Sikozy Realtors Ltd Management Discussions.
INDIAN ECONOMY POSITIVES
Ease of Doing Business Index: India improves rankings
The ease of doing business initiated by Government of India during the past 3 years has enabled India moved up by 23 places in the World Banks Ease of Doing Business Index 2018 and was placed77th rank. This is attributed to 6 reforms this year- starting a business, getting electricity, construction permits, getting credit, paying taxes and trading across borders. The maximum improvement was of 129 places in construction permits to reach 52nd rank in 2018 as compared to 181st in 2017.
Make in India: Manufacturing Sector GDP Contribution Up
The Make in India Campaign launched by the Government of India in September 2014 permitted 100% FDI in 25 sectors of the economy except space, defense and media industry of India. The movement further led to local state movements like "Make in Odisha", "Happening Haryana" and "Magnetic Maharashtra". With this campaign the government aimed to raise the contribution of manufacturing sector to 25% of GDP. In an interview with The Hindu Business Line, the Head of Economic Development Agency, Cluster Pulse (not a well-known agency), Jagat Shah said referring to growth from 9% in 1950-51 to 15% over next 2 decades, Goods and Services Tax (GST): Single Taxation System across the Country GST, a unified consumption tax on all goods and services except electricity, petroleum products and alcoholic drinks was implemented by the government in July 2017. This tax eradicated the disparity of taxes among different state governments and the multilayer tax system. Its has pooled the resources of centre and state government under a single tax, which can benefit both. According to a report in The Economic Times, GST has caused an increase in tax base, easier movement of goods across state borders and reduction in tax rate from 28% to 18% for several products. The monthly collection of GST crossed the 1 lakh crore mark in October 2018 however, it dropped to 97637 crore in November 2018. However the steady increase in average collection brings a gleam of hope for a regular monthly collection of 1 lakh crore being met soon."
Foreign Direct Investment (FDI): All Time High
FDI rose to around $61.96 billion in 2017-2018 further increasing an all-time high of $60.1 billion in 2016-2017 which is certainly an indicator that even the foreign countries are banking on India as a growing economy and that is definitely a step in the right direction. FDI is as good an indicator of a growing economy as any and an increase at such a scale is quite good for the economy. The new lax policies on FDI have led to this increase with a permit of 100% FDI in 25 sectors with 74% in aerospace, 49% in defense and 26% in media.
Bharatmala Pariyojana: Boost to Infrastructure Development
This is a centrally sponsored road and highways project of Government of India. A total investment of 5.35 lakh crore to lay 83677 km or roads and highways all over the country. The plan includes National Corridors, Economic Corridors and is expected to be completed by 2022. This points to better infrastructure in future which will provide better connectivity and hence better growth.
Demonetization: GDP Growth Hampered
The demonetization of 500 and 1000 notes done in November 2016 by the Prime Minister Shri Narendra Modi had a variety of motives including wiping out the black money from the country, making people to pay taxes for the unaccounted cash locked away, prevent terrorism and to promote digital finance and a cashless economy. This step caused lot of disruption in the Indian economic growth. According to RBI reports 99% of the money has been deposited back, which tells that most of the black money was not stored in form of cash. RBI reports suggest that demonetization may not have affected black money hoarding but has increased tax compliance. The Personal Income Tax Collection in 2016-17 rising to 21% and further 25% in 2017-18 according to CBDT. However, the impacts are being faced by small bread earners, MSMEs that used to deal mainly in cash and were not prepared for such a situation.
Unemployment: Still a Problem
The Centre for Monitoring Indian Economy (CMIE), estimated that nearly 1.5 million people lost jobs between January and April 2017. The State of Working India (SWI) 2018 report said, Unemployment levels have been steadily rising, and after several years of staying around 2-3%, the headline rate of unemployment reached 5% in 2015, with youth unemployment being a very high 16%. This rate of unemployment is the highest seen in India in at least the last 20 years. According to a survey conducted by CMIE, there are about 31 million unemployed youth in the country as of February 2018.
Declining Profits: Slowing Indian Economic Growth
The quarterly profits of companies are below expectations and have seen a decline as compared to the past years. Apart from Fast Moving Consumer Goods or FMCG products, the other sectors such as steel, pharmaceuticals etc have seen a grave decline in their profits which does not bode well for the economic condition of our country. TCS recorded a 3.6% decline in quarterly profit, Wipro saw a 6.6% decline and HPCL 10.4%. These are just few of many in the same boat.
