Friday, July 01, 2016

Unitech Ltd: Is it still a buy... ?
Unitech Ltd is one of India's leading real estate player. It has a diversified product mix in real estate comprising of commercial complexes, IT/ITes parks, special economic zones (SEZs), integrated residential developments, schools, hotels, malls, golf courses and amusement parks.

..........amidst a spew of litigation against Unitech Ltd, stood a company that was a shadow of its former self. From the wrong choice of domain or its misadventure into the telecom sector, to absence of big launches, to slow pace of project construction coupled with a high debt servicing cost, to cash crunch, to customer complaints, to sentencing of the promoters by Courts, et all - -the company has gone through all.... 

This doesn't factor in the absence of any return on the telecom investment the company made. Its biggest problem, though, is a huge liquidity crunch. 

In January 2008, the Unitech Ltd's stock had peaked on the BSE, at Rs.546.80; however, it closed at Rs.6.41 in the BSE, yesterday. 

Few years ago, in 2007-08, the company's net profit stood at Rs.1,669 crore. Today, it has slipped to a loss of Rs.275.62 crore for financial year 2015-16. 

However, the company Q4FY16, numbers were not too bad, as is made out to be......A quick look at the figure on the right will show that, the losses deepened in Q4FY16 primarily due to two reasons: 
(i) The increase in Other Expenses component to Rs.721.74 Cr in Q4FY16 from Rs.239.51 Cr in Q3FY16 and 
(ii) Increase in Interest Charges to Rs.142.70 Cr in Q4FY16, from Rs.84.56 Cr in Q3FY16.

Meanwhile, the company's management is taking all the measures, to decrease the debt on the books, apart from the new RBI measures, which speaks of converting a part of the unviable debt into equity.

At the time of announcement of results, Sanjay Chandra, Managing Director of Unitech said that the company's focus has been primarily on completing the ongoing projects and delivering the finished product to its customers. Balance expected receipts from these ongoing projects combined are sufficient not only to meet the remaining construction expenses but also to service the debt, if any, against these projects. The company has been taking various measures, such as creation of project specific escrow accounts, to boost customer confidence and improve conditions so as to generate liquidity needed for completing the ongoing projects. Apart from improving collections, company is also mobilising funds from banks and financial institutions. With these measures company is hopeful of completing the ongoing projects in the next few quarters in a phased manner, he added.

Over and above the good news for the company is that the problem with anemic results doesn't apply only to Unitech Ltd alone, but applies across the sector; thanks to bleak market conditions.

Another positive point is that the telecom fiasco is now almost over; though the old case is still pending. However, all the liabilities in the erstwhile telecom arm, have been taken care of by the company. 

Also, a source close to says that the management is making frantic efforts to reduce its debt through its operating cash flow. 

Hence, Unitech Ltd is far from being written off. It has the ability to rebound, admit many top industry executives. Its fairly substantial land bank is one of the reasons why these executives bank on its eventual recovery. 

The name of Unitech Ltd still figures among the best developers of India. Just focusing on its core real estate business should see it through. Besides, in India, when a company reaches a certain level, it naturally gets support from the system; despite the telecom mess, the Unitech brand has managed to retain retail confidence.

This is not the first time that Unitech Ltd is in the midst of a crisis. When real estate was down in the dumps in the aftermath of the global economic slowdown of 2008-09, it too, went through a rough patch; only to came out of it, successfully managing all odds. But some critics point out that this time Unitech Ltd's problems are much deeper and it will require a considerable effort to shed the baggage of the past, negotiate the slowdown and revive its business.

Apart from this, there were recent media inputs that the capital market regulator SEBI is likely to consider proposals for relaxed norms for REITs. Among the changes, the regulator’s board is looking to examine a proposal to make Real Estate Investment Trusts (REITs) more attractive to investors by allowing them to invest a large portion of funds in under-construction assets, sources said.

Regarding REITs, SEBI plans to remove the restriction on the SPV (Special Purpose Vehicle) to invest in other SPVs holding the assets, which in turn would allow REITs to invest in a holding company owning stake in SPVs.

Regarding the valuation of its huge pool of land all over India, I would like to say that Unitech Ltd’s 14 lakh sq meter plot of land in Noida had a reserve price of Rs.2,660.56 crore and that too at distress (half rate) rate. 

Now we are talking of whooping 300 million sq. ft of land reserves of Unitech Ltd....

Let us do some rough calculations: 14 lakh sq.meters is approximately equal to 151 lakh sq.ft or 15.1 million sq.ft. Right?

So, this gives the value of 300 million sq.ft of land as Rs.52,858.80 crore and that too at distress rates. Unitech Ltd's debt as of 31st March, 2016 is Rs.7,165.70 crore.

Moreover, selling of land by the lenders at distress rates will soon be a thing of past due to RBI's new policy guideline, on distress assets. Also, the pay hikes, lower interest rate trajectory and the recent data on the sector, raised hopes of a swift recovery in demand for the Real Estate sector. 
The Economic Times, wrote on 9 June, 2016: 
There are reports that the authorities in Greater Noida may soon implement an exit policy to allow builders to surrender surplus land. Authorities of Noida, Greater Noida and Yamuna Expressway will soon firm up a proposal on this and send it to the Uttar Pradesh government for approval, said Arun Vir Singh, CEO of Yamuna Expressway Industrial Development Authority (YEIDA), an report said. 
But one should remember that raising money, in part, requires a reasonably solid reputation, and unfortunately for Unitech Ltd, the ghost of telecom will continue to haunt it for a couple of quarters. So, it remains to be seen how much the company is able to rake in fresh capital through Qualified Institutional placements.

However, Unitech Ltd has recently raised Rs.85 crore from Piramal Group and is in talks with two private equity players to raise more funds for the development of a land parcel in Noida and to repay the LIC loan.

Therefore, you can now take your decision, whether to buy the shares of Unitech Ltd at the dirt cheap price of Rs.6.41.....

No comments: