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Unitech: One-time write off of cost overruns drags margins

Unitech: One-time write off of cost overruns drags margins
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First Published: Wed, Feb 03 2010. 10 13 PM IST

Updated: Wed, Feb 03 2010. 10 13 PM IST
Although Delhi-based real estate company Unitech Ltd’s jump in revenue for the December quarter was a pleasant surprise, operating margins were lower than expected.
The company registered a 58% jump in revenues over the year-ago period to Rs775 crore. On a sequential basis, revenues grew 52%. It was a nice surprise as the September quarter had disappointed investors on the revenue front too.
Unitech was able to improve revenues by ramping up up execution and billing schedules to customers. Besides, the company’s strategic move to cash in on the opportunity in affordable housing through its Unihomes brand is paying off well.
Despite robust growth in sales, however, operating profit margins fell sharply to around 24% of net sales compared with about 52% in the year-ago period and 50% in the preceding quarter. Unitech’s decision to write off entire project-cost overruns in this quarter led to this fall, although the company is unwilling to divulge the exact figure.
Poor OPM margins trickled down to profits. While net profit rose by 29% from the previous corresponding period to around Rs176 crore, sequentially it contracted by around 1%.
Unitech’s debt to equity ratio has improved from around 2:1 in the first quarter of 2009-10 to the present level of 0.5:1. The company had raised about Rs4,400 crore through two qualified institutional placements since April, which was mainly utilised to reduce debt on its books. It had also sold land parcels worth around Rs1,000 crore during the year.
The write-off of cost overruns, debt reduction, higher pace of execution of projects and anticipated offtake in construction of its new projects should lead to better OPM in the region of 30-32% of sales in the fourth quarter. Besides, when compared with a sale of barely 4 million sq. ft in 2008-09 when real estate firms were reeling under recession, Unitech should see a sale of around 17 million sq. ft worth of projects in the current fiscal.
Unitech’s shares change hands at around Rs75 on the bourses. Analysts are confident of a Rs4 in earnings per share during 2010-11, which implies a forward price-earning multiple of about 18 and leaves little room for appreciation.
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First Published: Wed, Feb 03 2010. 10 13 PM IST