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Financial Analysis of Real Estate Sector
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Introduction of Real Estate Sector in India
Real Estate Industry is 2nd largest employer after agriculture andcontribute to 5% to the countrys GDP
The construction sector has grown at an average of 9.85% highest
being 16.2%
Investor interest, infrastructure activities undertaken by government
and Indian economy growth has contributed to the growth of thesector
The growth in service sector and manufacturing sector resulted in
increase demand for commercial and industrial real estate.
Commercial real estate boom is attributable to Indian Corporates
and MNCS
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Future Growth Drivers for the Industry
SEZGovernment incentives for developers of SEZ
International Tourism growing in India Hospitality industryexpected to rise in future
Medical Tourism expected to grow in India being low cost countryand having high quality
Retail Industry
Urbanization Development India has only 28% people urbanized
compared to Asia 36% and USA 77.2% Service Sector industry accounts more than 50% of India GDP with
India expected to grow at 8-9% will be major contributor forcommercial real estate.
Dual Income people group rising in India
Key Factors affecting the Real Estate industry inIndia
Rising Interest rates Political involvement in the project Regulatory issues Unclear titles Time Consuming Approval
Relaxed FDI rules in India implemented byIndia will invite high investment in India
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Real Estate Sector AnalysisSwot
Weaknesses : Mutual funds shun sector on rising
interest rates
691.55 crore
(63.6% Change)1983 crore
Sluggish Demand
Regulatory Issue
Deleveraging
Strengths: PE Investment soars in reality
$1656 million (Yr 2011)(75% change)
$944 Million (yr 2010)Demand for the office space
continues to
be higher side for IT/ITES Sector
Opportunities:Improved Macro Economic
Condition
Improve Capital Structure
Threats: Margin Pressure
Liquidity Pressure
Demand for the retails commercial
Spaces is expected to be low in 2012
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Sluggish demand to Continue
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Intro of DLF and Unitech and why
these two sectors
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Current RatioQuick Ratio
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2009 2010 2011
Operating Margin ratio
0
0.2
0.4
0.6
0.8
1
1.21.4
1.6
1.8
2
2009 2010 2011
Debt to Equity Ratio
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
2009 2010 2011
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
2009 2010 2011
Ratio Analysis
http://www.unitechgroup.com/index.shtmlhttp://www.unitechgroup.com/index.shtml7/31/2019 FM Analysis Final
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0%
2%
4%
6%
8%
10%
12%
2009 2010 2011
ROCE Ratio Price Earning Ratio
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
2009 2010 2011
Earning Per Share
0.00
10.00
20.00
30.00
40.00
50.00
60.00
2009 2010 2011
0.00
0.02
0.04
0.06
0.08
0.10
0.120.14
0.16
0.18
2009 2010 2011
Sales to Capital Ratio
http://www.unitechgroup.com/index.shtmlhttp://www.unitechgroup.com/index.shtml7/31/2019 FM Analysis Final
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Findings from the Research
Report Unitech's asset value is strong but has to focus on reducing debt
Non-core assets for sale will help improve cash inflow andstrengthen the business
PINC - Unitech maintain 'BUY' with a reduced target price of Rs 45
(from Rs55) .Unitech Infra listing and new launches from thecompany are likely to be key triggers going forward.
DLF to reduce debt through sale of non -core assets and fastercash generation through sale of plotted development. It is planning
to sell its 100% hotel subsidiary (DLF Hotels and Hospitality) toKolkata based Square Four Housing & Infrastructure for Rs5.5bn
PINC- DLF 'BUY' rating with a target price of Rs315. DLF is likelyto reduce debt and accelerate cash flows through plot sale and non-core assets sale that will act positively for the stock
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DLF or Unitech ?
We recommend Unitech for long-term BUY for the followingreasons:
EBIDTA margins have improved sequentially by and going forward
we expect margins to improve further as contribution of older
projects reduces.
Unitech's asset value is strong but management has to focus on
certain key decisions such as:
1) reducing debt level further with some large asset sale or creating
a basket of non-core assets for sale that will help improve cash
inflow and strengthen the business,(2) Increasing the work force further to improve the execution level
which is likely to help saving both financial cost and generate cash
flows faster.
(3) approval of court decision for listing of Unitech Infra.
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