umeshram78
Umesh Ramchandani
SINHGAD INSTITUTE OF BUSINESS ADMINISTRATION AND RESEARCH
PROJECT REPORT
ON
UNITECH LTD.
SUBMITTED BY-
UMESH RAMCHANDANI
PGDM (FINANCE)
AF-45
SINHGAD TECHNICAL EDUCATION SOCIETY’S
SINHGAD INSTITUTE OF BUSINESS
ADMINISTRATION AND RESEARCH
CERTIFICATE
This is Certifying that the minor project title “UNITECH LTD.” is a bona-fide work done under the guidance of PROF. SUNIL KUMAR by Mr. UMESH RAMCHANDANI in the partial fulfillment of requirement for the award of PGDM [AICTE] of SINHGAD INSTITUTE OF BUSINESS ADMINISTRATION AND RESEARCH [SIBAR].
He has worked under our guidance and direction. His work is found to be satisfactory and complete in all respect.
GUIDED BY: APPROVED BY: PROF.SUNIL KUMAR AICTE
Acknowledgement
The sole efforts of any Individual are not sufficient enough to complete the Project. The completion of a project involves the effort and interest of many people. Same is the case with my project. There are many people whom we have to thank who directly or indirectly helped us a lot in completion of our research.
The goal was fixed and we began with a determined resolved and put in ceaseless sustained hard work. The higher the summit, the harder is the climb. There were times when the goal looked beyond reach but all difficulties were accepted as challenges. Greater the challenge, greater was the effort to overcome it.
I would like to acknowledge sincere thanks to my college for giving an opportunity to work on this project and providing the necessary information.
It is my earnest endeavor to express sincere thanks to the Director and faculty members for their cooperation, help and delighted support.
Above all there was and is and will always be the love of all the professors for what is written in this report and has been the fruits of experience that they taught us.
Finally thanks to my parents and friends. It was due to their support, motivation and encouragement.
DECLARATION
I, hereby declare that this project on “Unitech Ltd.” has been written and prepared by me during the academic year 2008-2009.
I also declare that this project is the result of my own effort but with little bit of help from various media resources and has not been submitted to any other institution for the award of any Degree or Diploma.
DECLARED BY:
UMESH RAMCHANDANI
AF-45
Contents
Sr. No. Subjects Covered Pages
1. Executive Summary 5
1.1 Scope & Objective
1.2 Limitations
2. Introduction 7
3. Company Profile 9
3.1 History of Company 12
4. Finance
Major Finding
Strategy
5. Marketing 19
Major Finding
Strategy
6. Operations 23
Major Finding
Strategy
7. HR Impact and Strategy 30
Major Finding
Strategy
8. Conclusion 32
9. Bibliography 33
Executive Summary
Unitech has built a sizeable landbank of 13,939 acres spread across 15 cities in India. The company, which used to be an NCR developer a few years ago, with over 84% of its landbank in non-NCR regions at present. Unitech is planning to develop its landbank through a mix of 51 projects in the residential, commercial, retail and hotel segments. Net Sales has been down by 57.1% y-o-y and 50.2% q-o-q to Rs. 489.93 crores. This has been mainly due to uncertain market conditions and the end user being in a wait and watch mode, due to falling prices, job insecurity, global crisis, etc.
The EDIDTA margins have fallen by 1,440 bps y-o-y and 1,210 bps q-o-q to 49.9% and net profit margin by 1,820 bps y-o-y and 870 bps q-o-q to 27.8%. This fall in margins is mainly due to rise in interest cost and lower average realizations due to the current market realities. Unitech has a huge Debt of ~Rs. 8,350 crores in its books against its market cap of Rs 4,747 crore. Out of which ~Rs. 2,500 crores were to be paid by March 09. Looking at its liquidity crunch to pay this huge debt, it has restructured Rs. 1,000 crore from banks. It has repaid Rs. 500 crore out of the total Rs 900 crore due in January and restructured Rs. 400 crore for next three months. Unitech is desperately looking out to repay the
The major concern surrounding Unitech has been its high leverage in these adverse market conditions and therefore the telecom deal would help assuage some concerns regarding Unitech’s leverage. We do not expect any positive surprises from the volume and realization point of view due to global crisis and Unitech’s concentrating on Mid Housing and Affordable housing.
Scope & objective
The aim of the study made through this project is to know the impact of global economic downturn in real estate’s 2nd largest company Unitech ltd. with strategies applied to look after global recession and also their future plan.
Limitation
1. Money was the major constraint during my project.
2. Duration of the study also limited for further intensive study.
3. It was difficult to collect secondary data from organization and media sources.
4. Limited coverage area was also a major constraint while conducting the study.
Introduction
The impact of recession in US economy has badly hit Indian real estate market along with sectors like retail, steel, cement, hospitality and logistics. Till October 2008 the real estate industry was a very booming industry in India. Also the high net worth of individual investors especially those involved in retail and IT had created a very fast pace of demand in Indian real estate sector which have gain a very high impact image of investing in India. But the downturn produced shocking waves in the real estate market, which further impacted sectors like retail, cement and iron. The result is unavoidable.
Relating only retail to real estate, the scene is bad. Its pace is equivalent to zilch today. In the time of recession, no retail company wants to buy exorbitantly high priced spaces; neither they want to pay highly charged rents. While just a year ago, the retail industry was the next big hope for India's economy, stores were opening everywhere, with sprawling malls across the country. Retailers bought up every inch of space in India's largest cities, sending real estate prices through the roof. Even India's small towns caught mall-mania. But as India's economy feels the impact of the global recession, Indian consumers are cutting back on spending, and retailers are facing a major slowdown and hence, real estate. For a deeper insight into the industry, Financial Times sought comments of people on - "Are retail real estate blocked funds nowadays?"
The development of real estate in India is attributed to the off-shoring and outsourcing businesses, such as high-end technology consultation, call centres and programming houses. The demand from the information technology sector has changed the urban landscape. Several multinational companies (MNCs) continue to move their organizational operations to India to take advantage of lower manpower and other costs. predominant trend to set up the world’s best business centres, often campus-style establishments bearing a distinguishing corporate stamp. Some of these locations are so distinctive that they are termed as the ’temples of new India’.
Company Profile
Unitech Group a Rs. 1600 crore real estate developer in India entered the civil engineering sector in 1974. Today, millions of families across India drive along Unitech built roads and rest in their hotels. Thousands of children gain knowledge in Unitech’s classrooms while their parents unwind themselves in one of the group’s many clubhouses.
The activities of Unitech Group are not just limited to residential, commercial and retail projects; it has a diversified business portfolio that includes power transmission lines, highways, theme parks, indoor stadiums, hotels, steel plants and educational institutions.
The group has had clients like Sriharikote Rocket Launching Station, Tuticorin Thermal Power Plant and Hindustan Paper Corporation and has now spread its roots in NCR of Delhi, Mumbai, Banglore, Lucknow and Kolkata
Unitech’s Ventures
The group has earned a reputation of designing aesthetic constructions while keeping customer satisfaction its top priority.
Residential Projects undertaken by Unitech include UniWorldCity and Nirvana in Gurgaon, Rajarhat in Kolkata, Unitech Karma Lakelands and Uniworld Resorts.
