Cancellation of projects involving the government, delays in execution and problems in getting approvals for new projects – DB Realty has seen it all. The company did not launch any new projects in the September quarter and sold around 50-75% of its existing seven projects. Even the analyst community has washed its hands off the stock with many brokerages closing their coverage on the stock.
The company’s net sales for the first half year ended September fell 36%, while its net profit fell 76% during the same period. However, the company breaks down its debt by selling non-core assets.
At the end of the September quarter, the company managed to reduce its debt to Rs 230 crore from Rs 600 crore a year ago. It sits on a significant pile of TDR (Transfer of Development Rights), which can be realized to boost the company’s cash flows. However, the fallout of the 2G fraud case against these promoters will weigh heavily on the company’s business prospects, which mainly have projects in Mumbai.
Unitech is the second major real estate firm to be affected by its top deck’s alleged involvement in the 2G scam. In addition to the problems associated with all real estate companies, there are other challenges.
For example, the company was at the receiving end of the anger of the shareholders at its annual general meeting, because they refused to approve a resolution to pay a dividend for the 2011 fiscal year. The company’s net sales and earnings fell 17% and 45%, respectively, in the first half of this fiscal year.
However, the business model continues to remain strong. Unitek is present in the affordable and middle income housing segment which enables it to generate cash flow. It is launching new projects, although the rate of implementation is slow. Despite the low revenue recognition, it has managed to reduce its debt through internal cash flows.
It has an outstanding net debt of Rs 5,144 crore and a land bank of nearly 7,000 acres with an average land acquisition cost of around Rs 250 per sq ft. Despite strong fundamentals, the loss of credibility and uncertainty surrounding the 2G probe will limit any major upside in the stock. The stock continues to trade at a significant discount to the ground value that analysts estimate to be Rs 60.
As a credible and reliable news source
