Q1 Revenue Growth To Be the Slowest in Two Years: CRISIL
Corporate revenue is seen growing 5%-6% in the first quarter of FY19-20, the slowest pace in two years, because of a broad-based slowdown in consumption, which has affected sectors such as automobiles and fast-moving consumer goods (FMCG), says a research note. That compares with an average revenue growth of 14%-15% in the past four quarters.
 
The estimate is based on CRISIL Research's analysis of 295 companies which account for about 60% of the market-capitalisation of the National Stock Exchange (NSE). The analysis excludes banking, financial services and insurance (BFSI) and oil sectors.
 
 
Miren Lodha, director at CRISIL Research, says, "Automobiles, one of the key sectors driven by consumption spending, continues to reel under a demand slowdown. Higher cost of ownership continues to dampen consumer sentiment for passenger vehicles, while commercial vehicle sales are being impacted by new axle norms, inventory build-up and liquidity crunch. This also impacts ancillary sectors such as auto components and tyres, which are expected to report lower growth. As for FMCG, weakened rural consumption and a high base are expected to cause a moderation in growth." 
 
Adding to the pain from a slowdown in consumption, according to the ratings agency, is a fall in realisations in key commodity categories, which supported revenue growth in FY18-19, especially the first half. 
 
It says, an expected softening in commodity prices will moderate growth in sectors such as steel, aluminium, natural gas and petrochemicals.
 
"A slower weakening of the rupee, at around 4% on-year compared with about 8% on average over fiscal 2019, is also expected to scrape some growth off key export-linked sectors such as information technology (IT) services. Revenue growth for the latter is expected to moderate to about 12% on year compared with the 17% average growth rate over the past four quarters," it added.
 
 
According to CRISIL, the decline in revenue growth, is cushioned somewhat by sectors such as airline services, cement, and sugar where price hikes have aided realisations and consequently topline growth.
 
Prasad Koparkar, senior director at CRISIL Research, says, “With lower topline growth, India Inc is also staring at lower profitability at the operating level. Growth in operating profit, or EBITDA, is expected to be lower at about 3% on-year compared with around 13% on average in the preceding four quarters. Operating margin is seen contracting up to 50 basis points to about 19.5% as topline shrinks.”
 
 
However, the ratings agency feels an expected softening in prices of most of the common commodities and crude oil on-year is expected to limit margin erosion as end-use sectors benefit from lower input prices.
 
Domestic prices of flat steel and aluminium are lower by around 5% and 15%, respectively, while long steel prices will report only a marginal increase of about 1% year-on-year (y-o-y) in the first quarter. Additionally, oil prices are estimated to lower by 8% y-o-y. Thus, while lower realisations for commodities will impact revenue growth this quarter, a fall in commodity prices will lend support to profitability for end-use sectors, CRISIL concludes.
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Budget 2019-20: Incentive for Affordable Home Buyers
The union budget for FY2019-20 turned out to be a mixed bag for realty sector, with buyers of affordable homes receiving an additional tax incentive, while builders were left out from receiving input tax credit (ITC) benefits under the goods and services tax (GST).
 
In her maiden budget Finance minister Nirmala Sitharaman on Friday, increased interest deduction on loan taken for an affordable home by Rs1.50 lakh. This means that the owner of a  self-occupied house in the affordable segment, valued at up to Rs45 lakh can show interest deductions of Rs3.50 lakh instead of Rs2 lakh.
  
Ramesh Nair, chief executive (CEO) and the country head of JLL, says, “With an objective to help buyers in the affordable and mid-housing segments, an additional exemption of Rs1.5 lakh on interest paid on housing loan, over and above the existing Rs2 lakh, has been provided for properties up to Rs45 lakh. Considering that a majority of homebuyers fall in the lower and mid-income segments, this tax benefit will boost demand substantially. 
 
This will significantly benefit first time homebuyers who will enjoy the benefits of interest subvention under the CLSS scheme and the announced tax benefits. With effective interest coming down, it will increase the eligibility for the mid-income housing segments, open up land parcels of government and PSUs to be utilised for affordable housing and public infrastructure”, according to Mr Nair.
 
Liases Foras, an independent non-broking real estate research company, believes that the move would rationalise housing cost for end user and stakeholder and that it will give an “immense boost to affordable housing in tier-II cities as well as to real estate in peripheral areas of tier-I cities”.
 
Our data shows affordable units (priced less than Rs45lakh) contribute 53% of the unsold supply and 53% of sales across 50 cities in India, says the firm. 
 
 
There was emphasis on several government programs like the Prime Minister Awas Yojana (PMAY), Gramin, a program aimed toward affordable housing for the middle, and lower classes, with the objective of housing for all by 2022, as envisioned by Prime Minister Narendra Modi. 
 
Ms Sitharaman also proposed to bring in a model tenancy law which may give a huge boost to rental property at a time when many youngsters prefer to lease rather than buy. 
 
