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Unitech real estate focus to benefit company

Tuesday, September 21, 2010
By Manik K. Malakar

Till a few years ago real estate companies in India diversified from their core real estate development businesses into just about every field that they could enter. This was a strategy that hurt many of them and many are seeking to exit from past diversifications. One such company is Unitech – a pan – India real estate company that is now again focusing on its basic business.

“The management intent of bringing greater focus is evident in Unitech’s Annual Report for FY10 (Financial Year 2010). It points to the shift in the company’s strategy to quick monetisation and faster execution following the emergence of the Real Estate sector from a period of crisis,” say Siddharth Bothra and Sandipan Pal of brokerage Motilal Oswal. They had been analysing the FY10 annual report of the company.

For FY10 Unitech reported a consolidated income of Rs. 29.2 billion from Rs. 28.9 billion in FY09 a 1.44 % increase. Reported PAT (Profit After tax) however fell to Rs. 6,947 million from Rs. 11,968 million a decline of approximately 44 %. The EBITDA margin to fell to approximately 36 % in FY10 vis-à-vis 55 % in FY09.

The companies various sources of income (Unitech has other activities besides realty) are indicative of the path of the company. Revenues from the real estate portfolio at Rs. 23.1 billion were flat. Their core real estate revenues contribute 48 %to the total revenues.

Other income at Rs. 840 million too has taken a hit. This section of revenues contributed 15 %of the company’s revenues in FY09, have now contributed just 3 % in FY10. The sharp decline is attributable to a decline in interest received from non-banking sources. The transmission tower business of the company grew by 1.3 % to stand at Rs. 960 million. The order book was Rs. 5.1 billion at the end of FY10 with approximately Rs. 1.3 billion under execution.

But the main point is the amount of fresh liquidity that has come into Unitech’s Balance Sheet. The company in FY 10 had undertaken two QIPs (Qualified Institutional Placement) that helped them to raise approximately Rs. 44 billion. Gross debt of the company now stands at Rs. 60 billion giving them a debt-equity ratio of approximately 0.52 in FY10 vis-à-vis 1.6 in FY09. “The company is one of the most comfortable on the leverage front among the large cap RE companies,” Bothra and Pal said.

Thus as a result of these measures, the analysts have placed a ‘Buy’ note out on the stock with a target price of Rs. 96 per share. The stock is currently priced at Rs 87.


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