Housing sales recover in top cities – and it’s showing in real estate stocks
The real estate market in India’s top seven cities is recovering from the Covid-induced slowdown with housing sales climbing in the first half of 2021 thanks to a number of factors ranging from policy measures and low interest rates.
According to a report by US commercial real estate services and investment firm CBRE Group Inc., residential property sales in the top seven cities grew 75% during January-June 2021 from a year earlier, albeit on a lower base.
Continued push towards affordable housing, historic low lending rates, real-time measures by the government to absorb the shocks of Covid-19 followed by specific pandemic-related measures by various states led to green shoots across the country.
The first half of 2021 was preceded by a strong show in the fourth quarter of 2020, when housing sales grew 73% on a quarter-on-quarter basis.
Pune accounted for the largest share of the total sales during both the instances. During January-June this year, Pune accounted for 26% of the share followed by Mumbai (19%), Hyderabad (18%) and Delhi-NCR (17%).
Maharashtra, Haryana, Delhi, Uttar Pradesh, Telangana, Tamil Nadu and Karnataka governments undertook various measures to support the real estate sector.
Source: CBRE Research report
Specific to Maharashtra, the state government cut stamp duty from 5% to 2% effective September 2020 to December 2020, and 3% effective January 2021 to March 2021. The state budget allowed for additional benefits for women buyers. In addition, the state government also allowed developers to utilize 100% floor space index (FSI) of the plot area if they agreed to transfer a portion of their land to the Mumbai municipality for public works.
Mahindra Lifespace Developers – the residential property developer under the Mahindra & Mahindra Group – has seen its stock rise two-and-a-half times in the past year. Shares of Gurugram-based DLF, India’s most valued developer, have also jumped two-and-a-half times since August last year.
Godrej Properties – with 15 ongoing projects in Mumbai and 13 in Pune – appears to have been a big beneficiary of the state-wide measures. The green shoots are visible in its stock price, with its shares rising 75% in the past year.
Lodha Group’s Macrotech Developers, India’s second-largest listed company, has seen its stock nearly double since it listed in April 2021. The builder is developing a host of residential projects in Mumbai and its outskirts. These include the world's tallest residential tower, The World One tower.
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Eicher rides into Q1 profit but chip shortage cause for concern
Eicher Motors Ltd swung to a profit for the quarter ended June 30 from a loss a year earlier as it sold more motorcycles, but reported a steep drop in earnings compared with the preceding three months.
The maker of Royal Enfield bikes said it posted a consolidated net profit of Rs 237 crore as compared to a loss Rs 55 crore during the same period last year. However, profit fell 55% from Rs 526 crore during the January-March period.
The company’s revenue more than doubled to Rs 1,974.3 crore for April-June from Rs 818 crore a year earlier but slipped from Rs 2,940 crore in the first three months of 2021.
Eicher’s joint venture with Volvo Group that makes buses and trucks remained in the red. VE Commercial Vehicles, in which Eicher holds a 54.4% stake, posted a net loss of Rs 72 crore for the quarter, compared with a net loss of Rs 120 crore a year earlier. Its revenue from operations, however, more than doubled to Rs 1,639 crore from Rs 641 crore.
The results reflect the disruptions due to lockdowns in the wake of the Covid-19 pandemic. India had imposed a strict lockdown in April-June 2020, hampering business across sectors. Business was returning to normal during the January-March period of this year, but a devastating second wave of the pandemic hammered India after April.
Other key details:
Eicher’s Q1 EBITDA was Rs 363 crore as compared to Rs 4 crore a year earlier.
Royal Enfield sold 122,170 motorcycles in Q1, up 109% from 58,383 units sold a year earlier.
VE Commercial Vehicles’ EBITDA for Q1 was Rs 18 crore, versus a loss of Rs 72 crore.
VE Commercial Vehicles sold 5,806 trucks and buses in the quarter, up 173% from 2,129 units a year before.
Vinod K Dasari stepped down as CEO of Royal Enfield; COO B Govindarajan will replace Dasari.
Eicher MD Siddhartha Lal said the first quarter was challenging for the automotive sector overall because of the second wave of the pandemic. Still, Royal Enfield delivered the strongest-ever quarter in international markets. In India, the company’s bookings saw an uptick in June as local lockdowns were gradually lifted.
Lal also expressed concern over the global shortage of semiconductors and said this is likely to hamper production for the ongoing quarter, and possibly through the rest of the year as well.