Office Spaces :
Unitech Group has won accolades for building some of the best corporate offices like Signature Towers , Global Business Park , Unitech Business Park and Unitech Trade Centre. Unitech Cyber Park is slated to become the hub for IT and IT enabled organisations with its high-speed digital access for every business idea. Lately Unitech ventured into building IT Parks and its IT parks like InfoSpace in Kolkata are much in demand with international clients like Gillette, HP, Convergys, Hewitt, Nike, Reebok etc.
Hotels :
Radisson Hotel by Unitech won praise for its wonderful infrastructure, interiors and ideal location. It has now tied-up with the Marriott group to set-up its Courtyard brand hotels in Gurgaon, Noida and Kolkata.
Amusement Parks:
Its Rohini Amusement Park , MetroWalk and Adventure Island have been appreciated a lot and now it plans to build The Amusement Park in Noida which will cover 1,500,000 sq ft area and will be the largest retail development in India .
SEZ:
The Unitech Group too has jumped into the SEZ bandwagon and is all set to build a multi-product SEZ in Kundli near Haryana and plans to set up 5 IT SEZs in Gurgaon, Noida and Kolkata.
Infrastructure:
Unitech successfully completed the Hubli-Dharwad Bypass Road project in May 2004 and the strengthening of 2 lane carriageways at Dwarka in 2006. It recently won the bid for setting up an Ultra Mega Power Pr
History
Established in 1971 by a group of technocrats led by Mr. Ramesh Chandra, Unitech has over the last three decades emerged as one of the leading business houses in India. Apart from the flagship business of real estate development, the group has interests in varied businesses such as Fund management, Infrastructure development and Transmission tower manufacturing. The Group has recently ventured into mobile telecom business. The Group’s flagship company Unitech Limited is a leading real estate developer in India with a market capitalization of around USD 6 billion. Unitech has been at the forefront of the rapid transformation of Indian real estate sector in the recent years
Stock Price Details
As on : 20 Apr 09
Market Cap.(BSE) 87256.41
52 Week High 338.00
52 Week Low 21.80
P/E 9.57
Exchange Information
Bombay Stock Exchange
BSE100, BSE200, BSE500, REALTY
National Stock Exchange
NIFTY, CNX500, CNX100
Scrip Information
Face Value : 2
Market Lot : 1
AGM Date : 03 Sep 2008
Book Closure Date : 27 Aug 2008
Impact of downturn in Unitech group and strategy adopted
Financial
Unitech’s consolidated revenue plunged 57.1% yoy, from Rs. 11.4 bn in Q3’08 to Rs. 4.9 bn in Q3’09, due to a sharp fall in revenue from the construction, real estate, and consultancy segments. The revenue from real estate business fell 63.2% to Rs. 3,747.5 mn in Q3’09. Meanwhile, construction and consulting segments’ revenue declined 62.6% yoy and 19.8% yoy, respectively. The quarter witnessed a tremendous fall in real estate demand along with a faster than anticipated decline in property prices.
EBIDTA margin in the December quarter also declined considerably to 49.9% from 64.3% in Q3’08 due to a decrease in realisation rates and an increase in staff costs (increased by 10.1% yoy). Unitech’s Q3’09 net profit fell 74.1% yoy to Rs. 1.4 bn (Rs. 0.84 per share), from Rs. 5.3 bn (Rs. 3.24 per share) in Q3’08. Net profit margin declined 1,824 bps yoy from 46% in Q3’08 to 27.8% in Q3’09 primarily due to poor operating performance and a 23.5% yoy fall in the other income. The interest coverage ratio for the quarter stood at 2.5x compared with 7.4x in the same quarter of the previous year, indicating a high debt balance and
Quarter wise sales with compititor:-
Major findings:-
a. Diminishing sales volume
Unitech reported a weak financial performance in Q3’09 due to the intensifying slowdown in the real estate sector. The results were adversely impacted by a sharp deterioration in demand, decline in real estate prices and high finance costs. In light of the worsening prospectsof the realty sector we downgrade our rating to Hold.
b. Property sales getting postponed:
Despite a decrease in interest rates by theRBI and consequently by the commercial banks, and a cut in property prices by around 20% in new launches, the sales volume in the residential segment has so far failed to pick up. This is due to the potential buyers adopting a wait-and-watch approach in anticipation of a further decline in real estate prices. Further, a weak economic environment is pushing the expansion plans of IT/ITeS and retail companies thus impacting the commercial and retail space demand. We expect the weak demand scenario to continue at least for the next 2-3 quarters with a slow improvement thereafter.
c. Liquidity position improves marginally:
Unitech has been able to repay Rs. 4,000 mn out of the Rs. 25,000 mn of debt due to be paid by March 2009. It has also restructured loans worth around Rs. 15,000 mn through banks and is changing its debt profile from short term to long term. It is further trying to raise funds to repay the balance.
d. Valuation:
We have revised our NAV estimate downward to reflect the worsening prospects of the sector. We have cut our revenue and earnings estimates to factor in lower sales volume and high vacancy rates and a higher-than-expected decline in property prices in Q3’09. Our NAV based fair value estimate of Rs. 32 reflects a limited upside potential to the current share price. Hence, we downgrade our rating to Hold.
e. Cash and Bank Balances
Our consolidated cash and bank balances comprise cash in hand and balances with banks. The total cash and bank balances were Rs. 13,110.7 million, Rs. 14,082.7, Rs. 10,227.3 million and Rs. 3,899.4 million as of each of 31 December 2008, 31 March 2008, 31 March 2007 and 31 March 2006 respectively.
f. Loans and Advances
Our consolidated loans and advances primarily comprises of advances recoverable and the advance payments in respect of income tax. The total loans and advances were Rs. 33,412.9 million, Rs. 29,295.5 Million, Rs. 18,224.6 million and Rs. 2,859.8 million as of each of 31 December 2008, 31 March 2008, 31 March 2007 and 31 March 2006 respectively.
g. Profit Before Tax
Our profit before tax decreased by 27.21 per cent from Rs. 16,012.9 million in the nine months ended 31 December 2007. to Rs. 11,654.9 million in the nine months ended 31 December 2008. This decrease in the profit before tax is due to a decrease in income from sales and operations on account of aforementioned factors.
h. Provision for Taxation
Provision for taxation decreased by 18.85 per cent from Rs. 3,013.3 million in the nine months ended 31 December 2007 to Rs. 2,445.3 million for the nine months ended 31 December 2008. This decrease is due to a reduction in the operations of the Company which has led to decrease in profits.
i. Net Profit after tax
Our net profit after tax decreased by 29.15 per cent. to Rs. 9,209.6 million in the nine months ended 31 December 2008 from Rs. 12,999.6 million in the nine months ended 31 December 2007. This decrease 79 in the profit after tax is mostly due to the decrease in income from sales and operations on account of aforementioned factors.
Strategy:-
1. Unitech has raised $325 million, through a placement of shares with institutional investors, to repay a part of its debt and develop affordable housing which it has planned in the current financial year. The amount raised via a qualified institutional placement (QIP) was at an issue price of Rs 38.5 per share, the issue is oversubscribed two times. The funds raised are expected to help the company in managing its cash flow situation. Total debt of the company stood at Rs 10,907 crore as on December 31, 2008, though it has now been reduced to Rs 8,900 crore as on March 31, 2009. (17/04/09)
2. Unitech is planning to sell its land assets to pay off loans and raise cash to fund its business, faced by cash crunch other real estate companies too are opting the same way to get rid of their debts, as reported by sources. The company will be selling its land blocks in some of its integrated township projects going on in Noida, Gurgaon, Mumbai, Hyderabad and Kolkata to healthcare, hospitality and education companies(09/04/09)
Unitech, reportedly partly repaid Rs5bn loan it owes to mutual fund houses and has rescheduled the remaining part. According to reports, As of March 31, 2009, company has a debt of Rs84bn, of which it has been able to reschedule about Rs25bn. Unitech is raising over Rs16bn through private placements, which would be utilised to launch new projects and part-payment of its debt.
