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‘Land acquisition at peak prices thru short-term high cost debt major
worry’.
S. Shanker
Mumbai, Sept. 29 Realty stocks took a tumble on the bourses and many logged
their 52-week low on Monday.
The BSE Realty Index closed at a 52-week low at 3,407.87, down 5.26 per cent.
It had dropped 16.79 per cent over the week from 4,095.50, and 31.78 per cent
over the month. In January, the index clocked a high of 13,848.09.
Over the week, almost all real estate company stocks have taken a hammering,
dovetailing the Sensex’s fall with the negative market sentiment at an all-time
high, which this week is compounded by the wait for the US congressional nod
for the $700-billion bailout package for bankrupt investment firms there.
Delhi-based DLF Ltd stock closed at Rs 350. 60, 5.12 per cent lower than its
previous close. The DLF issue was priced at Rs 525. (52-week high – Rs 1,225,
low Rs 329)
Buyback
In July, the company announced its buyback intention of up to Rs 600 a share
for Rs 1,100 crore.
On September 18, it informed BSE that its board of directors would meet on
September 30 to consider and approve a public announcement with the proposed
buyback of equity of the company.
Sobha Developers’ stock suffered a 9.59 per cent drop, closing at Rs 171.55.
The issue price was Rs 640 (Rs 1,060, Rs 164.50). Puravankara Projects traded
at Rs 154.05 at close, down 3.14 per cent. The IPO price was Rs 400 (Rs 535, Rs
132.05). At close, Omaxe stock traded at Rs 96.05, down 4.38 per cent, far
below its issue price of Rs 310 (Rs 613, Rs 93.60). Housing Development and
Infrastructure Ltd was at Rs 166.05, down 13.72 per cent lower than its
previous close (Rs 1,432, Rs 160.20). Parsvnath Developers was down 7.04 per
cent at Rs 89.85 (Rs 598, Rs 86.60).
Among the marginal declines, was Ansal Infrastructure at Rs 77.30, down 4.13
per cent, and Unitech, which lost 1.98 per cent at Rs 108.85, but recovered
from day’s of low Rs 97.5, which is its 52-week low. Of the many investments
Lehman Brothers made in India, Delhi-based Unitech received about $175 million
(Rs 740 crore).
Mr Hardeep Dayal of Centrum Broking Pvt Ltd said it was a knee-jerk reaction as
the medium and long-term story remains strong. Market sentiments were down and
only need-based buying was happening. People have held back their decisions to
purchase properties, in anticipation of a price fall which is real. Mr Dayal
was however, hopeful of a turnaround in a year.
Liquidity crunch
Enam Securities Researchers pointed out that aggressive land acquisition at
peak prices through short-term high cost debt and huge working capital
mismanagement (short-term debt used for long-term projects) were some of the
ills that plagued the industry. Moreover, developers had stubbornly held on to
selling prices and high-cost inventories, hoping for a renewal of demand and
hike in prices.
Enam said the realty business model consists of three stages of value creation
— land acquisition/aggregation and conversion, construction and development,
and the lease/sale of the property.
The whole business model depended on the ability to infuse cheap monies at the
earliest stages, including additional infusion through exits at the end of each
stage, to be able to funnel monies back to stage 1 — land acquisition. Further,
as each project funds another in this working-cap intensive business, liquidity
is the key exponentiator of the business. This funnelling process has now
unravelled. With decreasing options, distress-sale of land parcels was the only
option for some.
http://www.thehindubusinessline.com/2008/09/30/stories/2008093052281400.htm
An economist is a man who states the obvious in terms of the incomprehensible.
-- Alfred A. Knopf
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