Current Scenario in Indian Real Estate

The endless excitement of real estate sector in India witnessed during the
last few years is finally started showing signs of recession. The talks of new
malls, complexes, residential projects being built are all now being kept
unoccupied. There is an overall slowdown in demand of real estate across
the country as has been experienced by industry players. Property prices
and rentals are decreasing which have led to the erosion in market
capitalization of many listed players like DLF, Unitech, etc.
The slowdown is assisted by the fall in stock markets as wealth creation does
not happen and there is lack of capital among investors to invest in real
estate projects. Also, to adjust their share market losses, many investors are
forced to sell off their real estate properties at a very lower price. Many
residential buyers are waiting a price correction before buying a property,
which is also affecting the development plans of builders.
IT industry continuously experiencing a slowdown, there may be further
constraints on residential as well as commercial demand since IT/ITES
segment accounts for 70% of the total commercial demand in India. So real
estate players may continue to face liquidity problems in future due to rising
costs and unfavorable stock market conditions for further capital raising.
Only those players who have achieved considerable revenues from past
deals could expect to rise against the flow. But the scenario may get
deteriorate if the upcoming properties are not sold off as it may lead to a
financial crisis in the property market.
The development of real estate in India is accredited to the off-shoring and
outsourcing businesses, such as high-end technology consultation, call
centres and programming houses. Presently, the impact of recession in US
economy has caused huge impact on Indian real estate market as well. Till
now, the real estate industry was a booming industry, which were in pace
with information technology (IT) industry. Consequently, the demand for IT
space and commercial spaces has grown up. Also, the high net worth of
individual investors has created a very fast pace of demand in Indian real
estate sector, which has a very high impact image of investing in India.
The recent changes, which happened in American market such as
bankruptcy of Lehman Brother and sell process of PE firm Merryl Lynch by
the Bank of America, has created a very fast drops/recession in financial
industry and created a crisis in all over US economy. Both of these firms
were invested a large part of their funds into real estate sector without

having the proper analysing or effect. It has lead to a huge loss for them. All
of these changes in the US economy have affected Indian economy and the
real estate segment as most of the Indian players have their liquidity funded
by both of these firms. The IT industry, which was mainly funded by the PE
firms or have their export to US markets have noticed very sharp drop of net
worth of their firms.
All of these unexpected changes in Indian and US market created a point of
thinking to investors and individuals that where it will go and what will be
the best option in real estate investment. The market rates in India are also
dropped by 10 to 30 per cent in most of well-known as well as upcoming
cities and the trend appears to be still continuing, till it recovers from the ill
effects of financial crisis. Buyer sentiment is expected to remain negative
due to weak economic conditions. As a result, property volumes would
remain muted and prices would decline further. Most of the brokers expect
price trend to be negative over the next three months and some expect price
trend to be negative over the next one year.
As the money was coming in terms on investment from non-resident Indians
as well as private equity (PE) funds, the well-known developers and real
estate players have grown their portfolio as well many small sized players
have also created in Indian market. It has contributed a very high supply of
real estate segments either in residential or in commercial or in office space.
Foreign private equity investors are eyeing the Indian real estate market to
buy properties from small and mid size developers. In the next six months,
we will see lot of distressed real estate deals in India. Small and medium
developers with turnovers in the range of Rs 50 crore-Rs 250 crore will be
forced to go for distress sales to keep up themselves in the economic
downturn. Small and medium size developers across the country are said to
be stuck with 5-6 projects on average as demand has been lethargic. They
compelled to sell 40 per cent of the existing projects at a discount of 25-40
per cent of the original price to fund rest of their projects.
We could see that presently 50 per cent of total real estate market coming
under distressed deals. As foreign private equity (PE) players have the
liquidity and staying power, after buying such properties, they can wait 4-5
years or till such time the property market bounce back to sell them at
higher price.
However, the outcome of general election can play very important role in the
real estate segment because a stable government is a prerequisite to the
foreign investors. If there are continuous changes at the Centre, they might
turn their back for another five years.

http://www.moneymindz.com/articles/Real-Estate/ResidentialApartment/Current-Scenario-in-Indian-Real-Estate

About the Company

Established in 1972, Unitech Limited (Unitech or the Company) is a leading real
estate developer in India. The business operations of the company consists of construction,
contracts, development of real estate, consultancy and management services, hotels,
manufacturing of power transmission and telecom towers. Real estate development includes
development of mini cities/townships, construction of residential and commercial
complexes, including shopping malls and various types of dwelling units. The related
construction activities include construction contracts of highways, roads, powerhouses,
refineries, hotels, hospitals and various types of other buildings/structures.
The Company is the first developer to have been certified ISO 9001:2000 in North India and
offers the most diversified product mix comprising residential, commercial/IT parks, retail,
hotels, amusement parks and SEZs. Manufacturing of power transmission and telecom
towers in India is carried out through a subsidiary, Unitech Power Transmission Limited.

