Can Unitech's recover from this crisis?

When Sanjay Chandra, managing director (MD) of Unitech, walked out of jail on bail a few months ago, before him stood a company that was a shadow of its former self.

Four years ago, in 2007-08, the company's net profit stood at Rs 1,669 crore. Today, it has slipped to a low of Rs 248.3 crore for financial year 2011-12. 

In the fourth quarter of 2011-12, the company eked out a net profit of just Rs 2.26 crore, even lower than its earlier all-time low of Rs 8.26, posted in the first quarter of 2005-06 .

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Analysts say the company is looking at troubled times, not just because of the alleged 2G-related telecom scam that Sanjay Chandra went to jail for, but because of absence of big launches, the slow pace of project construction, coupled with a high debt servicing cost.

This doesn't factor in the absence of any return on the telecom investment the company made. Its biggest problem, though, is a huge liquidity crunch.

"It has to constantly make debt repayments, which is also affecting its cash flow," says Sanjay Sharma, managing director, Qubrex, a real estate consultancy and brokerage firm. Unitech's debt stood at Rs 5,190 crore as of December 2011. It had targeted to reduce it by Rs 500 crore by the end of 2011-12, but did not disclose the debt figure in its Q4 result, saying audited numbers were yet to come.

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Unitech refused to respond to questionnaires sent repeatedly by Business Standard.

However, a source close to Unitech says its debt is consistently being reduced through its operating cash flow. And, it has - the firm's debt level has more than halved from Rs 10,900 crore in December 2008 to Rs 5,190 crore in December 2011.

Problem is, says Anubhav Gupta, analyst, Kim Eng Securities, that with markets already down, raising fresh capital, which is one way for the company to get out of this mess, will be tough.

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Raising money, in part, requires a reasonably solid reputation, and unfortunately for Unitech, the ghost of telecom will continue to haunt it for a couple of quarters, says Kishor Ostwal, CMD, CNI Research. 

The good news for the company is that the problem with anaemic profit numbers doesn't apply only to Unitech, but has affected everyone, thanks to bleak market conditions.

Before things turned bad for the company, its shares were seen as a great buy in the stock market. In January 2008, the Unitech stock had peaked on the BSE, at Rs 546.80; it closed at Rs 21.70 today.

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In comparison, the DLF stock had touched a high of Rs 944 in December 2007; it closed at Rs 193.45 today.  

A lot of that probably has to do with the fact that Unitech isn't making much headway with its projects. The company launched only 0.64 million sq ft of those in Q4 of 2011-12, which is lower than 1.18 million sq ft in the previous quarter.

Moreover, the company could deliver only 0.5 million sq ft in Q4, much of those projects launched before March 2009. It also failed to deliver anything from the balance 23.3 million sq ft of projects launched after March 2009.

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Yet, Unitech is far from being written off. "It has the ability to rebound," admit many top industry executives. Its fairly substantial land bank is one of the reasons why these executives bank on its eventual recovery.

"Unitech still figures among the better developers of the country. Just focusing on its core real estate business should see it through," says one executive.

According to another industry insider, "in India, when you reach a certain level, you get support from the system." He adds that despite the telecom mess, the Unitech brand has managed to retain retail confidence.

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At least six senior industry people this newspaper spoke to pointed at Unitech Chairman Ramesh Chandra as the lynchpin for Unitech's future success.

For instance, replying to a question on whether Sanjay's return to real estate had resulted in tension with his elder brother Ajay, who is also an MD at Unitech, a top representative of a consulting firm says: "It is their father, Ramesh Chandra, who has been the biggest balancing factor."

This explains why there hasn't been much tension between the brothers, he adds. Another source close to the company calls Ramesh Chandra "a guiding force in the company" who's been able to keep the flock together in a time of crisis. 

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Will the two brothers clash, now that telecom is no longer a business and they both have to compete for the real estate pie?

An industry executive points out that their roles were defined earlier too. While Sanjay was more of a finance and investor relations person, Ajay had handled new projects and expansion, he says.

Another source familiar with the operations at Unitech points out that the brothers, when they were working together in real estate, had even divided geographical territories between them.

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However, there's likely to be one big change now in Unitech from the time when Sanjay and Ajay were together in real estate, according to people in the know. Sanjay, clearly, will not be the face of the company as he once was because of 'credibility' issues.

"He's going to keep a low profile," although there's a general sense that he is likely to be the one calling the shots.

This is not the first time that Unitech is in the midst of a crisis.

When real estate was down in the dumps in the aftermath of the global economic slowdown of 2008-09, Unitech, too, went through a rough patch. But the company came out of it.

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Although its ambitious plan to launch qualified institutional placement (QIP), a capital-raising tool for a listed company, failed in 2008, as the market crashed, a year later, its QIP was launched again, raising $325 million to service part of the company's debt.

But critics say Unitech's problems are much deeper this time around, and it will require a considerable effort to shed the bogeys of the past, negotiate the current slowdown and revive its business.