Marketing
New Business:-
Norway-based Telenor Group announced the completion of the Unitech Wireless transaction and made the first investment of Rs. 12,500 mn that gives it a stake of 33.5% in the telecom JV. Telenor will inject a total of Rs. 61,200 mn of new equity into Unitech Wireless for 67.25% stake in the firm. Telenor's remaining investment of Rs. 48,700 mn will be completed in three tranches during 2009.
Major finding:-
a. Offering various sops and discounts:
Most developers are offering sops and discounts in various guises often on a case-by-case basis to push transactions. These sops and discounts include waiving of registration, providing free parking area and waiving of floor rise charges, offering amenities, etc.
b. Reducing the size of flats:
Developers are reducing the average flat sizes to make them more affordable. For instance (1) Orbit Corp has reduced its flat sizes from 4,500sf to 5,000sf per unit to 2,500sf to 2,700sf/unit at Orbit Haven located at Napeansea road, Mumbai (2) Runwal group is now constructing 1.5BHK and 2BHK apartments v/s 2.5BHK and 3BHK earler at Runwal Estates located at Ghodbunder Road, Thane and (3) Omaxe has adopted an innovative approach where it is offering studio apartments ranging from 650sf (1BHK) to 800sf (2BHK) at five of its existing projects in Noida, Faridabad and Chandigarh.
c. Innovative deals:
Even large organized developers are offering innovative financing deals to stimulate sales. For instance, Unitech, Ansal Properties and Prasvnath amongst many others have resorted to unique funding schemes for their customers. The customers are required to pay only the booking amount while payment towards EMI would commence only from the date of possession of their property (developers bear the EMI cost on behalf of the customers until possession is handed over to them). Further, several developers have resorted to offering freebies including fully furnished houses, free parking, free international holidays and free car with every purchase. For instance (1) Orange Properties created a great hype by offering a free Mercedes car with purchase of a villa with starting price of Rs6.9m/unit, booking amount of Rs1m/unit and (2) Jaypee group was offering different cars (BMW, Toyota, Maruti) depending on the size and value of the apartments at its Greater Noida project. Mumbai-based Cosmos Group started a new trend by launching its ‘Ghar pe ek ghar free’ offer (one house free on every house) at Lonavala and Thane.
Real estate major Unitech is reportedly planning to launch residential projects in the range of Rs5-10 lakhs in cities like Gurgaon, Chennai and Kolkata over the next few months. The company is considering a strategy to come up with such low-cost apartments, says a business daily. The new projects will be based on a different model, where the target customer and the margins will be different, Unitech's general manager, corporate planning was quoted as saying.
The inspiration to develop smaller and cheaper apartments comes from the Tata Nano car, which is elicitng a tremendous response, he said. I am sure our project will see a similar response, he added.
OPERATIONS
Results of Operations for the nine months ended 31 December 2008 and the nine months ended 31 December 2007. The following table sets forth certain items derived from
1. Companies unaudited reviewed consolidated financial statements for the nine months ended 31 December 2008
2. Companies unaudited reviewed consolidated financial statements for the nine months ended 30 December 2007:
Major finding:-
a. Manufacturing, job/construction and other project related expenses
Manufacturing, job/construction and other project related expenses primarily consist of, cost of materials, sub-contractor work bills for services provided by architects and other contract labourers. We incurred manufacturing, job/construction and other project related expenses amounting to Rs. 1,312.2 million in the nine months ended 31 December 2008, which accounted for 5.12 per cent. of sales, real estate receipts and other income in this period. In each of Fiscal 2008, Fiscal 2007 and Fiscal 2006, manufacturing, job/construction and other project related expenses accounted for Rs. 2,672.4 million, Rs. 3,069.5 million and Rs. 2,752.3 million, respectively, which accounted for 6.24 per cent., 9.06 per cent. and 28.82 per cent. of sales, real estate receipts and other income in those periods
b. Receipts of real estate projects adjusted
Prior to 31 March 2004, we recognised income by estimating profit at 20 per cent. of actual receipts and instalments fallen due, in respect of property to be completed, during a year. This income was subsequently adjusted upon completion of the respective projects. Receipts of real estate projects adjusted consist of the expenses with respect to projects undertaken prior to 31 March 2004 that are currently in progress. We incurred such expenses amounting to Rs. 322.0 million in the nine months ended 31 December 2008, which accounted for 1.26 per cent. of sales, real estate receipts and other 73 income in this period. In each of Fiscal 2008, 2007 and Fiscal 2006, the expenses relating to receipts of real estate projects adjusted accounted for Rs. 569.1 million, Rs. 1,682.1 million and Rs. 1,341.5 million, respectively, which accounted for 1.33 per cent., 4.96 per cent. and 14.05 per cent. of sales, real estate receipts and other income in those periods.
c. Expenses of real estate completed projects
Expenses of real estate completed projects consist of the expenses incurred in respect of the projects which have been completed. In addition, these expenses include costs relating to short term projects, which we consider to be properties that the Company divests itself of prior to carrying-out any material development. We do not undertake small scale projects on a regular basis. These expenses amounted to Rs. 33.1 million in the nine month period ended 31 December 2008, which accounted for 0.13 per cent. of sales, receipts and other income in this period. In each of Fiscal 2008, Fiscal 2007 and Fiscal 2006, these expenses amounted to Rs. 337.8 million, Rs. 296.4 million and Rs. 726.1 million, respectively, which accounted for 0.79 per cent., 0.87 per cent. and 7.60 per cent. of sales, real estate receipts and other income in those periods.
d. Expenses of percentage of completion method
Expenses of percentage of completion method consist of the expenses accounted for the projects undertaken on or after 1 April 2004 in accordance with accounting standards issued by ICAI. These expenses amounted to Rs. 5,800.5 million in the nine month period ended 31 December 2008, which accounted for 22.63 per cent. of sales, real estate receipts and other income in this period. In each of Fiscal 2008, Fiscal 2007 and Fiscal 2006, such expenses amounted to Rs. 12,332.1 million, Rs. 7,614.2 million and Rs. 1,642.5 million, respectively, which accounted for 28.81 per cent., 22.47 per cent. and 17.20 per cent. of sales, real estate receipts and other income in those periods.
e. Other expenditure on operations, administration and selling
These expenses include, among other things, bank charges and commission, power, fuel and water, travel expenses, legal and professional charges, advertising and marketing expenses, payments to directors, payments to auditors, lease rental charges and miscellaneous general expenses of the Company and its subsidiaries. These expenses amounted to Rs. 2,192.2 million for the nine months ended 31 December 2008, which accounted for 8.55 per cent. of sales, real estate receipts and other income in this period. In each of Fiscal 2008, Fiscal 2007 and Fiscal 2006, the expenses on operations, administration and selling amounted to Rs. 2,161.3 million, Rs. 1,312.9 million and Rs. 1,061.8 million respectively, which accounted for 5.05 per cent., 3.87 per cent. and 11.12 per cent. of sales, real estate receipts and other income in those periods
f. Depreciation
Depreciation on fixed assets including depreciation on building, plant and machinery, furniture, fixtures, motor vehicles and computers in the nine months ended 31 December 2008 was Rs. 159.6 million, which accounted for 0.62 per cent. of sales, real estate receipts and other income in this period. In Fiscal 2008, Fiscal 2007 and Fiscal 2006, depreciation amounted to Rs. 205.3 million, Rs. 73.4 million and Rs. 109.1 million, respectively, which accounted for 0.48 per cent., 0.22 per cent. and 1.14 per cent. of sales, real estate receipts and other income in those periods.