Key Financial Figures

Consolidated

(Rs. Cr)

Particulars

FY 2012

FY 2013

FY 2014

FY 2015

FY 2016

Total Income from Operations

2,421.8
6

2,440.5
4

2,933.3
2

3,431.18

2,007.54

Expenses

2,093.7
6

2,113.54

2,767.13

2,657.4
6

2,678.56

Earnings Before Other Income,

Interest, Tax and Depreciation
(Operating Profit)

328.10

327.00

166.19

773.72

(671.02)

Depreciation

43.40

39.84

50.41

45.77

35.41

Finance Costs

56.28

30.53

76.50

72.93

327.39

Other income

208.05

188.76

166.59

288.38

64.73

Exceptional items

0.66

(0.06)

(0.33)

3.49

PBT

435.81

445.45

206.19

939.91

(969.09)

Tax

189.59

137.78

57.06

111.85

(65.34)

Extraordinary items

103.52

103.02

990.73

0.32

PAT (before Minority Interest and

share of Associates)

246.22

204.15

46.12

(162.66)

(904.07)

Profit/ (loss) attributable to

Minority Interest

8.07

(4.82)

(23.45)

(34.00)

(1.15)

Share of profit / (loss) of

Associates

0.77

(0.60)

(0.17)

(0.32)

(0.22)

Other Related Items

Consolidated Profit / (Loss) for

the year

237.38

209.57

69.74

(128.34)

(902.70)

Profitability Analysis
Consolidated

(%)

Particulars

FY 2012

FY 2013

FY 2014

FY 2015

FY 2016

Operating Profit Margin Ratio

13.55

13.40

5.67

22.55

(33.42)

Net Profit Margin Ratio

9.80

8.36

1.57

(4.74)

(45.03)

Operating profit margin is a measurement of the proportion of a companys revenue that is

left over after paying for production costs such as raw materials, salaries and administrative
costs. Net profit margin is arrived at by deducting non operating expenses such as
depreciation, finance costs and taxes out of operating profit and shows what is left for the
shareholders as a percentage of net sales. Together these ratios help in understanding the
cost and profit structure of the firm and analysing business inefficiencies.

Profitability Ratios

Key Balance Sheet Figures

Sources of Funds /
Liabilities

(Rs. Cr)

Particulars

FY 2011

FY 2012

FY 2013

FY 2014

FY 2015

Share Capital

523.26

523.26

523.26

523.26

523.26

Money received against

warrants

Reserves & Surplus

11,081.45

11,500.58

10,867.3
2

11,036.9
0

10,418.3
3

Net worth (shareholders

funds)

11,604.72

12,023.8
4

11,390.58

11,560.16

10,941.5
9

Minority Interest

59.29

39.24

5.22

Long term borrowings

2,301.44

2,120.32

2,878.62

2,588.42

2,165.55

Current liabilities

6,837.44

6,813.63

7,894.43

12,005.9
5

14,159.24

Other long term liabilities

and provisions

2,210.40

2,108.67

1,628.79

1,132.15

574.33

Deferred Tax Liabilities

5.57

15.39

33.87

50.53

9.83

Total Liabilities

22,959.5
6

23,081.8
6

23,885.5
7

27,376.4
4

27,855.7
6

Application of Funds /
Assets

(Rs. Cr)

Particulars

FY 2011

FY 2012

FY 2013

FY 2014

FY 2015

Fixed Assets

3,294.08

2,315.57

2,740.47

2,995.22

1,962.92

Noncurrent Investments

1,562.03

1,579.12

1,236.97

1,345.50

1,337.01

Current assets

16,306.6
4

16,955.9
9

17,435.52

20,011.2
7

21,619.67

Long term advances and

other noncurrent assets

1,824.57

2,302.96

225.34

267.36

199.36

Deferred Tax Assets

54.16

106.24

62.96

Goodwill on consolidation
(net)

2,193.11

2,650.84

2,673.84

Total assets

22,987.3
3

23,153.6
5

23,885.5
7

27,376.4
4

27,855.7
6

Efficiency Analysis
Particulars

FY 2011

FY 2012

FY 2013

FY 2014

FY 2015

ROCE

7.96

2.73

2.28

1.17

5.90

ROE / RONW

5.03

2.05

1.84

0.60

(1.17)

Return on Capital Employed (ROCE) measures a companys profitability from its overall
operations by calculating the return generated on the total capital invested in the business
(i.e. equity + debt). Return on Equity (ROE) or Return on Net worth (RONW) measures the
amount of profit which the company generates on money invested by the equity
shareholders. In short, ROE draws attention to the return generated by the shareholders on
their investment in the business. Together these ratios can be used in comparing the
profitability of the company with other companies in the same industry.

