Unitech-Real Estate Titanic
A closer look at Unitech's FY11 Annual Report under-scores the depths which this once Real Estate darling is now plumbing.
-Debtor situation deterioration is a concern with debtors rising 69 per cent yoy to Rs 21.5 bn. Pile-up has happened in Greater Noida properties and certian Commercial projects sold before FY09.
-Unitech's non property revenues declined 22 per cent yoy in FY11 to Rs 2.3 bn, as construction business declined. Key disappointment was a slow 12 per cent yoy rise in Realty Revenues to Rs 29.5 bn.
-Unitech's execution ramp-up was slower than expected here. Deliveries declined 38 per cent yoy to 4.3 mn sq feet.
-Unitech resorted to exotic accounting to show a lower working capital by reclassifying FY10's cash balance as an investment and writing off half of that during FY11.
-The cash balances of Rs 2.3 bn were shown as yield enhancement certificates and Rs 1.14 bn has been written off in FY11 which equals 14 per cent of PBT. Possibility of another Rs 1.16 bn to be written off in FY12 exists.
-Surprise surprise, the Bank Term loans have been replaced by Public Deposits which rose 4X FY10 numbers, worse the deposits carry the same coupon of 14 per cent just as bank loans did.
-So what was the Rs 6.8 bn raised through equity warrants utilised for? Another Rs 8 bn has been spent on land acquisitions which led the corporate to report a negative cash flow of Rs 6.3 bn against Rs 17 bn in FY10.
-Even though the markets have debunked the land bank theory the local realtors refuse to see the sharp change in market perceptions.
-This explains why a Rs 35000 stock drops to Rs 29 in a matter of 5 years, and there is more downside.
-EPS will work out to Rs 2.6 in FY12 and Rs 3.2 in FY13, tight conditions may even push the stock to sub Rs 20 levels.
WHAT IS LIC BUYING?
Apart from a few shrewd long term investors, know who else was buying aggressively when the markets took a tumble? Life Insurance Corporation or LIC. Having one of the most enviable portfolios in India, LIC bought stocks worth Rs.1000 crore on 5th and 8th August when the markets slipped badly. Imagine what the fall would have been if LIC had not been buying too?
With stocks at a discount of over 30%, while traders and FIIs were making a hasty retreat, LIC stepped in and bought into blue chip frontliners. And what has it been buying? Mainly FMCG, metals, engineering and taking a contrarian call, buying into IT too. So its shopping list consisted of HUL, ITC, Infosys, TCS, Hindalco, Tata Steel, JSW Steel, Voltas and BHEL. LIC is like any other institutional, buying and selling stocks but during the current downward spiral, remained only a buyer. And LIC which has traditionally been always buying into banking stocks, this time around avoided it completely.
LIC has been buying consistently over the past 15 days and its net buying during this fortnight has been pegged at Rs.1800-2000 crore. The giant behemoth institution has an investment target of Rs.60,000 crore for current fiscal, FY12.
Its not that LIC only buys all the time. LIC recently changed its practice of holding scrips indefinitely and following that, in June 2011, when the markets were relatively better, it got out of some 57 illiquid stocks. Prominent amongst them being Gokaldas Exports, Sundaram Finance, Cinemax India, JMT Auto, Crisil, Godfrey Phillips, FGP, Thana Electric, Simplex Mills, Shalimar Wires, High Energy Batteries and Oriental Hotels.
In FY11, LIC on net basis invested Rs.43,000 crore in the equity markets and booked profit of around Rs.17,000 crore as against Rs.400 crore profit it made in FY10. As on March 31, 2011, on a mark-to-market basis, LIC's equity portfolio grew 70% in FY11.
In July, LIC hiked its stake in Reliance Industries to 7.16%, having bought some 18.6 lakh shares during the Q1, at an average price of Rs.867.10/share.
Interestingly, LIC had earmarked Rs.15,000 crore for buying into the PSU IPOs. But with the Govt now planning to postpone a few issues, LIC plans to divert more money into the secondary markets.
LIC typically prefers bulk deals as incremental purchases lead to a spike in share prices. And that is the reason why it remained the biggest investor or should we the 'saviour' for PSU IPOs/FPOs which otherwise would have sunk. LIC literally bailed out REC, NHAI and NMDC. But LIC views these rescue acts as a great opportunity as in smaller companies, being fenced by the limit of 10% of the company's capital, LIC does not get to hold large chunks, given the amount of money it wields. So in IPO/PSU FPO, LIC gets to invest crores of rupees, with no worry about limits.
And unlike FIIs and mutual funds, LIC is not in the markets for short term gains. It breeds no ambition to be the market mover and shaker. It is in for the long haul and its investments are usually long term.
Take a look at the top 40 stocks in LIC's portfolio which accounts for 82% of its portfolio. And you will understand why LIC is juiciest of all the institutions, hoping that this giant gets listed too!
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Brokers to be Fined for Not Collecting Margin Money
Sebi on Wednesday asked stock exchanges to impose heavy penalty on brokers allowing their clients to trade in derivative market without sufficient margin money and said that fines could be as high as the shortfall of funds. While the minimum penalty is 0.5% of the shortfall of margin money, the penalty could be as high as 100%, the Sebi said in a circular. The stock exchanges will have to impose the penalties from September 1, Sebi said.
This is more of a threat than an analysis. But if a wrong downgrade can make a difference to US markets and interest rates, so can it for India's. The real difficulty is one that emerges from an analysis by Cornell economist Easwar Prasad in the Financial Times. That analysis suggests that though India's gross public debt to GDP ratio declined from 75.8 per cent to 66.2 per cent between 2007 and 2011, it still is among the highest in the region. India's 66.2 per cent level compares with Malaysia's 55.1, Pakistan's 54.1, Philippines' 47, Thailand's 43.7, Indonesia's 25.4 and China's 16.5.
So if S&P needs a target to declare that some governments in the Asia-Pacific are excessively indebted, then India is in the firing line. It is no doubt true that a number of factors make Indian public debt less of a problem than in many other contexts. To start with, much of public debt in India is denominated in Indian rupees and is owed to resident agents and therefore is unlikely to be adversely affected by uncertainty in international debt and currency markets. Secondly, within the country public debt is largely held by the banking system dominated by public sector banks. They are subject to government influence and are unlikely to respond to developments in ways that make bond prices and yields extremely volatile. Given these circumstances, public debt is not a potential trigger for a crisis and in any case should not worry private financial interests.
