Fab City, Sem India, Semicon Policy.. What does it mean for Hyderabad ?

The hype and confusion still continue around the Fab City project of Hyderabad. Everyone was banking on the announcement of semiconductor policy in India which was finally revealed on thursday. Per the new policy, manufacturing plants in SEZS can avail 20% subsidy for semiconductor plants and those outside the SEZ's can avail 25% subsidy. This subsidy will be in the form of tax concessions, interest subsidy and interest free loans for subsidizing the capital expenditure incurred in setting up the manufacturing units for the first 10 years of its existence.

25% is exactly what SemIndia [ promoter of fabcity ] has been demanding saying that it needs atleast this much to sustain. New York state has recently granted a 28% subsidy to AMD to setup its fab in the state. So, what the Indian government is offering is no more than what a US state would offer. Korea is known to offer 80% of the costs incurred and malaysia is known to offer a double deduction for R&D etc.

In fab business companies operate at a 12% Margin irrespective of the location. About 88% of the cost of a chip fab are static and do not change regardless of the location the plants are in. So, India may serve as the testing, packing destination for a while instead of being a manufacturing site. A recent semiconductor vision summit also quashed some myths about the scale of initial operation. SemIndia's goals are to acquire fab's across the world , operate them as-is and then transfer them to India. One component that is guaranteed to come to Hyderabad is a chip design entity that will design chips for DSL Modems [ is that cutting edge anymore ?.. aren't there tons of these design shops in India already ? ], but the manufacturing will actually take place near Chennai in a 3rd party plant, followed by a semindia branding and sold to BSNL.

Recent and continuous announcements about an ATMP ( Assemble Test Mark Pack ) facility being the first in Fab City doesnt indicate that too much will happen in the near future in fabcity. No doubt, the growth will be slow, but dont be fooled by the hype around the 3 billion investments since it will be a long time before that really flows in.

While I really look forward to Hyderabad becoming a Fab center/Fab city, I do not see a clear roadmap to achieving the same from semindia. SemIndia from my research is not just focussing on Hyderabad, they have plans for other locations too..

1000 Employees Fired in Hyderabad ?

I some how missed to notice the news about 1000 employees fired in Hyderabad this week. Looks like companies are finally taking background checks seriously. Due to the serious security lapses leading to data theft, companies in India are actively supporting NSR, [ National Skills Registry ] Initiative. The following quote from Nasscom shows how serious IT/ITES industry is about data security to protect the honest people working in India.

"We will leave no stone unturned to make India the “Fort Knox” of security, positioning ourselves as the gold standard for security as we are today for quality. We hope that NSR will dramatically raise the level of security and protect all the honest people working in this industry".. Kiran Karnik - Nasscom

Today I received an email from my HR to complete the NSR registration. This has become mandatory for all levels within the organization. I logged into the site and completed the online part, but did not have the time to go to the kiosk setup in our cafeteria. I am supposed to go there with a photograph and also leave my fingerprint so that NSR can continue conducting a background check. The cost of this is borne by my employer and I will be receiving an ID card as well as an ITPIN that will allow any future employer to hire me based on the credentials validated by NSR.

Hyderabad Restaurant Review : Malgudi

Recent opening of the lumbini mall added 3 more restaurants in the Jubilee/Banjara area right around touch. These include Zaffran Laguna [ Mediterranean ], Malgudi [ South Indian ] and Basil [ Vegan Cuisine ].

The mall itself is still under construction, but this is a centrally located building very close to KBR and right next to touch. I envy the few friends who were able to grab some commercial space in this mall a long time ago.

Malgudi, a restaurant which claims to be specialized in southern delicacies, is located on the 4th floor in the mall. Interestingly all restaurants are on the same floor and malgudi doesnt have a restroom within its premises.. not sure how they agreed to that..

The interiors are very well done with traditional hardwood props and its very inviting. Once we settled down, I realized that it was the most confusing and interesting menu I have ever seen in a south indian restaurant. The menu was organized by state instead of the traditional starters, main course etc. Each page was dedicated to a state and it covered Andhra, Tamilnadu, Karnataka and Kerala

Now to the experience.. I scanned the menu multiple times to make sure that I was not missing the traditional souther appetizers and to my shock the waiter just recommended typical paneer tikka, spring rolls and other chinese starters. Followed by that we tried to order the maincourse from the traditional non-andhra stuff but were left scratching our heads since the waitstaff was of no help in recommending any of the dishes. When we tried to ask for help, they went back to recommending the Dal Makhni and Malai Kofta [ which was a story in itself.. ] instead of even trying to speak about or sell the traditional fare listed in the colorful menu.

After dinner, we decided to order a dessert, and since I had prior experience in Kerala with adapradhamam which was the only unique dessert on the menu for a Hyderabadi. As expected the waiter walked back to us to let us know that Kubhani-Ka-Meetha [ typical hyderabadi dessert ] was the only dessert available.. We decided to eat what ever they had since it was late to go somewhere else for a dessert and called it a day pretty dissapointed with the whole experience.

