Unitech Q2 net declines 12% as high borrowing cost hurts margins

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Mr Sanjay Chandra
Mr Sanjay Chandra

Our Bureau

New Delhi, Nov. 1

Hit by tight liquidity in the market and high borrowing costs, real estate company Unitech Ltd has reported an over 12 per cent year-on-year slump in its consolidated net profit for the second-quarter ended September 2008, to Rs 358.92 crore.

The company’s net sales were down nearly three per cent to Rs 983.09 crore. “The drop in net profit is on account of liquidity squeeze in the market, which has increased the cost of funds. The interest outflow has been higher and there has been a drop in margins,” Mr Sanjay Chandra, Managing Director, Unitech Ltd, said.

With sluggish demand in the luxury housing segment, the company has re-oriented its product portfolio towards mid-income housing segment (Rs 40-70 lakh). “Given the focus on the affordable housing segment, the company has been able to generate good volumes by putting in place innovative marketing strategies and that is reflecting in the overall revenue,” Mr Chandra said. Unitech is amongst the frontline real estate companies which posted a disappointing set of numbers for the just-ended quarter.

DLF margin falls

India’s largest real estate company DLF Ltd posted a four per cent drop in its net profit for July-September quarter at Rs 1,935.35 crore, as change in product mix towards the mid-income housing compressed margins.

DLF saw EBITDA margin at 61 per cent during in the quarter ended September 2008, compared with 71 per cent in the year-ago period, owing to larger contribution from the low margin, mid-income housing projects.

Mr Rajiv Singh, Vice-Chairman, DLF Ltd, said, “In the Q2 FY08, the mid-income housing for us was almost negligible, but this time it has contributed significantly to the bottomline.”

The Delhi-headquartered developer - which sells a large portion of its commercial assets to DLF Assets Ltd (DAL), a company promoted by DLF Chairman Mr K P Singh - said that during the second quarter, sale to DAL contributed 47 per cent to net profit.

DAL owes DLF close to Rs 4,800 crore at the end of the September 2008. DLF expects DAL to repay close to Rs 5,000 crore through a mix of debt and equity by the end of the current fiscal. DLF’s net staff strength came down by 10 per cent at the end of the quarter to 3,500 employees, but the company attributed this to voluntary attrition. “Close to 350 people chose to leave us but that was natural attrition and did not involve lay-offs. Generally, people re-look at their options after increments,” Mr Rajiv Singh said, adding the company continued to hire in areas of specialised skillsets such as mall management.

The finance cost for the company also continued to rise, and the last deal concluded by DLF came with 16 per cent borrowing cost, compared to 12 per cent a year ago.

DLF’s debt currently stands at Rs 14,000 crore. “Of this, over Rs 4,000 crore is on account of new initiatives such as hotels, Rs 10,000 crore is on account of real estate, and a large portion of that would be liquidated through DAL,” Mr Singh said.

During the second quarter, as much as 64 million sq ft was under construction, after delivering 2 million sq ft of built-up space in commercial office and home segments. DLF said it plans to launch more residential projects in New Delhi, Gurgaon, Hyderabad, Bangalore, Indore and Panchkula.

(This article was published in the Business Line print edition dated November 2, 2008)
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