g. Receipts of real estate projects adjusted
Receipts of real estate projects adjusted decreased by 36.41 per cent. from Rs. 506.4 million in the nine months ended 31 December 2007 to Rs. 322.0 million in the nine months ended 31 December 2008. This decrease reflects the decrease in receipts pertaining to projects undertaken prior to 1 April 2004. With respect to projects undertaken up to 31 March 2004, revenue was recognised to estimate a profit of 20 per cent. of actual receipts and instalments received during the period towards booking of constructed properties and over a period of time these receipts have reduced considerably. The expenses relating to receipts of real estate projects adjusted constituted 2.23 per cent. and 3.18 per cent. of our total expenses in the nine months ended 31 December 2008 and 31 December 2007 respectively.
h. Expenses of real estate completed projects
Our expenses on real estate completed projects decreased by 84.74 per cent. from Rs. 216.8 million in the nine months ended 31 December 2007 to Rs. 33.1 million in the nine months ended 31 December 2008. This decrease is primarily due to a reduction in short term projects undertaken during this nine-month period. The expenses relating to real estate completed projects constituted 0.23 per cent. and 1.36 per cent. of our total expenses in the nine months ended 31 December 2008 and 31 December 2007 respectively.
i. Expenses of percentage of completion method
Our expenses relating to construction of projects accounted for under the percentage of completion method decreased by 25.33 per cent. from Rs. 7,768.1 million in the nine months ended 31 December 2007 to Rs. 5,800.5 million in the nine months ended 31 December 2008. This decrease is due to a reduction in the number of new projects that have been undertaken in the corresponding period as well as slower progress on ongoing construction projects. The expenses relating to the percentage of completion method constituted 40.15 per cent. and 48.81 per cent. of our total expenses in the nine months ended 31 December 2008 and 31 December 2007 respectively.
j. Expenditure on operations, administration and selling
Our expenditure on operations, administration and selling increased by 64.22 per cent. from Rs. 1,334.9 million in the nine months ended 31 December 2007 to Rs. 2,192.2 million in the nine months ended 31 December 2008. This increase is due to a rise in operational expenses for our amusement parks, legal and professional charges, and bank charges and commissions paid. Such expenditure constituted 15.16 per cent. and 8.39 per cent. of our total expenses in the nine months ended 31 December 2008 and 31 December 2007 respectively.
k. Excise Duty on Stock
The excise duty paid by the Company increased by 667.88 per cent. from Rs. 2.8 million in the nine months ended 31 December 2007. to Rs. 21.4 million in the nine months ended 31 December 2008. This increase is on account of higher stock of finished goods on which excise duty was payable. Excise duty constituted 0.15 per cent. and 0.02 per cent. of our total expenses in the nine months ended 31 December 2008 and 31 December 2007 respectively.
Human Resource
a. Employee remuneration and benefits
Companies expenses relating to employee remuneration and benefits increased by 25.22 per cent from Rs. 646.0 million in the nine months ended 31 December 2007 to Rs. 808.9 million in the nine months ended 31 December 2008. This increase is due to the increase in their compensation. The total number of employees decreased to 1,245 in the nine months ended 31 December 2008 from 1,551 in the nine months ended 31 December 2007. The expenses relating to employee remuneration and benefits constituted 5.59 per cent. and 4.06 per cent. of our total expenses in the nine months ended 31 December 2008 and 31 December 2007 respectively.
b. Unitech lays off 10% employees
The country's second largest realty firm, Unitech, has reduced its workforce by about 10%, out of a total of 1,700 employees, as part of its cost-cutting measures on the back of a credit crunch faced by the company. Besides, downsizing employees strength over the last 4-5 months, the company is also not filling up vacancies, which were left empty in the process of normal attrition. "Our normal attrition is there. Naturally we are not looking for replacements And we have let go trainees in over a period of 4-5 months," Unitech Chairman Ramesh Chandra told PTI. The company's current rate of attrition is about 15-20% a year, he added. Asked about the number of people that the company has fired, he said: "It is to the extent of 10% of total workforce and total is about 1,700 people."
He, however, said the company has not cut salaries of its employees yet. Besides, Unitech has also shifted some employees to its newly formed telecom venture from the real estate business. "Our telecom company's requirement is very large. We have transferred some people from Unitech to Unitech Wireless (the telecom subsidiary)," Chandra said without giving details. Reeling under slowdown and heavy credit crunch, the realty players have recently either cut jobs or slashed employees' salaries. Earlier in this month, Parsvnath had cut salaries of its employees in top and middle level management by up to 20%, while Omaxe had fired 70 employees and also lowered the remuneration by 10%. The country's largest realty firm DLF had also hinted at firing people if the demand of the sector would not improve.
c. Shifting employees in to new telecom business
The company has not cut salaries of its employees yet. Besides, Unitech has also shifted some employees to its newly formed telecom venture from the real estate business. "Our telecom company's requirement is very large. We have transferred some people from Unitech to Unitech Wireless (the telecom subsidiary)," Chandra said without giving details. Reeling under slowdown and heavy credit crunch, the realty players have recently either cut jobs or slashed employees' salaries. Earlier in this month, Parsvnath had cut salaries of its employees in top and middle level management by up to 20%, while Omaxe had fired 70 employees and also lowered the remuneration by 10%. The country's largest realty firm DLF had also hinted at firing people if the demand of the sector would not improve.
Conclusion
While the real estate sector has been in a downturn since September 2007, 3QFY09 would be remembered as the quarter when most developers Unitech ltd. also came out of their denial mode and acknowledged the severity of the downturn in the real estate industry. Several companies announced drastic measures to effectively deal with the situation: i) suspending several ongoing projects, ii) postponing new launches, iii) recalibrating development plans etc. Most companies revised downwards their guidance for delivery, sales and profits by 50-70%.
Another significant event during 3QFY09 was RBI’s bailout package for the real estate sector. RBI allowed banks to undertake initial restructuring of commercial loans of real estate companies till June 2009, without the loans being classified as NPAs. Consequently, most real estate companies used the window provided by RBI to refinance or reschedule their debt repayments obligation falling due up to March 2009.
We have lowered our FY10 NAV for all RE companies in our coverage universe to account for: (1) further delay in project launches and completion across verticals, (2) lower price assumptions across all projects across verticals, and (3) higher cap rates for the commercial and retail projects. Due to the virtual paralysis in the real estate sector since November 2008, we believe 4QFY09 could be worse than 3QFY09 and we expect FY09-10 to be a period of consolidation, in which industry leaders would be differentiated from peers. We believe developers with staying power would utilize this consolidation phase to emerge stronger. Focus on companies with: (1) high visibility on monetization of assets over the next 3-5 years, (2) low leverage and robust financials, and (3) strong execution track record.
On the whole we can say that this is very tough time for real estate sector but when economy will go up then simultaneously real estate sector will go up. Unitech ltd. is fundamentally strong company and its future is also bright.
