Out of the 29 major sectors that Moneylife tracks, lifestyle & leisure showed the highest growth, registering a 43% growth in revenues in the June 2011 quarter, on a year-on-year basis
It looks like the slowdown in the economy and rising inflation have not dampened the spirit of consumers willing to have a good time. In the lifestyle & leisure sector, as many as 34 out of the 53 companies in this segment listed a sales growth of 10% (and more) for the June quarter, on a year-on-year (y-o-y) basis. The operating profit growth for the sector was an impressive 28% and net profit was up 21% for the same period.
Despite rising gold prices, the growth was led by four jewellery manufacturers, Shree Ganesh Jewellery House, Thangamayil Jewellery, Shrenuj and Company and Gitanjali Gems. Each of these manufacturers registered robust quarterly sales growth of over 60% y-o-y, with an average operating profit margin (OPM) of 6%. Titian Industries also registered an impressive sales growth of 61% with an operating profit growth of 66% and net profit growth of 76%. Just a tad lower was Jubilant Foods with a revenue growth of 60% for the June quarter on a y-o-y basis. It exhibited strong profit growth as well, with operating profit and net profit registering a growth of 65% and 52% respectively. It also had a strong OPM of 19%.
Sales of United Spirits grew by 32% in the June 2011 quarter (y-o-y) whereas that of United Breweries Ltd grew by 23% in the same period. United Spirits had an OPM of 17% with OP growing by 18% and NP by 14%. For United Breweries, profits did not impress, with OP and NP falling below the level of the June 2010 quarter. United Breweries, however, maintained an OPM of 14%
Among the travel support services, the revenues of Cox & Kings grew by 30%, due to the holiday season. OP and NP grew by 29% and 38% respectively for the June quarter on a y-o-y basis. The company also had the highest OPM in the lifestyle & leisure sector with a margin of 56%. Competitor Thomas Cook, however, didn't capitalise on the holiday season, registering a revenue growth of just 19% and an OPM of 40%.
Cinemax must have been the favourite destination for moviegoers. The company's revenues increased by 29% from Rs38 crore in the June quarter of 2010 to Rs49 crore in the June 2011 quarter. Operating profit grew by 15% with an OPM of 12%. PVR registered a growth of 20% in sales with an OPM of 14%. Operating profit grew by 55% from Rs11 crore (Q1 FY2011) to Rs17 crore in Q1 FY2012. Fame Adlabs registered a sales growth of 17% with an OPM of 16%.
Media production houses were some of the worst performers. UTV Software Communications, Balaji Telefilms and Reliance MediaWorks registered negative revenue growth with a decline of 34%, 7% and 6% respectively. All three registered an operating loss in the June 2011 quarter.
When one digs deeper into why the Jan Lokpal Bill is not progressing, and tries to analyse the reason why the mainstream media appears to be stuck on the ‘small corruption’ angle, while the business media maintains a discreet silence on what is happening, one hits on huge numbers
Earlier yesterday we had the PAN-IIT group of young and old alumni from all the IITs across India, on stage with Arvind Kejriwal and Team Anna. This was, for all observers, one of the few organised groups of influential people who actually came on board and declared where they stand on the issue of corruption in India in no uncertain terms. By comparison, industries and industry bodies of repute who otherwise would not think twice about throwing glamorous functions on issues related to corruption and never fall short of suitable comments on the issue of corruption, have been absent from making or taking any coherent and cogent position on the issue.
# Now, the grapevine is rife with talk about how certain NRI and NRI-linked politicians, with British, European and US linkages, who have stacked funds abroad in tax havens allied to those countries, have been informed that certain tax deductions by the authorities abroad would now be applied to these funds before they can be released back. This includes Switzerland, which is already doing this in the case of the United Kingdom, and proposes to do so with countries in the European Union too. Look carefully, the body language is beginning to say it all.
