The Hindu Business Line : Unitech: Reject

Shareholders may reject the open offer made by Prakausali Investments to acquire 14.4 per cent stake in Unitech. Prakausali Investments, along with the persons acting in concert, at present holds 42.9 per cent of the equity. The offer price of Rs 895 is at a significant discount to the current market price of Rs 1,582. Unitech derives a large proportion of its revenues from real-estate development and construction. The real-estate projects include residential and commercial buildings. The company has also capitalised on the infrastructure boom in the country. It has received orders from State authorities for construction of roads, highways, flyovers and power transmission lines. This has enabled the company foray into overseas markets such as Libya. This will serve as a reference point for bidding for more such projects in that region.

Unitech enjoys higher operating profit margins than pure infrastructure players . This can be attributed to the higher margins from the real-estate segment. The diversified business model is likely to cushion earnings in the event of a downturn in any one of the segments. Higher revenues can be expected to sustain the margins.

Unitech's stronghold in the North, especially Delhi, Noida and Gurgaon, is likely to give it an edge. The demand for space in these areas is likely to be driven primarily by the increasing number of business process outsourcing centres mushrooming in the region. Increased government spending on suburban infrastructure is also likely to keep the orders flowing. The World Bank has funded many of the infrastructure projects handled by the company. Thus the uncertainty in terms of recovering debt from the State authorities is relatively less.

These factors coupled with a market price of Rs 1,500 indicate the open offer is best avoided. The cash offer closes on March 6.

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