Bibliography
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unitech
PROJECT REPORT
ON
UNITECH LTD.
SUBMITTED BY-
UMESH RAMCHANDANI
PGDM (FINANCE)
AF-45
SINHGAD TECHNICAL EDUCATION SOCIETY’S
SINHGAD INSTITUTE OF BUSINESS
ADMINISTRATION AND RESEARCH
CERTIFICATE
This is Certifying that the minor project title “UNITECH LTD.” is a bona-fide work done under the guidance of PROF. SUNIL KUMAR by Mr. UMESH RAMCHANDANI in the partial fulfillment of requirement for the award of PGDM [AICTE] of SINHGAD INSTITUTE OF BUSINESS ADMINISTRATION AND RESEARCH [SIBAR].
He has worked under our guidance and direction. His work is found to be satisfactory and complete in all respect.
GUIDED BY: APPROVED BY: PROF.SUNIL KUMAR AICTE
Acknowledgement
The sole efforts of any Individual are not sufficient enough to complete the Project. The completion of a project involves the effort and interest of many people. Same is the case with my project. There are many people whom we have to thank who directly or indirectly helped us a lot in completion of our research.
The goal was fixed and we began with a determined resolved and put in ceaseless sustained hard work. The higher the summit, the harder is the climb. There were times when the goal looked beyond reach but all difficulties were accepted as challenges. Greater the challenge, greater was the effort to overcome it.
I would like to acknowledge sincere thanks to my college for giving an opportunity to work on this project and providing the necessary information.
It is my earnest endeavor to express sincere thanks to the Director and faculty members for their cooperation, help and delighted support.
Above all there was and is and will always be the love of all the professors for what is written in this report and has been the fruits of experience that they taught us.
Finally thanks to my parents and friends. It was due to their support, motivation and encouragement.
DECLARATION
I, hereby declare that this project on “Unitech Ltd.” has been written and prepared by me during the academic year 2008-2009.
I also declare that this project is the result of my own effort but with little bit of help from various media resources and has not been submitted to any other institution for the award of any Degree or Diploma.
DECLARED BY:
UMESH RAMCHANDANI
AF-45
Contents
Sr. No. Subjects Covered Pages
1. Executive Summary 5
1.1 Scope & Objective
1.2 Limitations
2. Introduction 7
3. Company Profile 9
3.1 History of Company 12
4. Finance
Major Finding
Strategy
5. Marketing 19
Major Finding
Strategy
6. Operations 23
Major Finding
Strategy
7. HR Impact and Strategy 30
Major Finding
Strategy
8. Conclusion 32
9. Bibliography 33
Executive Summary
Unitech has built a sizeable landbank of 13,939 acres spread across 15 cities in India. The company, which used to be an NCR developer a few years ago, with over 84% of its landbank in non-NCR regions at present. Unitech is planning to develop its landbank through a mix of 51 projects in the residential, commercial, retail and hotel segments. Net Sales has been down by 57.1% y-o-y and 50.2% q-o-q to Rs. 489.93 crores. This has been mainly due to uncertain market conditions and the end user being in a wait and watch mode, due to falling prices, job insecurity, global crisis, etc.
The EDIDTA margins have fallen by 1,440 bps y-o-y and 1,210 bps q-o-q to 49.9% and net profit margin by 1,820 bps y-o-y and 870 bps q-o-q to 27.8%. This fall in margins is mainly due to rise in interest cost and lower average realizations due to the current market realities. Unitech has a huge Debt of ~Rs. 8,350 crores in its books against its market cap of Rs 4,747 crore. Out of which ~Rs. 2,500 crores were to be paid by March 09. Looking at its liquidity crunch to pay this huge debt, it has restructured Rs. 1,000 crore from banks. It has repaid Rs. 500 crore out of the total Rs 900 crore due in January and restructured Rs. 400 crore for next three months. Unitech is desperately looking out to repay the
The major concern surrounding Unitech has been its high leverage in these adverse market conditions and therefore the telecom deal would help assuage some concerns regarding Unitech’s leverage. We do not expect any positive surprises from the volume and realization point of view due to global crisis and Unitech’s concentrating on Mid Housing and Affordable housing.
Scope & objective
The aim of the study made through this project is to know the impact of global economic downturn in real estate’s 2nd largest company Unitech ltd. with strategies applied to look after global recession and also their future plan.
Limitation
1. Money was the major constraint during my project.
2. Duration of the study also limited for further intensive study.
3. It was difficult to collect secondary data from organization and media sources.
4. Limited coverage area was also a major constraint while conducting the study.
Introduction
The impact of recession in US economy has badly hit Indian real estate market along with sectors like retail, steel, cement, hospitality and logistics. Till October 2008 the real estate industry was a very booming industry in India. Also the high net worth of individual investors especially those involved in retail and IT had created a very fast pace of demand in Indian real estate sector which have gain a very high impact image of investing in India. But the downturn produced shocking waves in the real estate market, which further impacted sectors like retail, cement and iron. The result is unavoidable.
Relating only retail to real estate, the scene is bad. Its pace is equivalent to zilch today. In the time of recession, no retail company wants to buy exorbitantly high priced spaces; neither they want to pay highly charged rents. While just a year ago, the retail industry was the next big hope for India's economy, stores were opening everywhere, with sprawling malls across the country. Retailers bought up every inch of space in India's largest cities, sending real estate prices through the roof. Even India's small towns caught mall-mania. But as India's economy feels the impact of the global recession, Indian consumers are cutting back on spending, and retailers are facing a major slowdown and hence, real estate. For a deeper insight into the industry, Financial Times sought comments of people on - "Are retail real estate blocked funds nowadays?"
The development of real estate in India is attributed to the off-shoring and outsourcing businesses, such as high-end technology consultation, call centres and programming houses. The demand from the information technology sector has changed the urban landscape. Several multinational companies (MNCs) continue to move their organizational operations to India to take advantage of lower manpower and other costs. predominant trend to set up the world’s best business centres, often campus-style establishments bearing a distinguishing corporate stamp. Some of these locations are so distinctive that they are termed as the ’temples of new India’.
Company Profile
Unitech Group a Rs. 1600 crore real estate developer in India entered the civil engineering sector in 1974. Today, millions of families across India drive along Unitech built roads and rest in their hotels. Thousands of children gain knowledge in Unitech’s classrooms while their parents unwind themselves in one of the group’s many clubhouses.
The activities of Unitech Group are not just limited to residential, commercial and retail projects; it has a diversified business portfolio that includes power transmission lines, highways, theme parks, indoor stadiums, hotels, steel plants and educational institutions.
The group has had clients like Sriharikote Rocket Launching Station, Tuticorin Thermal Power Plant and Hindustan Paper Corporation and has now spread its roots in NCR of Delhi, Mumbai, Banglore, Lucknow and Kolkata
Unitech’s Ventures
The group has earned a reputation of designing aesthetic constructions while keeping customer satisfaction its top priority.
Residential Projects undertaken by Unitech include UniWorldCity and Nirvana in Gurgaon, Rajarhat in Kolkata, Unitech Karma Lakelands and Uniworld Resorts.
Office Spaces :
Unitech Group has won accolades for building some of the best corporate offices like Signature Towers , Global Business Park , Unitech Business Park and Unitech Trade Centre. Unitech Cyber Park is slated to become the hub for IT and IT enabled organisations with its high-speed digital access for every business idea. Lately Unitech ventured into building IT Parks and its IT parks like InfoSpace in Kolkata are much in demand with international clients like Gillette, HP, Convergys, Hewitt, Nike, Reebok etc.
