Unitech Ltd shares have risen 78 per cent year-to-date compared to the BSE Realty Index, which is up 52 per cent. Still, analysts are not rushing to place a “buy call” on the stock. Other than the overhang of the Supreme Court’s judgment on 2G licences, the company’s third quarter numbers have not been particularly inspiring. Be it revenues, Ebitda or net profit, it has disappointed on all counts. There has been no improvement in margins either, say analysts.
While revenues fell 22 per cent year-on-year to Rs 510 crore in the December quarter, Ebitda fell 49 per cent to Rs 110 crore and net profit contracted 50 per cent to Rs 55 crore. According to Kotak Institutional Equities, the company has been reporting disappointing operating margins over the past four quarters, which is a cause for concern. At 21 per cent, margins have also disappointed the Street. They stood at 31 per cent in the year-ago period. Higher costs are responsible for weaker margins. The real estate construction and other expenditure head as a percentage of sales has risen to 73 per cent from 68 per cent in the second quarter and 65 per cent in Q3 FY11.
While margins are a concern, the primary reasons behind the operational weakness are slow sales and tapering off of new launches. The company launched 1.81 million sq ft in the December quarter compared to 2.8 million sq ft in the second quarter. Sales volume has contracted 24 per cent to 1.7 million sq ft over the year-ago period. In the first nine months of FY12, it sold 5.4 million sq ft. According to Citi, internal cash flows arising out of pre-sales (from recent launches) are partly being used for debt payment. Though execution has improved slightly, it needs to pick up further. Added to this is the concern emanating from 71 per cent of promoters’ stake being pledged.
Most brokerages have cut their earnings estimate for the current financial year and FY13. HSBC Global Research expects execution to remain under pressure as the backlog of poor execution in FY12 and new launches during the first nine months (though low in Q3), at 7.2 million sq ft, should exert pressure on execution over FY13-14. “Hence, we now factor in a 6-12 month delay in execution, leading to a 12-33 per cent cut in FY12-14e EPS,” it says.