Commenting on this, Mr Nair from JLL says, “This (the model tenancy law) will be finalised and circulated to the states. Archaic rental laws in the country so far have proved disadvantageous for both, tenants and property owners. The new rental act will bring the required institutional framework in the country and make it more organised and fair for landlords and tenants.” 
 
Non-banking financial companies (NBFCs) and housing finance companies (HFCs) play a crucial role in supporting the real estate sector. 
 
Ms Sitharaman told the Lok Sabha while preseting her budget that housing sector needs efficient and conducive regulation and that National Housing Bank (NHB) plays a difficult and contracitory role of being both lender and regulator of the housing finance sector. "Efficient and conducive regulation of the housing sector is extremely important in our context. The NHB, besides being the refinancer and lender, is also regulator of the housing finance sector. This gives a somewhat conflicting and difficult mandate to NHB. I am proposing to return the regulation authority over the housing finance sector from NHB to Reerve Bank of India (RBI)," she said.  
 
According to market players, unification of the regulatory body and to place both NBFCs and HFCs under the aegis of RBI will lead to better regulation of HFCs and improve transparency in the system.
 
The Budget has proposed a one-time provision for six month period to offer partial credit guarantee to public sector banks to buy high rated pooled assets worth Rs1 lakh crore from NBFCs. This will provide the much needed liquidity to the NBFCs. They can thus liquidate their portfolio and meet their liabilities in a timely manner. Additionally, it will induce an atmosphere of confidence.
 
While the budget had a lot for the housing sector, expectations were riding high and there was disappointment as well. Pointing to the flip side, Anuj Puri, chairman of Anarock Consultants Pvt Ltd. Says, 
 
“From the real estate perspective, the budget did not meet many expectations as it failed to address the sector's most pressing concerns. We may not see consumers and investors return to the market in sufficient numbers - barring in affordable housing. The all-important ‘industry status’ remained elusive, taxes were not sufficiently moderated and land reforms were not mentioned at all,” he says. 
To revive the ailing real estate sector and ease the liquidity crisis, the government has to revive investor sentiment. However, according to Mr Puri, the budget failed to announce sufficient key initiatives and measures to bring investors back to the real estate market and thereby help pump some badly needed liquidity into the system.
 
Pre-budget, there were strong indications that the Centre would create a stress-asset fund to get work started on the stuck projects and provide relief to cash-starved developers as well as aggrieved homebuyers. The fact that it did not materialize is a major disappointment, he says, adding increase in customs duty on various raw materials such as PVC, and vinyl floor may put additional pressure on the pricing of residential real estate.
 
ITC benefit in GST left out
Without ITC benefits, builders suffer a major cut in their profit margins, Mr Puri says. “Not only are the consequent losses offset by higher prices to buyers, but they also result in a curtailed supply pipeline which does not bode well for amenable pricing going forward,” he added. 
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COMMENTS

Pradeep Kumar

1 week ago

Focus on affordable housing segment is much appreciated. I believe a little more could have brought by unifying the interest rate offered by different banks under different methods. Mainly RBI interest rates & NHB interest rates different, not getting much benefits under NHB, this issue should have been given priority.

SC issues notice to Tata Trusts' ex-managing trustee R. Venkataramanan in a defamation case
This is "nothing but a corporate war", said the Supreme Court on Thursday issuing a notice, seeking the response of R. Venkataramanan, former Managing Trustee of Tata Trusts, in connection with a defamation case filed against him by Shapoorji Pallonji Group.
 
The apex court bench was hearing Shapoorji Pallonji Group's petition challenging a March order by the Bombay High Court that quashed Venkataramanan's prosecution. 
 
A Mumbai Metropolitan Magistrate court had in October 2018 ordered for Venkataramanan's prosecution based on a complaint filed by the Pallonji Group. 
 
In September last year, the Pallonji Group had filed the complaint alleging that a press note issued by Venkataramanan on May 30, 2018 was defamatory as it contained "false", "frivolous" and "baseless information" against the company.
 
In his prosecution order, the Metropolitan Magistrate stated that the allegation against Venkataramanan and his press note came within the ambit of defamation as per Section 499 explanations 2 of the Indian Penal Code (IPC).
 
However, the High Court opined to the contrary, and stated that the usage of words in the press release could not be considered defamatory.
 
The High Court observed that the words were "moderate and temperate", and it doesn't appear they "invite contempt, ridicule or hatred against the persons mentioned in the press note and much less the complainant."
 
The Group's petition to the top court contended that the High Court, without a trial, held that the statement was not defamatory, even though the statement caused irreparable damage to its reputation.
 
Senior advocate Mahesh Jethmalani, appearing for the Pallonji Group in the Supreme Court, argued that a strong case had been made out against Venkataramanan.
 
The bench, headed by Chief Justice Ranjan Gogoi, observed that the case against Venkataramanan appeared to be "nothing but a corporate war", which has come to the court.
 
After hearing the initial arguments, the apex court decided to issue a notice, seeking a response from Venkataramanan.
 
Reportedly, Venkataramanan, in his response earlier to the complaint, had contended that a defamation complaint can be filed only by an aggrieved person and not by a company.
 
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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