Hotels :
Radisson Hotel by Unitech won praise for its wonderful infrastructure, interiors and ideal location. It has now tied-up with the Marriott group to set-up its Courtyard brand hotels in Gurgaon, Noida and Kolkata.
Amusement Parks:
Its Rohini Amusement Park , MetroWalk and Adventure Island have been appreciated a lot and now it plans to build The Amusement Park in Noida which will cover 1,500,000 sq ft area and will be the largest retail development in India .
SEZ:
The Unitech Group too has jumped into the SEZ bandwagon and is all set to build a multi-product SEZ in Kundli near Haryana and plans to set up 5 IT SEZs in Gurgaon, Noida and Kolkata.
Infrastructure:
Unitech successfully completed the Hubli-Dharwad Bypass Road project in May 2004 and the strengthening of 2 lane carriageways at Dwarka in 2006. It recently won the bid for setting up an Ultra Mega Power Pr
History
Established in 1971 by a group of technocrats led by Mr. Ramesh Chandra, Unitech has over the last three decades emerged as one of the leading business houses in India. Apart from the flagship business of real estate development, the group has interests in varied businesses such as Fund management, Infrastructure development and Transmission tower manufacturing. The Group has recently ventured into mobile telecom business. The Group’s flagship company Unitech Limited is a leading real estate developer in India with a market capitalization of around USD 6 billion. Unitech has been at the forefront of the rapid transformation of Indian real estate sector in the recent years
Stock Price Details
As on : 20 Apr 09
Market Cap.(BSE) 87256.41
52 Week High 338.00
52 Week Low 21.80
P/E 9.57
Exchange Information
Bombay Stock Exchange
BSE100, BSE200, BSE500, REALTY
National Stock Exchange
NIFTY, CNX500, CNX100
Scrip Information
Face Value : 2
Market Lot : 1
AGM Date : 03 Sep 2008
Book Closure Date : 27 Aug 2008
Impact of downturn in Unitech group and strategy adopted
Financial
Unitech’s consolidated revenue plunged 57.1% yoy, from Rs. 11.4 bn in Q3’08 to Rs. 4.9 bn in Q3’09, due to a sharp fall in revenue from the construction, real estate, and consultancy segments. The revenue from real estate business fell 63.2% to Rs. 3,747.5 mn in Q3’09. Meanwhile, construction and consulting segments’ revenue declined 62.6% yoy and 19.8% yoy, respectively. The quarter witnessed a tremendous fall in real estate demand along with a faster than anticipated decline in property prices.
EBIDTA margin in the December quarter also declined considerably to 49.9% from 64.3% in Q3’08 due to a decrease in realisation rates and an increase in staff costs (increased by 10.1% yoy). Unitech’s Q3’09 net profit fell 74.1% yoy to Rs. 1.4 bn (Rs. 0.84 per share), from Rs. 5.3 bn (Rs. 3.24 per share) in Q3’08. Net profit margin declined 1,824 bps yoy from 46% in Q3’08 to 27.8% in Q3’09 primarily due to poor operating performance and a 23.5% yoy fall in the other income. The interest coverage ratio for the quarter stood at 2.5x compared with 7.4x in the same quarter of the previous year, indicating a high debt balance and
Quarter wise sales with compititor:-
Major findings:-
a. Diminishing sales volume
Unitech reported a weak financial performance in Q3’09 due to the intensifying slowdown in the real estate sector. The results were adversely impacted by a sharp deterioration in demand, decline in real estate prices and high finance costs. In light of the worsening prospectsof the realty sector we downgrade our rating to Hold.
b. Property sales getting postponed:
Despite a decrease in interest rates by theRBI and consequently by the commercial banks, and a cut in property prices by around 20% in new launches, the sales volume in the residential segment has so far failed to pick up. This is due to the potential buyers adopting a wait-and-watch approach in anticipation of a further decline in real estate prices. Further, a weak economic environment is pushing the expansion plans of IT/ITeS and retail companies thus impacting the commercial and retail space demand. We expect the weak demand scenario to continue at least for the next 2-3 quarters with a slow improvement thereafter.
c. Liquidity position improves marginally:
Unitech has been able to repay Rs. 4,000 mn out of the Rs. 25,000 mn of debt due to be paid by March 2009. It has also restructured loans worth around Rs. 15,000 mn through banks and is changing its debt profile from short term to long term. It is further trying to raise funds to repay the balance.
d. Valuation:
We have revised our NAV estimate downward to reflect the worsening prospects of the sector. We have cut our revenue and earnings estimates to factor in lower sales volume and high vacancy rates and a higher-than-expected decline in property prices in Q3’09. Our NAV based fair value estimate of Rs. 32 reflects a limited upside potential to the current share price. Hence, we downgrade our rating to Hold.
e. Cash and Bank Balances
Our consolidated cash and bank balances comprise cash in hand and balances with banks. The total cash and bank balances were Rs. 13,110.7 million, Rs. 14,082.7, Rs. 10,227.3 million and Rs. 3,899.4 million as of each of 31 December 2008, 31 March 2008, 31 March 2007 and 31 March 2006 respectively.
f. Loans and Advances
Our consolidated loans and advances primarily comprises of advances recoverable and the advance payments in respect of income tax. The total loans and advances were Rs. 33,412.9 million, Rs. 29,295.5 Million, Rs. 18,224.6 million and Rs. 2,859.8 million as of each of 31 December 2008, 31 March 2008, 31 March 2007 and 31 March 2006 respectively.
g. Profit Before Tax
Our profit before tax decreased by 27.21 per cent from Rs. 16,012.9 million in the nine months ended 31 December 2007. to Rs. 11,654.9 million in the nine months ended 31 December 2008. This decrease in the profit before tax is due to a decrease in income from sales and operations on account of aforementioned factors.
h. Provision for Taxation
Provision for taxation decreased by 18.85 per cent from Rs. 3,013.3 million in the nine months ended 31 December 2007 to Rs. 2,445.3 million for the nine months ended 31 December 2008. This decrease is due to a reduction in the operations of the Company which has led to decrease in profits.
i. Net Profit after tax
Our net profit after tax decreased by 29.15 per cent. to Rs. 9,209.6 million in the nine months ended 31 December 2008 from Rs. 12,999.6 million in the nine months ended 31 December 2007. This decrease 79 in the profit after tax is mostly due to the decrease in income from sales and operations on account of aforementioned factors.
Strategy:-
1. Unitech has raised $325 million, through a placement of shares with institutional investors, to repay a part of its debt and develop affordable housing which it has planned in the current financial year. The amount raised via a qualified institutional placement (QIP) was at an issue price of Rs 38.5 per share, the issue is oversubscribed two times. The funds raised are expected to help the company in managing its cash flow situation. Total debt of the company stood at Rs 10,907 crore as on December 31, 2008, though it has now been reduced to Rs 8,900 crore as on March 31, 2009. (17/04/09)
2. Unitech is planning to sell its land assets to pay off loans and raise cash to fund its business, faced by cash crunch other real estate companies too are opting the same way to get rid of their debts, as reported by sources. The company will be selling its land blocks in some of its integrated township projects going on in Noida, Gurgaon, Mumbai, Hyderabad and Kolkata to healthcare, hospitality and education companies(09/04/09)
Unitech, reportedly partly repaid Rs5bn loan it owes to mutual fund houses and has rescheduled the remaining part. According to reports, As of March 31, 2009, company has a debt of Rs84bn, of which it has been able to reschedule about Rs25bn. Unitech is raising over Rs16bn through private placements, which would be utilised to launch new projects and part-payment of its debt.
