai, Kolkata and Ahmedabad. While the launches and demand are going to be range bound, the product and positioning will be aligned to end users segment. The average sizes of units are going to reduce further; though marginally. Certain micro-markets within these cities are witnessing rapid infrastructural development, leading to higher influx of the educated middle class home seeker in these markets. These markets observe a more realistic capital rate assumption than the highly developed zones, and thus receive higher attention from home seekers. The developers will focus more towards bringing back the confidence of the consumer by being more transparent and focusing on constructing as per the commitments. While the long term story for residential market remains strong the short term turbulence is expected to remain.

This a right time to invest in affordable housing segment as the projects are available at attractive valuations and demand is expected to boost in 2-3 years. India is a shining economy and with the favorable investment climate and correct steps at policy level will make it more attractive not only to onshore investors but also for offshore investors.

Courtesy: ET Realty

Policy amendments on REITs beneficial

Jun 25, 2016: The latest policy announcements made by the government has positioned India as one of the most open economies. The various announcements convey the government’s commitment to reforms and to making India a lucrative investment destination for corporates across the globe. With these structural shifts, apart from generating new employment opportunities, the country is here to witness rapid infrastructure development in the near future.

The measures announced by the government regarding FDI as well as Real Estate Investment Trusts (REITs) will facilitate investments into the country. Higher investment volumes are likely to result in greater inflow of foreign investments and encourage domestic players in sectors such as manufacturing with cutting edge technology, civil and defence aviation, food processing and retail, says Anshuman Magazine, chairman and managing director, CBRE, South Asia Pvt Ltd. The growth of these sectors will directly benefit the real estate market in India, especially office, retail, logistics and warehousing segments, among others.

With regard to REITs, the changes proposed by the Securities and Exchange Board of India (SEBI) are clearly indicative of the eagerness to allow investments in REITs on a priority basis. The announcement to allow 20% investment in under-construction projects is likely to lead to an increase in potential yield returns, necessary for a successful REIT listing in the country, he says.

Overall, these announcements by the government are a much needed step in the direction of boosting the overall economy of the country

Courtesy: The Hindustan Times

The Brexit Quiver

The United Kingdom became the first independent nation to break away from the European Union, a 28-member block, in a referendum held yesterday. The said referendum was conducted on last Thursday, the 23 June, to decide whether the UK should leave or remain in the European Union. Leave won by 52% to 48%, dealing the biggest blow to European efforts at greater unity since the second world war. 

There are now fears the vote could set off a chain reaction of further breakaway bids by other EU members battling hostility to Brussels. There are also worries that the outcome could pave the way for the break-up of the UK itself after Scotland raised the prospect of another independence vote. 

Fortunately or unfortunately, highlighting the discord, a petition demanding a second EU referendum had gathered more than 550,000 signatures late on Friday.

The referendum turnout was 71.8%, with more than 30 million people voting. It was the highest turnout in a UK-wide vote since the 1992 general election. 

The US Federal Reserve, which had earlier said a Brexit could have "significant repercussions" on the economic outlook, sought to calm markets on Friday by saying it was ready to provide dollar liquidity. In India too, Dr.Raghuram Rajan had an identical view to deal with this situation.

Amid the turmoil, sterling hit a 31-year low in its biggest intraday percentage fall on record and Prime Minister David Cameron said he would step down by October.

The fallout started immediately: the pound collapsed, prompting recession fears, and by the end of the day Brexit panic had wiped $2tn off the world economy.

European leaders reacted strongly to the vote by insisting that Britain should start negotiations to leave immediately. The UK has also been told that its access to the internal EU market would be restricted – the “price”, it was said, for leaving.

Ratings agency Moody's said Britain's creditworthiness was now at greater risk, as the country would face substantial challenges to successfully negotiate its exit from the bloc.

Many argued that the EU has burdened UK with regulations costing the British economy as much as 600 million pounds per week. After Brexit, the UK will now be able to amend some EU laws to make savings shrugging off the burden of EU regulations. The UK will now be able to have its own regulation for work going to the high number of migrants to the country. As EU citizens have the right to work in any member state, it had significantly pushed down wages for British workers.

Huge questions also face the large numbers of British expatriates who live and work freely elsewhere in the EU, as well the fate of EU citizens who live and work in Britain.

Political figures on both sides of the debate, however, insisted there was no need to rush through the process.

Once Article 50 is invoked, it could take Britain up to two years to actually leave the EU.

During the two-year negotiation period, EU laws would still apply to the UK. Moreover, once Article 50 is triggered, the terms of Brexit will be negotiated not by British politicians or diplomats, but by the other 27 nations of the EU.

Though, it is estimated that the official British divorce from Europe would take at least two years, but EU president Donald Tusk has warned that the whole process of negotiating trade and immigration deals with a non-EU Britain could take seven years in all.

The UK however, would continue to participate in other EU business as normal, but it would not participate in internal EU discussions or decisions about its own withdrawal. 

And, when the members are ready, they will present the British government with a departure agreement on a "take it or leave it" basis.

The British vote to leave the European Union has brought the British pound down to a 31-year low, meaning UK house prices are now cheaper for foreign investors, buying in foreign currency.

Property analysts in the UK, predict a slowdown in property price growth in the UK, and even a fall in nominal prices, with London to be affected the most. 

The foreign travel to the UK, might also become more cheap, boosting the bottomline of Tours and Travel companies.

A decline in the value of the sterling could also be a catalyst for increased foreign investment in the UK due to attractive returns.