Dasari said the company is investing in CKD (completely knocked down) facilities to strengthen its presence in key markets. It recently set up a CKD assembly unit in Colombia, the third-biggest motorcycle market in Latin America, following a similar plant in Argentina. The company also opened its flagship stores in the Netherlands and Singapore.
Nirma Group cement arm Nuvoco’s IPO gets thumbs up from brokers
Nuvoco Vistas Corporation, India’s fifth-largest cement producer that was created after Nirma Group acquired Lafarge India’s assets in 2017, opened its public issue on Monday to raise Rs 3,562.5 crore.
Nuvoco is competing for investor attention with three other companies – automobile marketplace CarTrade, mortgage lender Aptus Value Housing and chemicals maker Chemplast Sanmar – that are hitting the primary market this week. While CarTrade also opened its IPO on Monday, the other two are opening their issues on Tuesday.
Nuvoco’s IPO, the largest among the four, has fetched a ‘buy’ rating from brokers given the optimistic growth outlook for the cement sector and the fairly priced issue that leaves a scope of appreciation after listing.
The company raised Rs 1,500 crore on Saturday in an anchor allotment that shrunk the overall issue size of around Rs 5,000 crore. Notably, more than 90% of the anchor book was subscribed by long-only funds. This means at least a quarter of the overall issue has been picked up by investors who are not looking at a listing pop to dump the shares.
The promoter group led by Karsanbhai Patel, best known for the detergent label Nirma, is looking to divest shares worth Rs 3,500 crore while the company would see an infusion of Rs 1,500 crore through the fresh issue. Nuvoco will use a bulk of the fresh issue proceeds to repay loans and clean up its balance sheet.
The company’s total revenue rose just over 10% to Rs 7,522.6 crore last year but its net profit of Rs 249.25 crore in FY20 turned into a net loss of Rs 25.91 crore loss for the year through March 2021. Moreover, a slowdown in construction with the second wave of the Covid-19 pandemic affected its sales in the April-May 2021 period, though the company said that demand revived the following month.
Nuvoco has about a dozen cement plants spread across West Bengal, Bihar, Odisha, Chhattisgarh and Jharkhand in eastern India, besides Rajasthan and Haryana in north India. It also has 49 ready-mix concrete plants across India.
Who said what?
Antique Stock Broking:
The brokerage has noted that the company toned down its valuation expectation since the time it filed the draft red herring prospectus (DRHP) and is now eyeing a market capitalisation of Rs 20,400 crore.
“The target valuations have significantly tapered down from those (May) levels. The tapered down market-cap implies 18-19 times FY21 EV/EBITDA and 9.5-11.5 times FY22-FY23 EV/EBITDA, which appears fairly priced, given the exuberance in the sectoral peers. Larger peers are trading at 10.5-18.5 times at FY23 EV/EBITDA,” it said.
The brokerage, however, added the key risk for the company is the geographical concentration of business in eastern India and any price correction in the region.
“Nuvoco is looking for an organic expansion of 2.7 MTPA (12% addition) in eastern India over FY22 and FY23. We understand at the upper band, Nuvoco IPO is priced at EV/tonne of $131. That valuation is at a discount to its large cap peers at 12-19 times FY23 EV/EBITDA. This discount, however, partially factors a high debt on its books – net debt/EBITDA of 4.5 times FY21, and also a low ROCE," according to IDBI Capital.
“But given the upcycle in the cement industry and expectation of margin improvement and balance sheet deleveraging over FY21-23, we recommend a 'subscribe' rating to the issue,” it added.
Anand Rathi has a ‘subscribe for long term’ rating on the IPO. It is bullish on the firm due to its planned expansion, debt repayment plan and cost-reduction initiatives.
Nuvoco had previously increased its cement capacity to 22 million tonne per annum (mtpa) in FY21 from just 2.5 mtpa in FY16. Much of this was due to acquisitions led by Lafarge’s local assets.
The brokerage noted that Nuvoco’s recent financial performance has been tepid. “However, with a strong focus on improving margins and positive industry growth prospects, we have a positive view for the long term,” it added.
Power Grid Q1 profit triples on gains from InvIT offer
State-run Power Grid Corporation of India Ltd has posted a three-fold jump in consolidated net profit for the April-June quarter thanks to a one-time gain from the sale of units of an infrastructure investment trust (InvIT).
The transmission utility said it recorded a net profit of Rs 5,998.28 crore for the three months through June compared with Rs 2,048.42 crore a year earlier.
Net profit jumped because of a gain of Rs 3,014 crore on the sale of units PowerGrid Infrastructure Investment Trust during the quarter. Profit before this one-time gain, tax and regulatory deferral charges rose 7.7%.