Marketing
New Business:-
Norway-based Telenor Group announced the completion of the Unitech Wireless transaction and made the first investment of Rs. 12,500 mn that gives it a stake of 33.5% in the telecom JV. Telenor will inject a total of Rs. 61,200 mn of new equity into Unitech Wireless for 67.25% stake in the firm. Telenor's remaining investment of Rs. 48,700 mn will be completed in three tranches during 2009.
Major finding:-
a. Offering various sops and discounts:
Most developers are offering sops and discounts in various guises often on a case-by-case basis to push transactions. These sops and discounts include waiving of registration, providing free parking area and waiving of floor rise charges, offering amenities, etc.
b. Reducing the size of flats:
Developers are reducing the average flat sizes to make them more affordable. For instance (1) Orbit Corp has reduced its flat sizes from 4,500sf to 5,000sf per unit to 2,500sf to 2,700sf/unit at Orbit Haven located at Napeansea road, Mumbai (2) Runwal group is now constructing 1.5BHK and 2BHK apartments v/s 2.5BHK and 3BHK earler at Runwal Estates located at Ghodbunder Road, Thane and (3) Omaxe has adopted an innovative approach where it is offering studio apartments ranging from 650sf (1BHK) to 800sf (2BHK) at five of its existing projects in Noida, Faridabad and Chandigarh.
c. Innovative deals:
Even large organized developers are offering innovative financing deals to stimulate sales. For instance, Unitech, Ansal Properties and Prasvnath amongst many others have resorted to unique funding schemes for their customers. The customers are required to pay only the booking amount while payment towards EMI would commence only from the date of possession of their property (developers bear the EMI cost on behalf of the customers until possession is handed over to them). Further, several developers have resorted to offering freebies including fully furnished houses, free parking, free international holidays and free car with every purchase. For instance (1) Orange Properties created a great hype by offering a free Mercedes car with purchase of a villa with starting price of Rs6.9m/unit, booking amount of Rs1m/unit and (2) Jaypee group was offering different cars (BMW, Toyota, Maruti) depending on the size and value of the apartments at its Greater Noida project. Mumbai-based Cosmos Group started a new trend by launching its ‘Ghar pe ek ghar free’ offer (one house free on every house) at Lonavala and Thane.
Real estate major Unitech is reportedly planning to launch residential projects in the range of Rs5-10 lakhs in cities like Gurgaon, Chennai and Kolkata over the next few months. The company is considering a strategy to come up with such low-cost apartments, says a business daily. The new projects will be based on a different model, where the target customer and the margins will be different, Unitech's general manager, corporate planning was quoted as saying.
The inspiration to develop smaller and cheaper apartments comes from the Tata Nano car, which is elicitng a tremendous response, he said. I am sure our project will see a similar response, he added.
OPERATIONS
Results of Operations for the nine months ended 31 December 2008 and the nine months ended 31 December 2007. The following table sets forth certain items derived from
1. Companies unaudited reviewed consolidated financial statements for the nine months ended 31 December 2008
2. Companies unaudited reviewed consolidated financial statements for the nine months ended 30 December 2007:
Major finding:-
a. Manufacturing, job/construction and other project related expenses
Manufacturing, job/construction and other project related expenses primarily consist of, cost of materials, sub-contractor work bills for services provided by architects and other contract labourers. We incurred manufacturing, job/construction and other project related expenses amounting to Rs. 1,312.2 million in the nine months ended 31 December 2008, which accounted for 5.12 per cent. of sales, real estate receipts and other income in this period. In each of Fiscal 2008, Fiscal 2007 and Fiscal 2006, manufacturing, job/construction and other project related expenses accounted for Rs. 2,672.4 million, Rs. 3,069.5 million and Rs. 2,752.3 million, respectively, which accounted for 6.24 per cent., 9.06 per cent. and 28.82 per cent. of sales, real estate receipts and other income in those periods
b. Receipts of real estate projects adjusted
Prior to 31 March 2004, we recognised income by estimating profit at 20 per cent. of actual receipts and instalments fallen due, in respect of property to be completed, during a year. This income was subsequently adjusted upon completion of the respective projects. Receipts of real estate projects adjusted consist of the expenses with respect to projects undertaken prior to 31 March 2004 that are currently in progress. We incurred such expenses amounting to Rs. 322.0 million in the nine months ended 31 December 2008, which accounted for 1.26 per cent. of sales, real estate receipts and other 73 income in this period. In each of Fiscal 2008, 2007 and Fiscal 2006, the expenses relating to receipts of real estate projects adjusted accounted for Rs. 569.1 million, Rs. 1,682.1 million and Rs. 1,341.5 million, respectively, which accounted for 1.33 per cent., 4.96 per cent. and 14.05 per cent. of sales, real estate receipts and other income in those periods.
c. Expenses of real estate completed projects
Expenses of real estate completed projects consist of the expenses incurred in respect of the projects which have been completed. In addition, these expenses include costs relating to short term projects, which we consider to be properties that the Company divests itself of prior to carrying-out any material development. We do not undertake small scale projects on a regular basis. These expenses amounted to Rs. 33.1 million in the nine month period ended 31 December 2008, which accounted for 0.13 per cent. of sales, receipts and other income in this period. In each of Fiscal 2008, Fiscal 2007 and Fiscal 2006, these expenses amounted to Rs. 337.8 million, Rs. 296.4 million and Rs. 726.1 million, respectively, which accounted for 0.79 per cent., 0.87 per cent. and 7.60 per cent. of sales, real estate receipts and other income in those periods.
d. Expenses of percentage of completion method
Expenses of percentage of completion method consist of the expenses accounted for the projects undertaken on or after 1 April 2004 in accordance with accounting standards issued by ICAI. These expenses amounted to Rs. 5,800.5 million in the nine month period ended 31 December 2008, which accounted for 22.63 per cent. of sales, real estate receipts and other income in this period. In each of Fiscal 2008, Fiscal 2007 and Fiscal 2006, such expenses amounted to Rs. 12,332.1 million, Rs. 7,614.2 million and Rs. 1,642.5 million, respectively, which accounted for 28.81 per cent., 22.47 per cent. and 17.20 per cent. of sales, real estate receipts and other income in those periods.
e. Other expenditure on operations, administration and selling
These expenses include, among other things, bank charges and commission, power, fuel and water, travel expenses, legal and professional charges, advertising and marketing expenses, payments to directors, payments to auditors, lease rental charges and miscellaneous general expenses of the Company and its subsidiaries. These expenses amounted to Rs. 2,192.2 million for the nine months ended 31 December 2008, which accounted for 8.55 per cent. of sales, real estate receipts and other income in this period. In each of Fiscal 2008, Fiscal 2007 and Fiscal 2006, the expenses on operations, administration and selling amounted to Rs. 2,161.3 million, Rs. 1,312.9 million and Rs. 1,061.8 million respectively, which accounted for 5.05 per cent., 3.87 per cent. and 11.12 per cent. of sales, real estate receipts and other income in those periods
f. Depreciation
Depreciation on fixed assets including depreciation on building, plant and machinery, furniture, fixtures, motor vehicles and computers in the nine months ended 31 December 2008 was Rs. 159.6 million, which accounted for 0.62 per cent. of sales, real estate receipts and other income in this period. In Fiscal 2008, Fiscal 2007 and Fiscal 2006, depreciation amounted to Rs. 205.3 million, Rs. 73.4 million and Rs. 109.1 million, respectively, which accounted for 0.48 per cent., 0.22 per cent. and 1.14 per cent. of sales, real estate receipts and other income in those periods.