Efficiency Ratios

Valuation Analysis
Consolidated
Particulars

FY 2012

FY 2013

FY 2014

FY 2015

FY 2016

Total Income from Operations

(Rs. Cr.)

2,421.8
6

2,440.5
4

2,933.3
2

3,431.1
8

2,007.54

Growth (%)

(24.01
%)

0.77 %

20.19 %

16.97 %

(41.49
%)

PAT (Rs. Cr.)

246.22

204.15

46.12

(162.66
)

(904.07)

Growth (%)

(57.81
%)

(17.09
%)

(77.41
%)

(452.69
%)

Earnings Per Share Basic (Rs. )

0.91

0.80

0.27

(0.49)

(3.45)

Earning Per Share Diluted (Rs. )

0.91

0.80

0.27

(0.49)

(3.45)

Price to Earnings

31.59

29.38

102.96

Price Earnings Ratio

Dividend History
The Company has not declared any dividend over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio
Higher current ratio implies healthier short term liquidity comfort level. A current ratio
below 1 indicates that the company may not be able to meet its obligations in the short run.
However, it is not always a matter of worry if this ratio temporarily falls below 1 as many
times companies squeeze out short term cash sources to achieve a capital intensive plan
with a longer term outlook. Unitechs average current ratio over the last 5 financial years has
been 2.06 times which indicates that the Company has been maintaining sufficient cash to
meet its short term obligations.
Long Term Debt to Equity Ratio
Companies operating with high debt to equity on their balance sheets are vulnerable to
economic cycles. In times of slowdown in economy, companies with high levels of debt find
it increasingly difficult to service the interest on their borrowings as profit margins decline.
We believe that long term debt to equity ratio higher than 0.6 0.8 could affect the business
of a company and its results of operations.
Unitechs average long term debt to equity ratio over the last 5 financial years has been 0.21
which indicates that the Company is operating with a low level of debt.
Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service
the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage
ratio indicates that the company can easily meet the interest expense pertaining to its debt
obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the
companys ability to meet the expenses on its borrowings. Interest coverage ratio below 1
indicates that the company is just not generating enough to service its debt obligations.
Unitechs average interest coverage ratio over the last 5 financial years has been 7.13 times
which indicates that the Company has been generating enough for the shareholders after
servicing its debt obligations.

Liquidity & Credit Ratios

Ownership pattern
In its latest stock exchange filing dated 31 March 2016, Unitech reported a promoter holding
of 26.77 %. Large promoter holding indicates conviction and sincerity of the promoters. We
believe that a greater than 35 % promoter holding offers safety to the retail investors.
At the same time, institutional holding in the Company stood at 19.57 % (FII+DII). Large
institutional holding indicates the confidence of seasoned investors. At the same time, it can
also lead to high volatility in the stock price as institutions buy and sell larger stakes than
retail participants.

https://www.equitymaster.com/research-it/compare/compare_comp.asp?
symbol=DLFL-UNTE&value=DLF-LTD-UNITECH

DLF LTD vs UNITECH - Comparison Results

DLF, India's largest real estate company, was incorporated in 1963 as American Universal
Electric (I) Limited (named DLF in 2006). It has developed some of the first residential colonies
in Delhi such as Krishna Nagar in East Delhi, which was completed in 1949. Since then, DLF
has been responsible for the development of many of Delhi's other well known urban colonies
like South Extension, Greater Kailash, Kailash Colony and Hauz Khas. Besides residential
properties, it has presence in commercial and retail projects too. DLF's operations span all
aspects of real estate development.
Established in 1972, Unitech is India's second largest listed real estate company. It
has presence across all the segments of real estate development, like residential,
commercial, retail, hospitality, amusement parks and special economic zones. In
order to diversify its business from geographic risks (the company earlier
concentrated only in the National Capital region), Unitech has entered new markets
like Kolkata, Chennai, Kochi, Hyderabad, Bangalore, Mohali, Agra and Varanasi. The
company has had a focus on the high-end market for properties. However, it has
now ventured into affordable housing also considering that it was its high-end
projects that were worst affected during the crisis. As of 31st March 2011, Unitech
had 80 ongoing projects covering a total area of 40 msqft at various stages of
development.
Current Valuations
DLF LTD

UNITECH

DLF LTD/
UNITECH

P/E (TTM)

45.2

2.7

1,681.2% View Chart

P/BV

1.1

0.2

631.1% View Chart

1.2

0.0

Dividend Yield

Financials

DLF LTD

UNITECH

EQUITY SHARE DATA

DLF LTD

UNITECH

DLF LTD/ 5-Yr Chart

Mar-15

Mar-15

UNITECH Click to
enlarge

High

Rs

243

21

1,131.9%

Low

Rs

132

15

854.5%

Sales per share (Unadj.)