Power Grid Corp bundled five of its transmission subsidiaries into the InvIT. The InvIT raised Rs 4,993.5 crore by issuing fresh units while Power Grid Corp generated Rs 2,736 crore, after tax, by selling units in the public offering.
Other key details:
1. Operating profit for Q1 came in at Rs 3,862.47 crore, up 7.7% from Rs 3,587.32 crore
2. Consolidated revenue from operations rose 8% from a year earlier to Rs 10,216.5 crore in Q1.
3. Total expenses rose to Rs 6,546.4 crore from Rs 6,277.3 crore a year earlier.
4. The company’s tax expense more than doubled to Rs 1,007.85 crore from Rs 412 crore.
The state-run company said its services were exempted from the lockdown restrictions imposed due to the Covid-19 pandemic and that there has been no material impact on its operations or profitability during the quarter.
However, the company will continue to monitor any material changes to future economic conditions, it said.
Learn all about Balanced Advantage Funds with Radhika Gupta
Balanced Advantage Funds (BAF) is a type of mutual fund scheme that invests in both equity and debt instruments and falls under the hybrid mutual fund category. It is important to remember that there is a difference between hybrid mutual funds and balanced advantage funds. Basically, hybrid mutual funds are a broad category under which you can have many funds that invest in both equity and debt instruments. Thus, balanced advantage funds are a type of hybrid fund. These funds dynamically manage their equity and debt exposure such that fund managers can take advantage of market rallies through the equity investments in the portfolio and dynamically increase exposure to debt to protect portfolio downside when markets fall.
Also Read: What are Hybrid Mutual Funds
In this episode of Fun n Learn Fridays with 5paisa, we discuss Balanced Advantage Funds with Radhika Gupta, MD and CEO Edelweiss AMC. In a career spanning over 15 years, Radhika has worked at one of the world’s leading consulting firms (McKinsey & Company), at the world’s largest Systematic Asset Manager (AQR Capital), founded her own alternative asset management firm (Forefront Capital Management), and become the youngest and only woman CEO of an AMC in India and Board Member of the Association of Mutual Funds in India (AMFI).
Entire Interview -
1. Hybrid, as the name suggests, is a mix – in this case, it’s a mix of debt and equity. There are debt hybrid funds, there are equity hybrid funds, and then there are Balanced Advantage Funds. What makes them the star of the category?
Balanced advantage funds have two main attributes that make them the star of the category.
i. They solve the needs of a wide range of investors
ii. They are timeless
The amount of equity in balanced advantage funds can vary between 30% to 90% and can even go above 90% at times. From that perspective, it gives you exposure to the two main asset classes, i.e., equity and debt and takes care of how much to invest and when to invest.
Most people invest with the objective of generating returns while protecting their portfolios from extreme losses. BAF solves these twin objectives very well. Also, we all know that if we want to create wealth, we should ideally stay invested for a long period of time. However, when markets correct, it can become very challenging to stay put in the market. BAF can help investors stay put as it smoothens the volatility caused by equities.
2. Often when we read about Balanced Advantage Funds, there are some key phrases that pop out – all season fund, your partner in market ups and downs, etc. What does this really mean? How is BAF managed and how is the allocation moving? Also, how can we choose the best balanced advantage fund?
When you are looking to invest in the best balanced advantage fund, there are three things that you must focus on:
· How the fund chooses between equity and debt: In most established BAFs, the exposure to equity and debt is model driven. This means that the fund manager does not really take a call on how much to invest in equities and how much to invest in debt. This is a good thing because humans are inherently biased and these biases can have a negative impact on investment decision making. The formula for deciding allocations could be P/E, market momentum, or even proprietary in nature. However, it will impact the type of markets you do well in and the type of markets in which you do not do well. Many BAFs have documentation on this formula and methodology and, while choosing the best BAF, this is something that you must review.
· How is the equity portion being managed: This is similar to understanding a large-cap mutual fund or a mid-cap equity fund. Look at the number of stocks in the portfolio, understand whether the fund manager is following a growth strategy or a value strategy, etc.
· How is the debt portion being managed: It is equally important to understand how the debt portion of the fund is being managed. Since the debt portion is primarily for downside protection, you must ensure that it does not have any credit risk or duration risk.
3. Is it really for every kind of investor? Would a risk averse poet and an aggressive kabbadi player both be able to reap the advantages of Balanced Advantage Funds?