• Restaurant : Malgudi
• Affordability : 8/10 [ Around Rs 350 / head for a meal + soft drinks ]
• Food Score : 6/10 [ dissatisfied since we were literally forced to eat north indian food in a southern restaurant ]
• Ambience : 7/10
• Wait Staff : 5/10 [ friendly & confused about what they really serve in this place.. ]
• Overall : 6/10

Cash CRRunch in Hyderabad ?

Indian economy is overheated and its particularly visible in the metro's and Hyderabad. Frenzied M&A, Over valued real estate, Rising prices in commodities etc., shows why the finance ministry is worried. Inflation today at 6.75%, Recent increase in CRR and Repo rates by RBI is a very clear indication that the government is concerned about the common man not being able to afford anything anymore.

Bank lending rates have moved from a range of 8 - 10% to 10 - 14%. As banks are in a squeeze since increased CRR will drain 14000 crores out of the banking system as committments to RBI for their existing loan base. So, banks are willing to pay above 9% for deposits compared to the 5% they were paying when I landed here 6 months ago. May not be too long before it reaches the good-old 18% rate. It is not a distant possibility, considering the issues that RBI and the finance ministry are constantly warning about the over heated and overly liquid economy.

Hyderabad realestate prices according to realtors are still booming, but the reality is that they have softened more than I expected. Try to sell a plot and you will get a dose of reality. I have seen folks get offers of 50% of what the paper value was when they really wanted to get rid of it. In the recent days areas like Jubilee, Banjara, Kavuri Hills seem to have softened more than I wanted to see. 6 months ago no one was willing to even consider talking about less than 60-70K in these areas and now many options are available at 40 and above. Even gacchibowli and kondapur have pulled back considerably, and we recently took advantage of the low prices and acquired a small plot.

Coming to the builders, No doubt, there is a demand for apartments and houses, but with the interest rates inching up every day, there are very few people left with cash to invest. Anyone who has put into land is waiting for it to recover back to the 2006 levels. I dont mean any disrespect, but dont believe the realors and builders that are still looking for the 4000 - 7000 per sqft in Hyderabad. They must be really out of their mind. Recent announcement of L&T phase II at 4000/sqft and some complexes in Banjara Hills asking for 7000/sqft is way overblown. Villas are reasonably priced in the gopanpally area, but there is still room for negotiation since the area is not that close to the business areas like the builders seem to potray. Also, land around / behind chirec [ Some have clearances and some dont .. please be weary of narne and other lands with issues there.. but it may not make a difference in the long run since the govt is looking to get rid of ULC soon .. ] is available for good prices now a days if you look for bargains, you will certainly find them.

On the financing front.. I recently dealt with a large bank to get a loan to cover one of my apartment purchases from a long time ago. This was purely to get the basic deductions that I needed which I discussed in my prior post about tax deductions etc. Banks seem to readily agree to a loan of 60 times the net monthly income. Now lets take a techie who gets 50K Gross per month [ Which I feel is the median salary of some what experienced techies in hyderabad ], after taxes he/she ends up with 30K per month as net ... and that equates to a 18Lakhs of loan eligibility. How many sqft do you think they will be able to afford at the Rs4000/sqft ?.

That was a quick rant about hyderabad .. will try to blog more this week.. Keep reading..

Hyderabad Real Estate Market taking a breather

This is just a commentary of what I am seeing.. dont send me emails saying that I am a nay sayer.. I am not, I am still investing but in good areas that are closer to the city..

Hyderabad real estate market seems to be taking a breather to digest the high run ups it has seen in the recent past. Primarily the rush by individuals to acquire 200 - 400 yd plots and properties in unknown forest lands way beyond the Airport and Maheshwaram seems to be causing the slow down. There is no stretch of land in between that can really be acquired to start projects, a drive through this area made me realize that many folks have relied too much on brokers advise than really investigating the area.

Recent telangana sentiment is also adding fuel to this scenario and property values are rising like crazy in the Vijayawada area, primarily in areas like Kanur, KanchikaCherla, Gannavaram ( VJA Airport ) etc. In addition the area between VJA and Guntur is also on a alltime high due to predictions that it will become the new capital. I am not sure if telangana will ever materialize but many voices are now asking for Telangana, Rayalaseema, Uttarandhra ( North Andhra ) and Costal Andhra. "Do you think the state is big enough to be broken up into 4 parts ?. I dont..". Also, a prediction that Vizag will be the capital incase of telangana break up is causing rise of property values in vishakapatnam also.

Cash strapped investors are also adding fuel to the current correction by trying to get rid of their properties at what ever price. If you are holding estate in the Gucchibowli, Nanakramguda, Kondapur, Hitec area, you are fine, the dip here doesnt seem to be as bad as the outskirts. A group of us had to pullback our offer on a large investment even after paying a token advance, since land right next door was being offered to us by cash strapped investors for much lower prices.

All that said, the growth is Hyderabad is not slowing down at all. A good opportunity to land deals in the prime areas of the city where the prices went beyond the regular market levels. The premium levels will certainly come down, but not the base land values. So, for a 40K per yd land in Gucchibowli, there is a 20K premium built in and I expect that these values to stabilize around 25 to 30K.

Couple of my real estate contacts have indicated that smart money is now running away from Hyderabad to Bangalore and Vishakapatnam.

As always.. "Its your money, so invest it wisely.. dont take my word or for that matter anyone's word for granted.. do your homework before making an investment"