g. Receipts of real estate projects adjusted
Receipts of real estate projects adjusted decreased by 36.41 per cent. from Rs. 506.4 million in the nine months ended 31 December 2007 to Rs. 322.0 million in the nine months ended 31 December 2008. This decrease reflects the decrease in receipts pertaining to projects undertaken prior to 1 April 2004. With respect to projects undertaken up to 31 March 2004, revenue was recognised to estimate a profit of 20 per cent. of actual receipts and instalments received during the period towards booking of constructed properties and over a period of time these receipts have reduced considerably. The expenses relating to receipts of real estate projects adjusted constituted 2.23 per cent. and 3.18 per cent. of our total expenses in the nine months ended 31 December 2008 and 31 December 2007 respectively.
h. Expenses of real estate completed projects
Our expenses on real estate completed projects decreased by 84.74 per cent. from Rs. 216.8 million in the nine months ended 31 December 2007 to Rs. 33.1 million in the nine months ended 31 December 2008. This decrease is primarily due to a reduction in short term projects undertaken during this nine-month period. The expenses relating to real estate completed projects constituted 0.23 per cent. and 1.36 per cent. of our total expenses in the nine months ended 31 December 2008 and 31 December 2007 respectively.
i. Expenses of percentage of completion method
Our expenses relating to construction of projects accounted for under the percentage of completion method decreased by 25.33 per cent. from Rs. 7,768.1 million in the nine months ended 31 December 2007 to Rs. 5,800.5 million in the nine months ended 31 December 2008. This decrease is due to a reduction in the number of new projects that have been undertaken in the corresponding period as well as slower progress on ongoing construction projects. The expenses relating to the percentage of completion method constituted 40.15 per cent. and 48.81 per cent. of our total expenses in the nine months ended 31 December 2008 and 31 December 2007 respectively.
j. Expenditure on operations, administration and selling
Our expenditure on operations, administration and selling increased by 64.22 per cent. from Rs. 1,334.9 million in the nine months ended 31 December 2007 to Rs. 2,192.2 million in the nine months ended 31 December 2008. This increase is due to a rise in operational expenses for our amusement parks, legal and professional charges, and bank charges and commissions paid. Such expenditure constituted 15.16 per cent. and 8.39 per cent. of our total expenses in the nine months ended 31 December 2008 and 31 December 2007 respectively.
k. Excise Duty on Stock
The excise duty paid by the Company increased by 667.88 per cent. from Rs. 2.8 million in the nine months ended 31 December 2007. to Rs. 21.4 million in the nine months ended 31 December 2008. This increase is on account of higher stock of finished goods on which excise duty was payable. Excise duty constituted 0.15 per cent. and 0.02 per cent. of our total expenses in the nine months ended 31 December 2008 and 31 December 2007 respectively.
Human Resource
a. Employee remuneration and benefits
Companies expenses relating to employee remuneration and benefits increased by 25.22 per cent from Rs. 646.0 million in the nine months ended 31 December 2007 to Rs. 808.9 million in the nine months ended 31 December 2008. This increase is due to the increase in their compensation. The total number of employees decreased to 1,245 in the nine months ended 31 December 2008 from 1,551 in the nine months ended 31 December 2007. The expenses relating to employee remuneration and benefits constituted 5.59 per cent. and 4.06 per cent. of our total expenses in the nine months ended 31 December 2008 and 31 December 2007 respectively.
b. Unitech lays off 10% employees
The country's second largest realty firm, Unitech, has reduced its workforce by about 10%, out of a total of 1,700 employees, as part of its cost-cutting measures on the back of a credit crunch faced by the company. Besides, downsizing employees strength over the last 4-5 months, the company is also not filling up vacancies, which were left empty in the process of normal attrition. "Our normal attrition is there. Naturally we are not looking for replacements And we have let go trainees in over a period of 4-5 months," Unitech Chairman Ramesh Chandra told PTI. The company's current rate of attrition is about 15-20% a year, he added. Asked about the number of people that the company has fired, he said: "It is to the extent of 10% of total workforce and total is about 1,700 people."
He, however, said the company has not cut salaries of its employees yet. Besides, Unitech has also shifted some employees to its newly formed telecom venture from the real estate business. "Our telecom company's requirement is very large. We have transferred some people from Unitech to Unitech Wireless (the telecom subsidiary)," Chandra said without giving details. Reeling under slowdown and heavy credit crunch, the realty players have recently either cut jobs or slashed employees' salaries. Earlier in this month, Parsvnath had cut salaries of its employees in top and middle level management by up to 20%, while Omaxe had fired 70 employees and also lowered the remuneration by 10%. The country's largest realty firm DLF had also hinted at firing people if the demand of the sector would not improve.
c. Shifting employees in to new telecom business
The company has not cut salaries of its employees yet. Besides, Unitech has also shifted some employees to its newly formed telecom venture from the real estate business. "Our telecom company's requirement is very large. We have transferred some people from Unitech to Unitech Wireless (the telecom subsidiary)," Chandra said without giving details. Reeling under slowdown and heavy credit crunch, the realty players have recently either cut jobs or slashed employees' salaries. Earlier in this month, Parsvnath had cut salaries of its employees in top and middle level management by up to 20%, while Omaxe had fired 70 employees and also lowered the remuneration by 10%. The country's largest realty firm DLF had also hinted at firing people if the demand of the sector would not improve.
Conclusion
While the real estate sector has been in a downturn since September 2007, 3QFY09 would be remembered as the quarter when most developers Unitech ltd. also came out of their denial mode and acknowledged the severity of the downturn in the real estate industry. Several companies announced drastic measures to effectively deal with the situation: i) suspending several ongoing projects, ii) postponing new launches, iii) recalibrating development plans etc. Most companies revised downwards their guidance for delivery, sales and profits by 50-70%.
Another significant event during 3QFY09 was RBI’s bailout package for the real estate sector. RBI allowed banks to undertake initial restructuring of commercial loans of real estate companies till June 2009, without the loans being classified as NPAs. Consequently, most real estate companies used the window provided by RBI to refinance or reschedule their debt repayments obligation falling due up to March 2009.
We have lowered our FY10 NAV for all RE companies in our coverage universe to account for: (1) further delay in project launches and completion across verticals, (2) lower price assumptions across all projects across verticals, and (3) higher cap rates for the commercial and retail projects. Due to the virtual paralysis in the real estate sector since November 2008, we believe 4QFY09 could be worse than 3QFY09 and we expect FY09-10 to be a period of consolidation, in which industry leaders would be differentiated from peers. We believe developers with staying power would utilize this consolidation phase to emerge stronger. Focus on companies with: (1) high visibility on monetization of assets over the next 3-5 years, (2) low leverage and robust financials, and (3) strong execution track record.
On the whole we can say that this is very tough time for real estate sector but when economy will go up then simultaneously real estate sector will go up. Unitech ltd. is fundamentally strong company and its future is also bright.
Bibliography
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