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DLF Vs Unitech – Reviews

November 5, 2008

DLF India’s largest realty company reported revenue growth of 15% YoY, while EBITDA and earnings declined 2%-4%. DLF sold ~3.12msf driven by mid-income housing (up 26% QoQ) with festive season good as well. Pre-leased 8msf YTD at rentals of Rs50/sf with backlog thru Dec’09. The company sees low visibility on softening demand ahead.

DLF has net debt/equity at 0.55x. DLF’s somewhat strong balance sheet, good asset-geographic mix, paid land bank and execution track record make it a relatively insulated play in these tough times.

Also note that DLF is highly unlikely to pursue large projects at Dankuni and Bidadi aggressively over the next 18-24 months, given the slump in the residential segment. These projects together account for 272m sq ft of DLF’s total land reserves of 753m sq ft. DLF is yet to receive any land from the Government and no land payments have yet been made. This essentially reduces the NAV of DLF’s Land Bank.

According to Citigroup and HSBC, DLF is expected to see a drop in EPS for FY09 and FY10 to Rs 44 and Rs 38-37.

Unitech:
Unitech’s sales from real estate business dropped by 3% y-o-y and 12% sequentially and excluding the money from the Lehman Brothers deal (cINR3.5bn), net sales declined by 45% y-o-y and 50% q-o-q. We attribute this sharp slowdown in execution to funding constraints. Net debt on the balance sheet increased to cINR84bn in Q2 FY09 from INR71bn in Q4 FY08.

Unitech has sold c2,000 residential units in H1 FY09 (we estimate this at c3-3.5m sq ft), with the bulk of the sales coming in Q1 FY09. While the company indicated lack of credit availability for customers, we believe high product prices are hurting business volumes.

Unitech’s debt (~Rs80bn) and net debt equity of ~1.8x are amongst the highest in the sector. Given the intensifying liquidity crunch and slowing pre-sales, we see higher
risks of debt refinancing and capital constraints for the company going forward.

According to Ciigroup, HSBC Unitech is expected to see a drop in EPS for FY09 and FY10 to Rs 9 and Rs 7.2 respectively.

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