Phoenix Mills MC Mumbai project has Rs725.9 crore debt on its book
Even before its launch, Phoenix Mills’ Mumbai Market City (MC) project looks like it is in for tough times. A report by stockbroker Emkay Global says that the project has a total debt of Rs725.9 crore and will have to operate at 80% occupancy to break- even at their fixed operating and interest costs.
“MC Mumbai faces a huge challenge in making its assets valuable. The project has huge debt in its books leading to 80% of net rental income going towards debt servicing costs. The special purpose vehicle (SPV), Offbeat Developers, doesn’t have capital to execute Phase 2 of the project which involves office space development of 0.9mn sq ft. Phoenix Mills intends to have joint development with the SPV or buyout the whole project FSI from the SPV,” says the report.
MC Mumbai will be soft launched in November end. Phoenix Mills has borrowed over Rs240 crore on its books to provide capital to MC projects either through loans or by buying out some assets in the projects. The company is reportedly cutting down on the frills and looking to acquire controlling stakes in its subsidiaries to simplify matters.
But Phoenix Mills is not the only company facing difficulties in the commercial space. SEZs, IT parks and other commercial properties have proved to be unviable, and many realtors are looking to sell such properties off to pay off their bulging debts.
“Global economy is in a turmoil and the domestic economy has turned sluggish. As a result, many companies are either consolidating their operations of shifting to cheaper places. So many of these office spaces, which builders had intended to sell to them, are lying vacant,” said a spokesperson of a realty company.
Merrill Lynch has put up its two properties at Nariman Point for sale. Standard Chartered and Hong Kong & Shanghai Banking Corporation (HSBC) sold their co-owned property recently. HUL is also looking to sell their Worli property. “Most businesses are trying to sell their non-core assets,” said an analyst.
“India’s commercial real estate sector is in very bad shape, and things don’t look like improving even within a year. Mumbai is no exception,” said Mr Pankaj Kapoor, MD, Liases Foras, “In Mumbai, 55 million sq ft of area is lying unsold and under construction. On top of that, there is huge secondary supply.” He said that rents, even at premium locations, have come down considerably due to the glut.
Investor confidence has also suffered. RICS India Commercial Property Survey, released last week, said that capital values have already seen a decline and turned negative for the first time since 2009.
Banks have also been urged to be careful about lending to commercial real estate projects. The Reserve Bank of India, in its Report on Trend and Progress of Banking in India 2010-11, said, “There were emerging concerns about banking sector stability related to disproportionate growth in credit to sectors such as real estate, infrastructure, NBFCs and the retail segment. The growth pick-up in commercial real estate loans also deserves attention.” From September 2010, banks’ exposure to commercial real estate has increased by 12.6%. BSE’s realty index, from November 2010 to November 2011, has fallen by 43%.
Stories of price manipulation
Karma Industries (Rs44)
From Rs23.10 on 30 April 2010, the share price of Karma Industries zoomed 643% to Rs171.60 on 4 April 2011. Moneylife wrote about this case of blatant rigging in its 5 May 2011 issue. SEBI and BSE continued to sleep and the stock was rigged up all the way another 86%. In the next two months. It made an intra-day high of Rs319.30 on 4 July 2011, a stunning rise of 1,282%. With tax-free, long-term capital gains in the bag, the speculators started unloading the stock and the price came crashing by 85% to Rs49 in just three months. But who cares?
Shree Nath Commercial & Finance (Rs10)
Shree Nath Commercial & Finance Ltd is in the 28th year of operations. It is planning to set up a solar power project. Its income in the year ended March 2011 was Rs29 crore and its profit after tax was negligible. From a low of Rs1.84 on 1 February 2010, the share price of this company zoomed 1,698% to Rs33 on 16 November 2010. Just a few weeks later, we highlighted the intense rigging in our 16 December 2010 issue. The price jumped further still and hit a 52-week intra-day high on the BSE—Rs41.80 on 25 January 2011, a rise of 2,178% from the low of February 2010. Then started the crash. By November 2011, the price was down to Rs8.42, a fall of 80%. After writing about a more than a hundred cases of blatant price-rigging, we no longer expect SEBI and BSE to act. Maybe the income-tax department should look at these cases. The pump-and-dump operations allow speculators, and the often the management, to book tax-free capital gains. These are not simple cases of price-rigging. There’s a full-fledged money laundering operation going on.
Strong financials and good growth prospects
Based in Thrissur (Kerala), South Indian Bank (SIB) is a private sector bank which has been expanding its network in non-southern regions to achieve a pan-India presence. It has around 645 branches in India, three extension counters and over 570 ATMs. The Bank is present in 26 Indian states. With a new regional office in Kannur, SIB now has 16 regional offices that assist the branches in providing good customer service.
For the financial year ended 31 March 2011, the Bank’s net profit increased 25.15% to Rs292.56 crore from Rs233.76 crore. In the same period, its total income stood at Rs2,642.70 crore against Rs2,144.18 crore, a growth of 23.25%. According to SIB, it could achieve this quantitative enhancement in net profit essentially on account of higher operations and better management of assets and liabilities. The Bank has recommended a dividend of 50%, up from the 40% declared last year.
During FY10-11, the Bank opened 61 new branches and 116 ATMs across the country. The capital & reserves improved from Rs1,484.71 crore to a healthy level of Rs1,845.16 crore due to plough-back of profits and revaluation of premises. During FY10-11, 0.751 million new savings bank accounts were opened, of which, 0.282 million accounts belong to students. SIB increased its total deposits to Rs29,721 crore from Rs23,012 crore last year, registering a growth of 29.15%. SIB is rolling out its SIB FINS Card (Financial Inclusion Smart Card)-based financial inclusion project (FIP) covering 100 villages and 10 urban locations through the business correspondent (BC) model. The Bank also plans to appoint 300 BCs to provide basic banking services. The SIB FINS Card provides users a number of facilities such as customer enrolment through handheld terminals, flexibility to deposit money without biometric authentication of the customer and facility to make restricted non-smartcard-based transactions.
For the September 2011 quarter, SIB’s net profit rose 24.44% to Rs94.95 crore, while its total income increased 49%. Over the past five quarters, SIB has reported an average growth in revenues and operating profit of 34% and 56%, respectively. Its average operating margin is 19% and return on net worth is 17%. Its market-cap to revenues is 0.71, while its market-cap to operating profit is 3.96 times. The stock is an attractive buy at the current market price.