Rs

42.9

13.1

327.1%

Earnings per share (Unadj.)

Rs

3.0

0.5

618.1%

Cash flow per share (Unadj.)

Rs

6.1

0.7

914.9%

Dividends per share (Unadj.)

Rs

2.00

1.1

Rs

153.6

41.8

367.3%

1,781.92

2,616.30

68.1%

ESOP

Dividend yield (eoy)

Book value per share (Unadj.)
Shares outstanding (eoy)
Bonus/Rights/Conversions
Price / Sales ratio

4.4

1.4

310.6%

Avg P/E ratio

61.7

37.6

164.4%

P/CF ratio (eoy)

30.7

27.7

111.1%

Price / Book Value ratio

1.2

0.4

276.6%

66.0

Rs m

333,575

48,205

692.0%

No. of employees

`000

2.2

1.6

140.0%

Total wages/salary

Rs m

3,488

1,881

185.4%

Avg. sales/employee

Rs Th

35,085.9

22,051.7

159.1%

Avg. wages/employee

Rs Th

1,600.1

1,208.2

132.4%

Avg. net profit/employee

Rs Th

2,478.1

824.2

300.7%

Net Sales

Rs m

76,487

34,335

222.8%

Other income

Rs m

5,194

2,884

180.1%

Total revenues

Rs m

81,682

37,219

219.5%

Gross profit

Rs m

30,237

10,304

293.5%

Depreciation

Rs m

5,448

458

1,189.5%

Interest

Rs m

23,039

729

3,159.0%

Profit before tax

Rs m

6,945

12,001

57.9%

Minority Interest

Rs m

333

340

97.9%

Prior Period Items

Rs m

379

-32

-1,195.2%

Dividend payout
Avg Mkt Cap

INCOME DATA

Extraordinary Inc (Exp)

Rs m

-679

-9,907

6.9%

Tax

Rs m

1,576

1,118

140.9%

Profit after tax

Rs m

5,402

1,283

421.0%

Gross profit margin

39.5

30.0

131.7%

Effective tax rate

22.7

9.3

243.4%

Net profit margin

7.1

3.7

189.0%

Current assets

Rs m

340,816

216,197

157.6%

Current liabilities

Rs m

167,257

141,592

118.1%

226.9

217.3

104.4%

2.0

1.5

133.5%

Inventory Days

Days

847

404

209.3%

Debtors Days

Days

76

164

46.1%

Net fixed assets

Rs m

241,812

19,629

1,231.9%

Share capital

Rs m

3,564

5,233

68.1%

"Free" reserves

Rs m

241,921

101,766

237.7%

Net worth

Rs m

273,689

109,416

250.1%

Long term debt

Rs m

176,296

21,656

814.1%

Total assets

Rs m

662,623

216,197

306.5%

Interest coverage

1.3

17.5

7.5%

Debt to equity ratio

0.6

0.2

325.5%

Sales to assets ratio

0.1

0.2

72.7%

Return on assets

4.3

0.9

461.1%

Return on equity

2.0

1.2

168.3%

Return on capital

6.7

2.4

279.2%

Exports to sales

2.0

Imports to sales

0.3

Exports (fob)

Rs m

1,561

NA

Imports (cif)

Rs m

212

NA

Fx inflow

Rs m

1,561

Fx outflow

Rs m

1,302

160

813.6%

Net fx

Rs m

259

-160

-162.0%

BALANCE SHEET DATA

Net working cap to sales

Current ratio

CASH FLOW
From Operations

Rs m

20,368

3,017

675.1%

From Investments

Rs m

984

790

124.5%

From Financial Activity

Rs m

-15,474

4,116

-375.9%

Net Cashflow

Rs m

5,878

7,923

74.2%

Indian Promoters

74.9

47.5

157.7%

Foreign collaborators

0.0

0.2

Indian inst/Mut Fund

0.5

2.1

23.8%

FIIs

19.9

26.2

76.0%

ADR/GDR

0.0

0.0

Free float

4.7

24.1

19.5%

432,951

615,694

70.3%

0.0

90.4

Share Holding

Shareholders
Pledged promoter(s) holding

NM: Not Meaningful

Source: Company Annual Reports, Regulatory Filings, Equitymaster