By Geetanjali Kedia

Unitech Limited ("Unitech") has been in the news for last 2-3 days, in respect of its NCD and sale of collateral offered thereto. Promoters of Unitech had raised Rs. 250 crore, through Morgan Stanley, from HNIs last year and had pledged shares held by them for such funding. Amount due, of these NCD, was Rs. 178 crore last week and the promoters got the notice of sale from Trustees of bondholders last week, for selling pledged shares, from Monday 31^st January, as it fell short of agreed margin.

To prevent the sale of these pledged shares, promoters of Unitech moved Delhi High Court and got the stay on sale of such shares. However, they knew that this is just a temporary relief and either they have to repay the amount or will have the stay getting vacated by the higher judicial authorities, in the near future. Apprehending this, they paid an amount of Rs. 50.60 crore to some of the NCD holders and have agreed to pay remaining Rs.127 crore by 22^nd February 11.

However, it is a known fact that Unitech is a huge debt ridden company and has been making all the efforts to deleverage its balance sheet. The company had declining trend of topline and bottomline for the last 3 financial years, inspite of realty sector doing well in the last 18 months, baring the last couple of months.

Financial statements reveal the following declining trend in both topline and earnings of the company:

For FY08, total consolidated income of Rs. 4,280 crore with PAT at Rs. 1,670 crore fell to Rs. 3,315 crore and Rs. 1,197 crores respectively in FY09 and further to Rs. 3,015 crores and Rs. 695 crore in FY10.

The promoters have also mooted a scheme to demerge and consolidate infra business of the company, including 32.75% stake held in telecom JV Uninor, to Unitech Infra, in which 35% stake will be held by Unitech. The company has also reduced its consolidated debt to Rs. 6,000 crore as at 31-03-10 from Rs. 9,055 crore as at 31-03-09, although suffering a huge equity dilution. Infact, amount raised from equity dilution (Rs. 4,817 crore) was much more than the reduction in debt (Rs. 3,055 crore) in FY10.

The company had raised following amount in FY10 by issuing fresh equity shares:-

Inspite of the company having earned PAT of Rs. 695 crore in FY10, it had to raise Rs. 1,762 (Rs. 4,817 cr. raised less Rs. 3,055 loan re-paid) to finance its business. This indicates serious concern on its cash flow going ahead. Sensing this kind of crunch, share price fell to Rs. 34 in April 09. If sale of shares would have happened on 31^st January by Trustees of NCD holders, we may have seen the same price coming back for the stock.

Also, the company is seen to be desperate in selling its premises and land bank, largely to tide over its liquidity crunch as evident from its working. In FY10, the company had launched 30 new projects and sold 16.60 million sq. feet area for about Rs. 7,000 crore. This has taken the total projects under development to 70 for the company.

It is certain that it is beyond the execution capability of the company to deliver more than 10 million sq. ft. annually. Inspite of this, such huge selling of premises was made. Paid-up equity of the company which was at Rs. 324.67 crore as at 31-03-09 rose to Rs. 487.76 crore as at 31-03-10 and presently standing at Rs. 503.57 crore. This recent increase is happening due to 17.75 crore warrant conversion in part, at frequent intervals, at Rs. 50.75 per share. Still, about 10 crore warrants are due for conversion.

Considering all this, it looks certain that the financial health of the company is in bad shape and no signs of improvement are seen or visible. Hence, although share may give a technical upmove, it will keep sinking on fundamentals.