# Some members of the electronic and print media were at an informal get-together, when one of the most influential 'perception-benders' or lobbyists-call him what you may-explained to them how the Jan Lokpal Bill would not only impact politicians and public servants, but also the media and industrialists. The tone of some of the TV channels and newspapers/magazines appears to be changing slowly, if you read carefully, between the lines. Looks like advertising support from the strangest of organisations, for example ESIC, which is sponsoring an automobile show on NEWSX television channel that is bleeding money since hardly anybody watches the channel, is perhaps influencing the rhetoric.
Globally, New Delhi is now increasingly seen as a gigantic hub of rent-seekers, and one reason for this is that over the past few decades, a whole new class of political-businessmen (and women) have perfected the art of converting outright lies and theft into legalese, by the simple expedient of getting them converted into, what else, that language of criminal whitewash, good English. And then monetizing this in ways which are increasingly blatant and vulgar, with little regard for probity or concern for whether they are being seen or not.
As a matter of fact the more flagrant the criminalities, the brighter the lights used. And then, not just that, but a crass and commercial display of the acts themselves, which is why the term being used is "pornographic". At the finest and oldest clubs with memberships going past lifetimes, to the toniest of "membership by invitation only" lounges and reserved floors in the many 5-stars dotting the city, the word is out. If you've been able to stick it to the Great Indian Public Exchequer, then let the world know about it.
And then collect more rent on it too. Surrounded by fleets of "consultants" of all hues and numbers, safeguarded by fleets of private security guards, and usually finding cover under the term "NRI", the business ventures range from the old traditional narcotics and arms and then onwards, to the newer technologically perfect counterfeit currency and diamond transaction management. This is, of course, in addition to the mining, defence and real estate, and every other racket you can think of, very often covered under the all-encompassing term "PPP". Even good old infotech, the poster boy of development in India, is not immune.
The numbers are, to put it simply, huge. By one estimate, provided by the political and economic calculations of a particular High Commission that should know, the leakage is in the region of more than Rs1,200 crore a day. The thought itself is mind-boggling; what kind of theft generates this kind of numbers, even if it is to be reduced by half?
As a denizen of this city for the past 50 years and as one who has seen how it went on in other cities, globally, where the carpetbaggers reigned, one can well believe it. The spending patterns have gone ballistic in Delhi, especially over the past three-four years. Rs200crore-Rs300 crore for a wedding is the kind of number that a good MLA, or a middle-level "business person" spends lately, it seems.
So when one digs deeper into WHY the Jan Lokpal Bill is not progressing, and tries to analyse the reason why the mainstream media appears to be stuck on the "small corruption" angle, while the business media maintains a discreet silence on what is happening, one hits on huge numbers. For example, for every day that the progress can be delayed, the payout will be enormous. Goes without saying. And the risks taken, politically, suddenly become worth it. What's just the notional daily interest in an inflationary economy for these numbers? It will pay for any amount of free biscuits and bananas and ads on television, just to make sure that the focus remains on "small corruption", while the lobbyists take a short break.
Astonishing stories are sweeping this city. Some high-profile punters in the park-your-money-abroad game have apparently left town, leaving a good number of people with funds parked in tax havens abroad extremely worried. You can hardly go to the local police and complain about this. The average industrialist is up to here with local level corruption, and does not see how a Jan Lokpal will help him, so he is keeping his head down and just getting along with work in a recessionary market. And a friend who is a transporter has confirmed that he is trying to ensure that all his trucks and cargo on them are suitably "secured" every morning, staying off roads and highways during the day as much as possible.
In addition, as credible reports of sporadic rowdyism and violence start appearing from the India Gate and Vikas Marg areas, it becomes even more apparent that the foot-soldiers of those who are going to be impacted are beginning to realise just how deep the Jan Lokpal Bill can go to put an end to the whole pornography of elite corruption, and they are strong enough to ensure it will not happen. There is just too much rent at stake. A new breed of hooligans can be seen on the streets, and counter marches as well as protests are visible.
But yes, the pornography display, that can be scaled down. It will keep the mainstream media happy, too. After all, it is time to replace the lot that has been in jail for close to six months already for assorted Commonwealth Games and 2G scams. The same cells are required for the mining lot as well as the cash-for-votes guys.
