Unitech: Not yet out of the woods

With the Rs 1,600 crore that Unitech has managed to raise through a placement to qualified institutions, the risk on its balance sheet will be reduced. The money will help it pay back some of its dues to mutual funds and in the process, the firm’s net debt-equity ratio, analysts estimate, will come down to 1.2 times in 2009-10 from 1.9 times at the end of March 2009. But that doesn’t mean the company is out of the woods.

For sure, it can pay off some of the interest on loans and will have some money left to fund some projects. But, the debt on its books —estimated at close to Rs 8,500 crore at the end of March — is not small given that cash flows will continue to be weak until the real estate market revives. There are few signs of that just yet and it’s possible that things could get

So another round of restructuring — about Rs 2,300 crore has already been rescheduled — is on the cards. Unitech’s ‘affordable housing’ strategy isn’t working too well outside of the NCR, says an IIFL report, which points out that not a single project has been delivered yet in Kolkata, even though it has been present in the city for so many years.

However, the company apparently wants to launch 30 million sq ft of space in 2009-10. But, as IIFL points out, that’s more than the area it has sold in the last three years. Unitech cannot afford to fritter away scarce resources; it needs to rethink its strategy.