BAF is a great starting point for anyone who is entering equities. To put it simply, it is like the shallow end of the pool as it lets you get your feet wet in equities. Generally, equities are considered as long-term (more than 5 to 7 years) vehicles of growth. However, if you stay invested in BAF for even 3 to 4 years, it is highly probable that you will have a positive outcome. These chances of a positive outcome become even better if you choose to invest in BAF through Systematic Investment Plans (SIPs) since SIPs can help to reduce equity market volatility.
BAF can be used in multiple ways in your portfolio
· For all investors, it takes care of basic asset allocation as it is a mix of two major asset classes.
· For a conservative investor, BAF can be used as a core and can take care of your equity exposure. Basically, it can give you large-cap like exposure but with a little more protection.
· For an aggressive investor, while it cannot replicate the mid and small cap exposure, it can amplify portfolio returns.
· For young investors, who have not yet had any experience with equity markets, it is a great way to start investing in equities.
4. Can BAF become an ideal replacement for Fixed Deposits?
BAF is not a replacement for fixed deposits (FDs) since FD is a fixed-income instrument, i.e., you are guaranteed an income and you will not lose money. From that perspective, BAF has an equity component and it is possible that your investments in BAF can lose money, especially over a shorter time frame of 12 to 18 months. However, over three years, you are likely to have a really good outcome.
While BAF cannot replace FD investments, it is a good starting point for someone who is looking to move out of FDs and into equities.
BAF can also be used as a Systematic Withdrawal Plan (SWP) if you want to supplement your income. While an SIP helps you to systematically invest in a fund, an SWP can help you systematically withdraw your money from a fund. An SWP can help you supplement your current income if you are a working professional or act like a monthly income in case you are a retiree. However, there are two things that you need to take into consideration if you are planning to set up an SWP.
One, don’t start your SWP on day one because you need to give it time to accrue returns. And, two, don’t set up a very aggressive SWP on BAF. An SWP of around 6% should be good.
5. What are the risks in Balanced Advantage Funds?
We must always remember that BAF has an equity component – 50% on average. Thus, BAF can lose money. A good outcome is when the equity market is down 30% and your investment in BAF is down 10 – 12%. A bad outcome is when the market is down 30% and your investment in BAF is down 25%. Also, look at the credit and duration risk in the debt portion of BAF.
The bottom line is that BAF is a 3+ year investment and can have negative returns in 1-2 years.
These Bluechips Have Lagged Behind Nifty 50 Since Last Ganesh Chaturthi
India’s stock markets remain buoyant on the eve of Ganesh Chaturthi and are trading near record highs. Since the festival last year, benchmark indices have jumped more than 50% and many individual stocks have gained far more.
Which stocks did not perform since Ganesh Chaturthi 2020?
Since August 21, 2020, when Ganesh Chaturthi was celebrated last year, the benchmark Nifty 50 index has gained 52.45% from 11,371.6 to 17,342.6. But not all marquee stocks have joined the party with the same gusto and a handful have even been in the red.
If one looks at the stock price data, as many as 24 counters in the 50-stock index have actually underperformed the index itself. These include top public-sector undertakings, energy companies and automobile manufacturers, all of whom were adversely hit by the back-to-back national and regional lockdowns that badgered the Indian economy throughout last year and during the April-June period this year.
- Maruti and other laggards
Among these laggards, shareholders of at least three companies — Power Grid Corp of India Ltd, Hero MotoCorp and Maruti Suzuki—have actually seen their investments lose value over this period.
Maruti, India’s biggest carmaker, lost just over 1.1%. Power Grid, the state-run transmission utility, slipped 8.5%. and Hero Motocorp, India’s biggest motorcycle maker, skid 7.77%.
Other shares in the top 50 have been in the green, but have been outdone by the index by a mile. At least five companies — Britannia, Dr. Reddy’s Labs, Coal India, ITC and NTPC—gained less than 10%, effectively meaning that the index beat them five-fold.
Incidentally, several companies among the laggards are government-owned. Apart from Power Grid, Coal India and NTPC, refining and oil marketing companies Indian Oil and Bharat Petroleum also lagged behind the index. These two companies registered comparatively modest gains of just 25.89% and 17.52%, respectively.
- Reliance’s performance
Interestingly, billionaire Mukesh Ambani-led Reliance Industries Ltd also underperformed the benchmark index and gained just 17.25% in the period, less than a third of what the Nifty did.
However, this is mainly because Reliance was first of the mark when the stock market revived after the crash of March 2020. The Reliance stock more than doubled from a low of Rs 875 in March 2020 to cross Rs 2,000 apiece in August 2020, thanks to the conglomerate raising billions of dollars from Facebook, Google and many other foreign investors for its Jio Platforms and Reliance Retail units.