Unitech: Concrete problems

The market is concerned about slowing home sales and pledging of a substantial portion of promoter stake.

On the face of it, Sanjay Chandra’s Unitech has done it all. But, the Street is not convinced. Though, it has reduced its net debt from Rs 5,850 crore in the second quarter to Rs 5,150 crore in the third quarter, thanks to proceeds from customer advances and sale of assets, analysts are concerned about the large promoter stock that is pledged (65 per cent of promoter holding). Thus, while the stock appears attractive from a valuation perspective, performance in the near-to-medium term may be affected by non-business factors such as developments on the 2G case.

On the revenue front, too, Unitech disappointed the Street with revenues of Rs 660 crore, which was significantly lower than the estimated Rs 750 crore. The revenues were flat due to continued labour shortage during major part of the quarter, claims the company. Earnings before interest, taxes, depreciation and amortisation (Ebitda) margin, too, declined 760 basis points q-o-q due to non-operating loss of Rs 37.6 crore on account on sale of aircraft. Due to one-time Ebitda loss and high effective tax rate of 40 per cent for the quarter, the company reported PAT of Rs 110 crore that was significantly below the street’s estimate of Rs 150 crore. In terms of debt maturity profile, debt repayment of Rs 1,000 crore comes up next financial year. However, the interest cost is expected to be 12.5 per cent — an increase of 50 basis points. This may be offset by purchase of new land in Noida, which the company has acquired to develop middle-income housing projects.

CLSA’s report on Unitech says: “Following weak launches/sales by Unitech over the past few months and lower pricing assumptions in Gurgaon for FY12, we cut its earnings by 11-15 per cent for FY11-13 and cut March 2012 NAV by 13 per cent to Rs 110/share.”