Meanwhile, the Indian Real Estate sector in India will continue recovering on the back of a resilient economy and strong capital inflows. Brexit will not disturb that recovery much, since India’s office market leasing is dependent only by 5-7 per cent on UK-headquartered companies, and investments and activity of PE Funds from EU countries is more in India than in the UK.

Tour operators in India say they expect a sharp rise in the number of travellers to the UK because the pound's depreciation make these destinations cheaper in a post Brexit scenario. 

Investors in the UK looking to invest in residential properties outside UK will have to compare returns and risk assessments for real estate in India versus real estate in the EU. After exiting EU, locations like Greece, Spain and Portugal may not remain as attractive to UK investors, and India may benefit from that. 

Also, the Indian Real Estate sector, would continue do well backed by policy reforms like RERA, apart from other factors.

On the flip side, India could provide the much needed stability, given the ongoing reforms at a satisfactory pace and that its inflation has remained controlled over the last few months. Also, given a normal monsoon forecast for this year, even food inflation could be kept in control in the near-to-medium term while triggering a healthy growth of agriculture and rural economy.

Given that BREXIT has happened, it is now a no-brainer to foresee, a delayed rate hike by the US Federal Reserve, which is positive for the emerging world, including India.

India’s bilateral trade with Great Britain is export surplus, which is good for India. However, compliance cost for India’s exports will rise. At the same time, India can negotiate more favourable trade terms with Britain. After losing out to free trade with the EU, Britain will be under pressure to look for balanced trade with big emerging economies like India, which is the fastest-growing economy -- over-all India is on a slight advantageous pitch after the historical event. 

Apart from the real estate, infrastructure structure would also, do well. I have already recommended few stocks, like Unitech Ltd (Rs.5.43), Lanco Infratech Ltd (Rs.4.53), JSW Energy Ltd (Rs.79.95), etc sometime back. You can continue add the scrips on intra-day dips. 

However, avoid the shares of the real estate companies, who has bet big on London’s property market, like Indiabulls Real Estate Ltd (Rs.86.25), Sobha Ltd (Rs.303.25), etc, for any short term play.  These developers will now face multiple challenges including sluggish sales and a plunge in prices in the UK, say industry observers. 

Kalpesh Maroo, partner at BMR Advisors, said London’s real estate market thrives on investments from across the globe, especially from the EU. He said that one of the consequences of Brexit will be that the mobility of people within the region will go down and this will impact the property market. Also, Indian investors had been investing in London as it offered appreciation and stability and this, too, will be impacted, he added.

The Global Research House, Nomura says: "Immediate priority for policymakers is to ensure sufficient USD and INR liquidity to keep markets well-oiled. We believe that the RBI would step up its open market operations and provide dollar liquidity through its FX reserves, if necessary".

I personally feel that it is the best time to accumulate beaten down stocks, from sectors, which have less exposure to the EU and UK (avoid Information Technology or IT stocks). 

The dirty secret about the Brexit vote: It's all Sham

Either way the U K votes, skeptical Britain will remain as part of Europe

LONDON, 21 June, 2016 — The eyes of Europe and the world are fixed this week on Britain and its referendum on whether or not to stay in the European Union.

Poll numbers have caused violent swings up and down in financial markets around the world. Trillions of dollars ride on the outcome. Political leaders and financiers say the outcome will be momentous either way. A vote for Brexit could plunge the world into recession and crisis, some warn. It could cause the breakup of the European Union, say others. Or it could mark a heroic return to national independence and freedom for Britain, say still others.

But here’s something that everyone in power here knows, but no one is saying in public.

The whole thing is a bit of a sham.

The referendum result won’t change anything legally by itself. And the consequences will be far less momentous than anyone on either side wants to admit.

Even if Britain votes on Thursday to leave the EU, it’s dollars to donuts — or, more accurately, pounds to peanuts — that the government will instead craft a face-saving formula that gives the illusion of Brexit without much substance. Britain will end up striking deals with Brussels to stay within the single market. In return it will have to keep making contributions for access, just as it does now.

A highly placed political insider joked to me recently that Britain could end up retaining even the same voting powers in Brussels it has already.

There might be a few symbolic changes in order to placate the public and maintain a big show of Brexit. But in reality little would change.

Why should we be surprised? The British government and political classes are overwhelmingly in favor of the European Union. So, crucially, is the country’s powerful civil service. British businesses are closely intertwined with the European single market. Attempts to disentangle them could lead to chaos. And the British economy is propped up by huge inflows of foreign capital, buoying everything from industry to London house prices.

Furthermore, Thursday’s referendum has no constitutional standing whatsoever.

Great Britain has no written constitution. By convention, theory and practice, sovereignty actually lies in the parliamentary House of Commons. Britain could only leave the EU by an act of Parliament. And it would be entirely up to Parliament to craft the terms of Brexit, and the shape of whatever followed.

A strongly pro-EU Parliament would surely find a way to minimize the impact of a Brexit vote.

But pro-EU Remain voters shouldn’t be too smug either.

Even if Britain votes to stay inside the EU, the doubts that led to this referendum in the first place will still continue. Thursday is very unlikely to deliver a resounding victory or moral mandate for the European Union. Instead it will probably reveal the British are evenly divided. A majority of Prime Minister David Cameron’s ruling Conservative party is almost certain to vote to leave. A majority of England may do so as well.

The bottom line: The referendum is likely to result in a heavily euroskeptic Great Britain remaining inside Europe — no matter which side wins.

Courtesy: MarketWatch