Stocks
Punjab National Bank gets thumbs-down from brokerage

“We expect Punjab National Bank to continue to see asset quality troubles for some time as it recovers from the excesses of its past growth. We would stay away, and reiterate our ‘SELL’ recommendation,” says Espirito Santo Securities in its evaluation of the PNB stock


The stock of PNB (Punjab National Bank) just got hit on poor September quarter results and currently trades at the seemingly attractive valuation of 1.1 times FY14E P/B which is one standard deviation below its long-term average. But Espirito Santo Securities remains bearish on PNB as it is sceptical of recovery in the bank’s asset quality due to: high growth in risky segments, weakening CASA, and increasing NPAs (non-performing assets) and restructuring.

 

In PNB’s case along with high GNPA (gross non performing assets) of 4.66% as of Q2 FY13; restructured advances have ballooned to over 9.1% of its advances—the highest among the large PSU (public sector undertaking) banks. The deteriorating asset quality led to high provisioning costs which eroded PNB’s profitability for the last four quarters, according to Espirito Santo.

 

PNB has consistently grown above the systemic credit growth for the past few years. PNB’s growth during these six years averaged more than 26% versus systemic credit growth of only 21%. More than the higher growth, a big concern for PNB has been the high advances growth in several risky segments which are currently witnessing asset quality stress. PNB has more than doubled its exposure to infrastructure and particularly the power sector where its portfolio grew by more than 15 times in just one year, says the brokerage.

 

PNB has increased its exposures to riskier segments such as infrastructure (power), construction, iron & steel, mining and textiles which are currently facing severe asset quality concerns, adds Espirito Santo.

 

“We expect Punjab National Bank to continue to see asset quality troubles for some time as it recovers from the excesses of its past growth. We would stay away, and reiterate our ‘SELL’ recommendation,” says Espirito Santo Securities in its evaluation of the PNB share in the market. It has clearly been a case of growth objectives overtaking the more important objectives of profitability and asset quality in the bank.

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BSE Sensex, Nifty may see weakness continuing: Wednesday Closing Report

Late gains helped the market close in the green but Nifty’s downtrend may be mitigated on a close above 5,645

 
The volatile market settled with modest gains on buying support from healthcare, auto and realty sectors. Yesterday we had mentioned that unless the Nifty manages to close above 5,630, we may see the index moving down. Today even the benchmark's intraday high couldn’t reach up to that level. A minor gain was witnessed on the bourses in the downtrend which we may see in the days to come. However, the Nifty’s downtrend may be mitigated on a close above 5,645. The National Stock Exchange (NSE) saw a volume of 59.78 crore shares and an advance decline ratio of 791:635.
 
The local market opened almost unchanged this morning following over a 1% fall yesterday on the Reserve Bank of India’s (RBI) move to keep rates unchanged in its monetary policy review. On the global front, markets across Asia were firm in morning trade news that the US markets are expected to reopen on Wednesday after a two-day shutdown on account of the Hurricane Sandy.
 
The Nifty opened one point lower at 5,597 and the Sensex resumed trade at 18,437, up six points over its previous close. Buying in select scrips saw the indices gaining some strength in initial trade but profit booking soon led the market lower. 
 
However, value picking at the lows led the indices into the green. The market could not sustain the gains as selling pressure amid volatility pushed the lower once again. The indices hovered near their previous closing levels in late morning trade.
 
Lack of any local triggers pushed the market to its lows at around 12.40pm. At the lows, the Nifty touched 5,583 and the Sensex 18,398.
 
Buying in auto, healthcare and banking stocks saw the market emerging into the positive in noon trade. A firm opening of the key European markets also supported the sentiment.
 
The market continued to trade firm in the post-noon session. The benchmarks hit their highs in late trade with the Nifty rising to 5,624 and the Sensex climbing to 18,522. 
 
Buying in healthcare, auto and realty stocks saw the market closing near the highs. The Nifty settled 22 points up at 5,620 and the Sensex gained 75 points to 18,505. For the month of October the Nifty declined 84 points (1.47%) and the Sensex dropped 257 points, or 1.37%.
 
The broader indices outperformed the Sensex today, as the BSE Mid-cap index climbed 0.88% and the BSE Small-cap index rose 0.50%.
 
Except for three sectoral indices all other sectoral indices ended in the positive. BSE Healthcare (up 1.72%); BSE Auto (up 1.55%); BSE Realty (up 1.43%); BSE Metal (up 1.20%) and BSE Bankex (up 0.60%) were the top gainers. The losers were BSE Capital Goods (down 0.37%); BSE Oil & Gas (down 0.30%) and BSE FMCG (down 0.17%).   
 