To sum up, it is the lack of clarity, the hiding of facts, the reading between the lines, which provides the answers. The Jan Lokpal Bill will, if introduced, put at stake the very survival of many of those who benefit from the ongoing pornography of the elite. Not just that, it will also involve loss of face, tremendously.
The powers that run this country have been able to get the message across to those who perform on their behalf. Obviously, the elite corruption part will continue, but the blatant display of pornography may need to be curtailed, for some time at least.
And that's what will probably be the tactic to be adopted, as something drastic happens at Ramlila grounds and in the rest of the country in the next few hours, or day. The naked display of elite corruption may shift elsewhere for some time.
Which is how it was in the days of the British Raj, as well as the early years of Independence, remember? You stole what you wanted, but you kept a stiff upper lip as you just pretended to be cleaner than the natives-which is what the Jan Lokpal will in all likelihood achieve. Meanwhile, those who "collect tax on freehold" plan to continue to do so.
It will keep the natives in check. And that's the simple truth. The Brits taught us this.
The series of rate hikes has resulted in the EMI on home loans going up by more than 20% to Rs1,016 on every one lakh rupees. However, with rates having climbed so high, it would not be wrong to assume that any further increases should be very limited
The past 12 months have seen interest rates on home loans rise from 8% to 10.75%. This has resulted in equated monthly installments (EMI) going up by 21% from Rs837 for every one lakh rupees on the loan to Rs1,016. The question facing home buyers today is whether to go ahead and buy a house if and when real estate prices do decline, or wait till interest rates drop too. Before we answer that, let us understand why interest rates increase or decrease and what the long-term implications are for home buyers.
Interest rates in India are largely a function of the monetary policy, which is decided by the Reserve Bank of India (RBI). The RBI has several goals; the most difficult of them is to maintain a balance between the need to ensure economic growth and control inflation. When inflation rises and threatens to spin out of control, as it has today, the RBI 'tightens' monetary policy. This amounts to reducing, or making expensive, the money supply in the economy.
The RBI achieves this by either increasing the repo rate (the rate at which banks borrow from the RBI) which increases borrowing costs, or increasing the cash reserve ratio (CRR) which has the effect of reducing money supply in the economy. Though the RBI's policies could take up to a year to have their full intended impact, they are perhaps the most effective way to reduce inflation.
The RBI has increased repo rates nine times in the past 12 months, from 5.25% to 8%, towards curbing stubborn inflation. This has resulted in an increase in the base rates of banks and the prime lending rates (PLR) of housing finance companies by 2.5%-3%. Consequently, home loan rates have increased from around 8% per annum to 10.75% and the EMI has shot up by 21%.
This increase in EMI impacts buyers' budgets and often persuades them to wait for the interest rates to come down. As almost all home loans are offered on a floating rate basis, the interest rates applicable would increase in line with rising interest rates. This would mean that even if you had taken a loan at 8%, the current rate would be 10.75%, and either the EMI would have gone up or the tenor (repayment period) of the loan would have increased. Clearly, home-buying decisions should not be influenced by the level of interest rates prevailing at the time of the purchase of house.
However, there are long-term implications for home buyers who take a mortgage, since interest rates are cyclical in nature (illustrated below by repo rate movement over the past six years).
Interestingly, when interest rates are high, there is a smaller probability of a further increase in the interest rate, and thereby a lesser risk of the burden of an increase in EMI. Conversely, in a low interest rate environment, the risk of a subsequent increase in interest rates, leading to a bigger EMI burden is higher.
The correct strategy, especially in a low interest rate environment, would be to assume that interest rates can go up by as much as 2%. Interest rates have averaged 10% over the past 10 years for home loans and hence the assumption of a 10% interest rate is a good thumb rule to calculate your repayment capacity.
The tax benefit available on housing loans is an important consideration since it reduces the effective cost of borrowing. As illustrated (below), the effective cost of borrowing is still below 8% for an average home buyer.
In conclusion, current high interest rates should not deter one from buying a house, but it would be wise to keep some cushion in one's borrowing capacity, to provide for increases in interest rates and the consequent increase in EMI.
(Gagan Banga is a writer and CEO of Indiabulls.)