Stock Market Falls: Result of Declining Rupee Value
On 4th October 2018 the Stock Markets BSE benchmark Sensex saw a historical fall of 806.47 points accounting to 2.24% to settle at 35169.16 whereas its NSE counterpart Nifty shed 259 points (2.39%) settling at 10599.25. 41 stocks on the Nifty were in red including Reliance Industries, Tech Mahindra, Eicher Motors, TCS and GAIL. The reasons for this are being attributed to fall of rupee to 73.77 against USD, increase in oil prices to up to $86 per barrel and rising bond yields.
Cash Liquidity Crunch: Holding Growth of Indian Economy
After demonetization, the cash flow has decreased multi fold in the Indian economy and this has led to lower cash liquidity in the market which in turn has caused organisations and individuals alike to face financial problems. The cash deficit hit a peak of 1.4 lakh crore in October 2018. Suyash Chaudhary, the head of fixed income at IDFC Mutual Fund said, Core System Liquidity is rapidly dwindling and may touch about 2.5 lakh crore by March. Liquidity deficits lead to spike in short term borrowing rates and forecasts higher future inflation.
GDP Growth: Yet to Go Up
The annual GDP growth rate of India has been falling for the past 2 years from 8.2% in 2015 to 7.1% in 2016 and further reducing to 6.6% in 2017. While the annual GDP seems to be on a rise, to 2.6 lakh crore USD in 2017 from 2.27 lakh crore USD in 2016, the growth rate seems to be declining. However, the first quarter of 2018-19 saw a growth rate of 8.2%, the rate fell to 7.1% in the third quarter, much lower than the expected growth rate.
NPA Shoots Up in Banking System
NPA or bad assets are the loans given by banks to companies that remain unpaid. According to RBI, the gross NPA in Indian
Public Sector banks are valued at 400,000 crore comprising 90% of the total NPA in India. NPA under NDA have risen by 6.2 lakh crore between March 2015 and March 2018 according to a Parliamentary Committee. 8040 crore given to Vijay Mallya and 13000 crore bank fraud by Nirav Modi are both severe NPAs that the country in still facing the effects of.
Future of Indian Economy: The Road Ahead
Higher farm sector productions, higher contribution to GDP by Manufacturing sector, making India stand up with the concepts of Startup India and Stand up India, Introduction of water transport, creating better road and rail network, higher FDIs are expected to make Indian Economy grow faster in future. The employment generation in India is also expected to go up as there are lakhs of jobs are going to be offered in next two years to skilled and unskilled work force in different sectors in India.
The construction industry is a major contributor towards Indias GDP, both directly and indirectly. The construction sectors contribution to GDP in India has stayed fairly constant at around 7-8% for the last five years. It employs 33 million people, and any improvements in the construction sector affect a number of associated industries such as cement, steel, technology, skill enhancement, etc. Apart from the Smart Cities project, the Governments Housing for All by 2022 will be a major game changer for the industry.
The real estate sector is one of the most globally recognized sectors. Real estate sector comprises four sub sectors - housing, retail, hospitality, and commercial. The growth of this sector is well complemented by the growth of the corporate environment and the demand for office space as well as urban and semi-urban accommodations.
It is also expected that this sector will incur more non-resident Indian (NRI) investments in both the short term and the long term. Bengaluru is expected to be the most favoured property investment destination for NRIs, followed by Ahmedabad, Pune, Chennai, Goa, Delhi and Dehradun.
Real estate sector in India is expected to reach a market size of USD USD 1 trillion by 2030 from USD 120 billion in 2017 and contribute 13 per cent of the countrys GDP by 2025. Retail, hospitality and commercial real estate are also growing significantly, providing the much-needed infrastructure for Indias growing needs.
Sectors such as IT and ITeS, retail, consulting and e-commerce have registered high demand for office space in recent times. Commercial office stock in India is expected to cross 600 million square feet by 2018 end while office space leasing in the top eight cities is expected to cross 100 million square feet during 2018-20. Co-working space across top seven cities has increased sharply in 2018 (up to September), reaching 3.44 million square feet, compared to 1.11 million square feet for the same period in 2017.
The Indian real estate sector has witnessed high growth in recent times with the rise in demand for office as well as residential spaces. Between 2009-18*, Indian real estate sector attracted institutional investments worth US$ 30 billion. Private Equity and Venture Capital investments in the sector reached USD 4.47 billion in 2018 and USD 546 million in Jan-Feb 2019.
According to data released by Department of Industrial Policy and Promotion (DIPP), the construction development sector in India has received Foreign Direct Investment (FDI) equity inflows to the tune of USD 24.91 billion in the period April 2000-December 2018.
Some of the major investments and developments in this sector are as follows:
Housing launches across top eight Indian cities increased 75 per cent in 2018 to 182,207 units. In March 2019, Embassy Office Parks, Indias first real estate investment trust (REIT) went public. Warehousing space in top eight Indian cities increased 22 per cent y-o-y in 2018 to 169 Mn sq. ft. Around 5.1 million sq. ft. of retail space became operational in top seven Indian cities in 2018. In May 2018, Blackstone Group acquired One India bulls in Chennai from India bulls Real Estate for around Rs 900 crore (USD 136.9 million). In February 2018, DLF bought 11.76 acres of land for Rs 15 billion (USD 231.7 million) for its expansion in Gurugram, Haryana.
The Company has not reported any income of during the financial year.
Due to recessionary trends which continued globally and in India, your Companys was not able to sell any units during the year. The demonetization continues to have an impact on sales of the Company. During the financial year, company posted a loss of Rs. 13.41 Lacs for the financial year 2018-19 as against loss of Rs. 11.37 Lacs for the previous financial year 2017-18
The ongoing project located at Karjat is completed and most of the residential units have been sold out and project is yet to receive the Occupation certificate.
The Company is also planning a development of residential project on land parcel situated at Karjat East, we have already initiated discussion for entering into Joint Development Agreement for development of the saidproject.
A cyclical downturn combined with impact of demonetization, GST and the implementation of the Real Estate (Regulation and Development) Act, 2016 has created uncertainty in the sector. However these same factors will lead to consolidation and improved governance in the sector, which in turn drive the improved consumer confidence with far improved affordability that is the result of rising incomes, stagnant prices, and reduced interest rates will propel the sector in a very positive direction over the next several years. The infrastructure status accorded to affordable housing is a game changing move that will open up more institutional sources for developers to raise funds at competitive price. Real Estate Regulatory Act (RERA) reform in 2017 has triggered accelerated consolidation. Customer preferences also have shifted towards better quality and branded developments. Access to cheaper capital has gained importance as working capital requirements rise. The organized sector should be able to more than double its market share of the residential property to nearly 20% over the next five to seven years. Developers with a scalable business model are better placed to grow market share in a regulatory environment that demands greater accountability and transparency from developers. The Indian residential real estate sector is at the cusp of a gradual demand revival, aided by affordability at a 15year high, and new buyer friendly regulations that have increased the confidence of property buyers .Improvement in the current subdued job/creation growth outlook could lead to even faster growth. Developers with scalable business model are better placed to grow market share in a regulatory environment that demands greater accountability and transparency from developers. We expect the following financial year to be a transition year for the sector with things starting out slow but seeing a dramatic improvement during the year.
In order to strengthen its topline and bottom line, the Company plans to foray in to IT & Chemical business which are allied to Real Estate Sector as the Company has not signed any projects during the year.
THREATS RISKS AND CONCERNS
The real estate market is inherently a cyclical market and is affected by macroeconomics conditions, changes in applicable government schemes, changes in supply and demand for projects ,availability of consumer financing and illiquidity .ur Company has attempted to hedge against inherent risks through a business model comprising joint ventures, residential platforms and development management through PAN INDIA presence. However, any significant downturn in the industry and overall investment climate may adversely impact the business.
Execution Risk: The Real Estate and construction projects are subject to various execution risks like regulatory hurdles, delay in receipt of approvals, availability of labour and raw material, etc. Any such delay may result in cost overruns and impact the Companys operations unfavorably.
Liquidity Risk: The Real estate business has significant initial outflow with staggered and long-term inflows. Delays in project cycle; inadequate funding resources may have an impact on the liquidity position of the Company.
Regulatory Environment: Our operations are exposed to uncertain political, legal and economic environment, government instability and complex legal systems and laws and regulations in India and abroad. Our ability to manage, evolve and improve our operational, financial and internal controls across the organization and to integrate our widespread operations and derive benefits from our operations is key to our growth strategy and results of operations.
Manpower is biggest strength in any Sector. The Company maintains its focus on its human resources as it believes that a motivated and empowered workforce is the key to sustained competitive advantage. The Company has maintained excellent relations with its employees across all levels of the organization during the period under review. All efforts were made to ensure a high employee satisfaction. Adequate measures were undertaken to enhance the skill sets of the employees.