19 of the 30 stocks on the Sensex closed in the positive. The chief gainers were Hindalco Industries (up 5%); Maruti Suzuki (up 2.99%); Tata Motors (up 2.81%); Cipla (up 2.52%); Jindal Steel (up 2.12%). The main losers were ONGC (down 1.72%); GAIL (down 1.70%); BHEL (down 1.32%); Larsen & Toubro (down 0.80%) and Hindustan Unilever (down 0.55%).
 
The top two A Group gainers on the BSE were—J&K Bank (up 9.40%) and Glenmark Pharma (up 7.94%).
The top two A Group losers on the BSE were—Reliance Capital (down 4.09%) and Bata India (down 3.38%).
 
The top two B Group gainers on the BSE were—Ponni Sugar (Erode) (up 20%) and Samrat Pharma (up 15.79%)
The top two B Group losers on the BSE were—Zylog Systems (down 19.99%) and DJS Stocks & Shares (down 17.78%).
 
Out of the 50 stocks listed on the Nifty, 33 stocks settled in the positive. The key gainers were Hindalco (up 5.23%); Maruti Suzuki (up 3.43%); Cipla (up 2.89%); Tata Motors (up 2.77%) and Sesa Goa (up 2.49%). Among the losers were Reliance Infrastructure (down 2.74%); GAIL India (down 1.87%); BHEL (down 1.77%); ONGC (down 1.72%) and UltraTech Cement (down 0.90%).
 
The Asian pack settled mostly higher positive earning reports from companies from the region. News of the reopening of the US markets also boosted risk appetite. 
 
The Shanghai Composite gained 0.32%; the Hang Seng climbed 1%; the Nikkei 225 surged 0.98% and the Seoul Composite advanced 0.66%. On the other hand, the Jakarta Composite declined 0.33%; the KLSE Composite fell 0.10%; the Straits Times shed 0.01% and the Taiwan Weighted slipped 0.23%.
 
At the time of writing, two of the three the key European indices were in the positive and the US stock futures were in the positive, indicating a firm opening for the US markets after they were forced to remain closed for two days.
 
Back home, institutional investors—both foreign and domestic—continued to be net sellers in the equities segment on Tuesday. Foreign investors offloaded stocks worth Rs191.53 crore and domestic institutional investors pulled out funds totalling Rs31.84 crore. 
 
Welspun Corp, the flagship company of the $3.5 billion Welspun Group, today said it has completed a buyback of foreign currency convertible bonds (FCCBs) worth $44.1 million out of $150 million debt. 
 
This buyback was funded by new foreign currency loan with an average maturity of five years. After accounting for this repurchase, convertible bonds worth $105.9 million remain outstanding and due for maturity by October 2014. The stock gained 0.41% to close at Rs97.40 on the NSE.
 
The board of directors of IDBI Bank has given an in-principle approval to merge India's largest custodian Stock Holding Corporation of India with itself. The decision was taken at the former’s board meeting held on Tuesday. IDBI Bank gained 0.49% to Rs92.50 on the NSE.
 

 

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Why are builders reluctant to pay 5% VAT?

Due to lack of transparency and poor records builders are unable to claim input tax credit available under the tax provisions. But they still expect property buyers to cough up the additional money


Following the dismissal of builders’ petition by the Bombay High Court, developers across Maharashtra have to pay value-added tax (VAT) at the rate of 5% on all property transactions between 2006 and 2010 by 31st October. Several builders were found exerting pressure on property buyers to pay the VAT, when the obligation rests on themselves. What we found is builders are reluctant to pay VAT @5% not because the amount is high but because they don’t have detailed record for claiming input tax credit or deductions.

 

For example, it is known that several builders keep actual purchases like sand, iron and steel, stone and cement hidden from account books. While this may have helped them to earn tax-free profits, in the absence of any proof or bill, they will have to pay VAT on total agreement value of the property. If a builder buys 10 trucks of sand and had shown purchase of just 1-2 trucks of sand in his accounts, he cannot claim input tax credit or exemption on 10 trucks.

 

Same is the case with land purchase price. Several builders have shown the land price less than its actual market value and this is also affecting their tax credit under the VAT rules.

 

“In Indian real estate, transparency levels are proportionate to the reputation and market standing of individual developers. While the market certainly has had its share of less scrupulous smaller operatives, the fact is that larger developers consistently maintain high levels of accountability. The degree and nature of impact of the VAT issue on various developers varies accordingly,” said Kishor Pate, honorary secretary of Confederation of Real Estate Developer’s Associations of India (CREDAI) (Maharashtra) and chairman and managing director of Amit Enterprises Housing.

