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stock of DB Realty And Unitech This has increased after the top executives of these companies got bail in the 2G scam case. DB Realty has gained 40 per cent, while Unitech has gained 4 per cent. However, there are some internal problems that plague these companies, and the uncertainty over its outcome. 2G scam case Can stop any big rally in the stock.
Cancellation of government projects, delays in execution and difficulty 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 lost sight of the stock and most brokerages have stopped their coverage on the stock.
The company’s net sales for the first half ended September declined 36%, while its net profit declined 76% during the same period. However, the company is clearing its debt by selling non-core assets.
At the end of the September quarter, the company was able to reduce its debt to Rs 230 crore from Rs 600 crore a year ago. It is sitting on a substantial pile of TDR (transfer of development rights), which can be realized to further boost the cash flow of the company. However, the fallout in the 2G scam case against its promoters will take a toll on the business prospects of the company, which mainly has projects in Mumbai.
Unitech is the second major real estate company to be affected due to its Top Deck’s alleged involvement in the 2G scam. Apart from the problems associated with all real estate companies, there are other challenges as well.
For example, the company was on the receiving end of shareholders’ displeasure at its annual general meeting because they refused to approve a proposal to pay dividend on equity shares for fiscal 2011. The company’s net sales and earnings declined 17% and 45. % respectively for the first half of the current financial year.
However, the business model remains strong. Unitech’s presence in the affordable and mid-income housing segment enables it to generate cash flow. It is starting new projects though the scale of execution is slow. Despite the low revenue recognition, it has managed to reduce its debt through internal cash accumulation.
It has outstanding net debt of Rs 5,144 crore and a land bank of close to 7,000 acres, with an average cost of Rs 250 per sq ft. Despite the strong fundamentals, the loss of credibility and uncertainty surrounding the 2G test will stymie any major rally in the stock. The stock continues to trade at a significant discount to its land value, which is estimated by analysts at Rs.60.
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