December quarter results gave little succour to investors of Unitech Ltd. Shares of the realty firm have lost about half their value this fiscal. In addition to sector-related woes, such as rising interest rates, the firm that had sported a healthy balance sheet in the last few years is out of favour among investors due to its alleged entanglement in the telecom scam.
Also See | Telecom Cloud (PDF)
The last straw on the stock’s back was its below-consensus December quarter performance. Revenue and profit were down from a year ago, due to subdued sales volume. It sold 2.2 million sq. ft—marginally higher than the preceding quarter, but lower than a year back. Hence, revenue at Rs659.8 crore, while remaining flat on a quarter-on-quarter basis, contracted 15% year-on-year (y-o-y). With about one-third of its revenue accruing from the Noida-Gurgaon region, where supply is high, rising interest rates could mean subdued sales for the next few quarters. Analysts have revised fiscal 2011 sales down from 12-14 million sq. ft to 10 million sq. ft. Barring the construction of telecom towers, where sales grew on a y-o-y basis, both the construction and consultancy businesses registered a drop in revenue.
The firm registered a y-o-y drop in construction costs that translated into a 12% growth in operating profit to around Rs208.8 crore, again below expectations. Margins improved by 800 basis points to 31.7% during the quarter. Given its sound execution and cost management, a further fillip to cash flows can accrue from higher sales. Perhaps that is why the company has targeted a launch of about 10 million sq. ft over the next few months. In the last nine months, it has also spent about Rs350-400 crore in acquiring land for projects.
Unitech’s balance sheet has improved as it paid off a portion of its debt to bring down interest costs. Its debt-equity ratio is 0.5. But lower sales resulted in a 36% lower net profit when compared with the year-ago period and the preceding quarter.
The company’s shares are quoting at a discount of nearly 50% to the estimated net asset value for fiscal 2012. But what weighs on valuations is the uncertainty on its alleged entanglement in the telecom scam through Uninor, where Unitech holds a 33% equity stake through its infrastructure subsidiary. Some relief on this front and the planned listing of the infrastructure entity (which seems tough in the present circumstances) could offer upsides from the current market price for Unitech investors.
Graphics by Ahmed Raza Khan/Mint
We welcome your comments at firstname.lastname@example.org