 

Another issue the builders are facing is with the money (mostly cash) collected from buyers under different heads. All builders receive non-refundable deposits and other charges like electricity meter deposit, water connection charges, charges towards forming a co-operative housing society (CHS), legal charges, development charges and parking charges from buyers.

 

It is a known fact that almost all builders charge exorbitant amounts under these and other heads, while they pay very less money towards the actual purpose. For example, one flat buyer from Pune paid Rs20,000 to Runwal Housing and Townships Pvt Ltd as charges towards formation of a co-operative society. However, according to information provided by Commissioner for Cooperation and Registrar, Cooperative Societies (Maharashtra), registration charges for a CHS are just Rs2,500 and membership charges are Rs500 per member. Even as per the guidelines of MSEDC and the information from Grahak Panchayat, electricity meter charges are just Rs3,000 to Rs10,000 per flat. The above mentioned buyer had to pay Rs65,000 towards electricity meter charges.

 

Read: Don't pay VAT to builders, says Grahak Panchayat

 

The Sales Tax department also seems to be aware about this trick. In its frequently asked question (FAQ) section about VAT, the department says, “The amounts which are received as deposits will be deduction to the extent such amounts are actually paid to other authorities”. No wonder why the builders do not like this tax!

 

We discussed the issue of VAT calculations with both the government sources and a few builders. As per rough estimates the actual VAT chargeable comes to about 2% to 2.5% of the agreement value and not 5% as being talked about. This means the builders will not have to pay tax @5% for all property transactions between June 2006 and March 2010, provided that they have maintained all accounts and actual purchase records.

 

While the builders have shown readiness to pay VAT @1% for property transactions between 2006 and 2010, so far the government has not shown any interest. As per the notification, from 1 April 2010 onwards the developer would have to pay 1% tax on agreement value without any “land deduction” and “input tax credit”.

 

Here are the specific points mentioned in the circular issued by the Sales Tax department under its FAQ section...

 

From 20.06.2006 to 31.03.2010

1. Composition Scheme u/s 42(3): Under this scheme, the developer has to pay 5% tax on the agreement value. Land deduction is not available. Input tax credit is available to the reduction of 4%.

 

2. Actual Expense Method u/r 58: Under rule 58, the deduction of labour & service charges is available on actual basis. Land deduction is also available. Set-off will be calculated subject to the condition u/r 53 and 54.

 

3. Standard Deduction Method u/r 58: Under rule 58, the deduction of land cost will be allowed. Thereafter 30% standard deduction from remaining amount will be available as per proviso to sub-rule 1. Set-off will be calculated subject to the condition u/r 53 and 54.

 

After 01.04.2010

The developers can opt for fourth option also, under this option u/s 42(3A), developer has to pay 1% tax on agreement value. No land deduction and input tax credit is available.

 

It further states: “Needless to mention that the developer will be required to make the payment of interest according to the provisions of law.”

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COMMENTS

aparna joshi

4 years ago

what happened of vat after 30 oct
any news pls update

aparna joshi

4 years ago

pls update what happened with vat
case after 31 oct?????

MK Gupta

4 years ago

The facts are really worth investigation-at least for form's sake!

MK Gupta

4 years ago

There is a very genuine problem of ALL the builders (called "promoters"in certain states) across the country. That is the reason their records are NOT properly maintained--in many cases not at all maintained-- and they cannot show their true records of cost inputs to any authorities. THE REASON IS: all the builders'construction activities are sourced from/by the "extra" money received/charged from the customers in cash. In other words, the accounted portion of receipts and cost inputa are so grossly less than the actual figures that they are in a most unenviable position of "catch 22". And this is not only well known to all concerned authorities and all of them are parties to this unethical and illegal practices. In Delhi and West Bengal (and, partly in Kerala), as all political parties have their own "front" men running house building contract works--in fact, most of the politicians grew from the level of house brokers promoted to building activities, including road building, and by sharing their ill-gotten (even by committing murders to take possession of prime lands/properties),there is just no way to control this MAFIA and hence the consumers (flat buyers) must bear the brunt of VAT against all norms of law. Govts ought to have realised that, in any case, the criminals in the construction activities, enjoying political and bureaucratic protection on the principles of "profit sharing", were to force the buyers alone to cough up the payment. Black economy is run by the shadow govt. and hence these shall remain.

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