Developers need to increase sales by 2.5 times to service debt: Liases Foras
Total income of top-90 developers, including their rental income from different properties is Rs23,564 crore but they need to repay a debt of is Rs45,128 crore. Due to the gross mismatch it seems current debt levels are not serviceable and developers will have to double their sales, says a research note from Liases Foras.
The independent real estate research institute says, "...the situation of developers is akin to an elephant in a well which is unable to come out on its own. Somebody needs to replenish the well. But can we find cheap capital to refill the well? The existing scenario signifies that the industry is at an inflection point and is staring at long-due price correction in order to improve sales. But is there a scope to bring down prices? In the current scenario price correction does not seem plausible. In order to stay afloat at such low profit margins, one or more stakeholders in the industry would have to step in and take a haircut. Who would it be?"
According to Liases Foras, the defaults of Infrastructure Leasing and Financial Services (IL&FS) and ongoing speculations about Dewan Housing Finance Corporation Ltd (DHFL) have made industry stakeholders anxious yet again.
"Moved by the sudden upheaval we have tried to gauge impact of liquidity squeeze on the sector and developers. In the past 10 years while value of sold stock has increased by 1.56 times, the value of unsold stock has become 4.72 times. In terms of units, volumes of sales have gone up by 1.28 times while inventory increased to 3.33 times between 2009 and 2018. In the same period lending to the real estate sector has gone up from Rs1.2 trillion to Rs4 trillion," it says.
Liases Foras feels that existing scenario has exposed the inefficiency within the sector. "While debt has grown in a monumental manner and so has inventory, sales did not go up in the same proportion," it says, adding, "Having borrowed money from different sources, developers kept adding housing stock into the market without any productivity. Since sales remained abysmal all this while, developers are finding it difficult to meet their debt obligation at this point."
Analysis done by the real estate data analytics company, shows that residential market generated Rs2,40,000 crore as yearly revenue in 2018. Top-8 cities, including Mumbai Metropolitan Region (MMR), National Capital Region (NCR), Bengaluru, Pune, Hyderabad, Ahmedabad, Chennai and Kolkata cornered more than 80% of the entire business. The top-8 cities generated Rs2,15,000 crore as revenue out of the total Rs2,40,000 crore.
Liases Foras also examined performance of close to 11,000 developers for a holistic view. It also noticed that out of the total kitty of Rs2,40,000 crore of business, top-90 developers in the country accounted for about third of business and generated Rs78,879 crore. 
The firm studied exposure to both top-90 listed and unlisted developers. It took data for listed companies from public reports and sources, while for unlisted ones it relied upon the charge filings that the company submitted to ministry of corporate affairs (MCA).
The analysis shows total disposable income of all developers, including their rental income from different properties, is expected to be Rs57,000 crore but repayment required on their part is Rs1,28,772 crore. "In order to fulfil obligations, all developers will need to increase  earnings before interests and taxes (EBDIT) by 2.26 times. Additionally to make profit of 15% the developers will need to increase the EBDIT to 2.60 times, or need to increase sales by 2.6 times," Liases Foras says.
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    Walmart may exit Flipkart due to new FDI rules: Morgan Stanley
    Retail giant Walmart may exit Flipkart after India's new Foreign Direct Investment (FDI) norms for e-commerce companies came into force, US investment banker Morgan Stanley has warned.
    "An exit is likely, not completely out of the question, with the Indian e-commerce market becoming more complicated," the report by Morgan Stanley said late Monday. 
    According to the report, Walmart-Flikkart saga might turn out to similar to what happened with Amazon in China in late 2017.
    "There is a precedent for an exit as Amazon retreated from China in late 2017 after seeing that the model no longer worked for them," the report read. 
    "We estimate that Flipkart derives 50% of its revenue from this category, meaning Flipkart could face meaningful disruption and top-line pressure in the near term," it added.
    The new FDI rules may require Flipkart to remove as much as 25% products from its platform including smartphones and electronics that constitute a bulk of sales, said Morgan Stanley.
    On February 1, disruption was caused in the e-commerce operations in India of the two companies after the new FDI norms for the e-commerce sector came into effect. 
    The norm prohibited the online retailers from mandating any company to sell their products exclusively on its platform. 
    In the new policy, the Commerce Ministry also noted that the online retail firms would not directly or indirectly influence sale price of goods and services and would maintain a level playing field.
    Amazon India had to withdraw many of its products and they were listed as "currently unavailable" as the new norms prohibit the e-retailers from selling products of companies in which they have stakes.
    The two companies have together lost market capitalisation of $50 billion. 
    Amazon lost market capitalisation of over $45 billion on Nasdaq while Walmart lost over $5 billion on the NYSE.
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.


  • User


    Liju Philip

    6 months ago

    The government ensuring that the platform is skewed in favour of their funders entering the ecommerce market. Same happened when the fraud baba wanted to make noodles.


    6 months ago

    Its a loss for Indian consumers. Amazon, Walmart, eBay provide low price products to consumers in USA. Indians cannot take advantage of it. Even in USA, only 7% of transactions is online rest happens through BM. Just for helping fat, lazy and greedy shopkeepers, Indian govt has come up with dinosaur laws.

    Charat Sharma

    7 months ago

    Shun US retailers and their investment advisors, kudos to indian goverment for taking this bold step and protecting small traders

    Shankhadeep Nath

    7 months ago

    Love the choice of words by Morgan Stanley. A US based investment banking company \'warning\' Indian Government! Just pantomime and nothing else. They can simply cross list products. Or use a dummy third party eCommerce portal to sell their products.

    DHFL promoters sell controlling stake in Aadhar Housing to cut debt
    Debt-laden Dewan Housing Finance Ltd's (DHFL) parent company Wadhawan Global Capital (WGC) has agreed to sell its 70 per cent stake in Aadhar Housing Finance (AHFL), while DHFL will also sell its over 9 per cent stock in AHFL as a corporate debt cutting measure.
    According to a WGC release here, the company has signed a definitive agreement with US private equity major Blackstone to sell nearly 80 per cent shares of affordable homes firm Aadhar Housing Finance for an undisclosed amount.
    "As a part of the deal, WGC will be selling the entire 70 per cent of its stake in the company. DHFL, which holds a 9.15 per cent stake in AHFL, will also be exiting the company as a part of the transaction," the statement said. 
    "The deal will significantly reduce WGC's outstanding corporate debt."
    Commenting on the development, WGC Chairman Kapil Wadhawan said in a statement: "The transaction with Blackstone is a part of our multi-pronged strategy to reduce the corporate debt levels and strengthen our balance sheet.
    "The sale unlocks the latent value within the WGC Group while reinstating our immediate and long-term focus on DHFL, the flagship company of Group."
    The DHFL stock came under heavy pressure during the week plunging as much as 20 per cent on Thursday following a Cobrapost report that the DHFL promoters routed around Rs 31,000 crore through dubious companies and parked it outside India to acquire assets.
    Rejecting the allegations, DHFL said it had met all its obligations to its lenders by paying them back over Rs 17,000 crore in the last three months.
    Later in the week, DHFL said it had appointed an "independent" chartered accountant firm to verify the scam allegations.
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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