Unitech posted a poor financial performance in Q4’09 due to a sharp deterioration in demand, a decline in real estate prices, and high finance costs.
However, the easing liquidity situation along with lower interest rates and the continuation of the current policy measures introduced by the Central Government are expected to revive the demand in the coming quarters.
The company has sold more than 4,000 residential apartments totaling nearly 4.5 mn sq. ft. in the past three months.
Moreover, a drop in interest rates and tax incentives offered to the Housing sector are expected to propel the demand, primarily in the mid-income and affordable housing segments.
Unitech has been raising funds from the beginning of this year to improve its cash flow and to reduce its massive debt.
As a result, the company’s debt decreased to Rs90.6 billion at the end of 31 March, 2009, (which was Rs109 billion at the end of 31 December, 2008) with a net debt-equity ratio of 1.65x.
Further, the company is in an advanced stage of negotiation for the sale of its two hotels in Gurgaon and an office complex in Delhi.
Besides, the Company has raised nearly Rs45 billion through two rounds of qualified institutional placement (QIP).
Unitech’s stock is currently trading at a 19.8% discount to our NAV of Rs103. We believe that the stock has a long-term upside potential, primarily due to the increasing residential sales volume coupled with the company’s comfortable liquidity position. Thus, we upgrade our rating from Hold to BUY.