Realty & telecom pull down the markets

Fri, 12 Nov 09:30 am

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Asian markets have started the day on a weak note. The markets are weighed down by weak global cues as well as weak macroeconomic data from China. China and Hong Kong are the main losers followed closely by Indonesia and Japan. Indian markets have followed suit and have opened in the negative as well. Currently, stocks from realty and telecom sectors are the main losers.

The BSE-Sensex is trading lower by around 86 points (-0.4%), while the NSE-Nifty is higher by about 19 points (0.3%). Mid cap stocks are trading in the red as well with the BSE-Midcap index trading lower by around 0.1%. However, small cap stocks have opened the day on a positive note with the BSE Smallcap index trading higher by around 0.3%. The rupee is trading at 44.52 to the US dollar.

Realty stocks have opened the day in the red. Peninsula Land and DLF are the main losers. DLF has announced its 2QFY11 results. The top-line increased 35% YoY while the bottom-line declined 5% YoY during the quarter ended September'10. The company booked nearly 2.0 m sqft of property in its developmental business (residential and commercial complexes), as compared to 1.9 m sqft recorded in the preceding quarter. Under the annuity business, DLF booked 1.56 m sqft as compared to 0.98 m sqft in 1QFY11. On a YoY basis, DLF witnessed a fall in realizations for its developmental business particularly in the residential segment. However, realizations on the commercial space increased 29% YoY during the quarter. Margins in its residential business stood at 59% while margins in the commercial space stood at 68% during the quarter. DLF's operating profits increased 1.7% YoY. Operating margins stood at 39.2% in 2QFY11 as compared to 48.3% in 1QFY11. Net profits declined 5% YoY mainly due to burgeoning interest and depreciation expenses.

DLF, the real estate major, has been working consistently on reducing its debt burden by 'unlocking' its non-core assets. The company's divestment plan is on track. It realized approximately Rs 4.1 bn during the quarter through sale of non-core assets and has plans to divest Rs 20 bn over the next 12-18 months. Cash flow arising from sale of noncore assets will be used to repay debt.

Apollo Tyres declared its second quarter results. Its standalone net sales have declined by 5% YoY during the quarter. This was mainly due to capacity constraints. Furthermore, the fact that one of its international facilities in South Africa had to undergo a lockout for some days of the quarter also made matters worse for the company. However, there is some good news on this front. Operations have resumed at both its Indian as well as South African facilities and this should help its revenues in the forthcoming quarters. The operating margins declined by 6% YoY while net profit declined by 63% YoY during the quarter. The decline is attributable to the rise in raw material expenses, which the company was not able to fully pass on to its end users. Decline in margins was also accelerated by higher staff costs, higher interest costs as well as higher depreciation charges during the quarter. The stock is currently trading in the red while peer Ceat Ltd is trading in the green.