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India Equity Research Reports, IPO and Stock News
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India Property Sector ------------------------------------------------------------------------------------------
Leverage continues to be a concern
● Amid tight liquidity and rapidly falling stock prices, we revisit some
of the fundamentals and our analysis suggests that barring Sobha
and Unitech, developers’ net debt has stayed high compared to
March 2009 levels despite promises of significant debt reduction.
● Significant equity dilution over the past 18 months too hasn’t
helped in debt reduction. Except for Sobha and Parsvnath, other
developers’ net debt reduction has been substantially lower than
equity issues, indicating that companies have not been able to
generate positive operating cash flows.
● Promoter leverage has stayed high with over 60% of promoters’
shares in the case of Unitech, Parsvnath, Orbit and Ansal pledged
as of December 2010. These are secondary pledges for corporate
loans or/and for promoters’ own funding requirements.
● Sobha and IBREL are favourably placed with moderate risks on
leverage. We like Sobha for operating cash flow generation and
moderating debt levels, and IBREL for its deep discount to fair
value. For Unitech, its attractive valuation is offset by the high
promoter share pledge, while for DLF, expensive valuation, high
gearing and negative operating cash flows are still concerns.
Debt for most developers has remained high
Despite promises made to investors in March 2009, after the Lehman
crisis, to bring down debt levels, most developers’ absolute debt has
stayed high. Net debt for DLF and IBREL has increased 47% and
68%, respectively, compared to March 2009 levels. Only Sobha and
Unitech have been able to meaningfully reduce their net debt by 35%
and 31%, respectively. While gearing levels have declined with the
exception of DLF, the asset-liability mismatch on the balance sheet
continues for most developers in the absence of operating cash flow
generation and lack of a pick-up in volumes.
Significant equity dilution hasn’t helped
Except for Sobha, where debt reduction has been more than equity
issuance, and Parsvnath, where debt reduction was almost same as
equity issuance, debt reduction for other developers has been
substantially lower than equity issuances during the past 18 months.
Promoters' pledged shares still a concern
Barring DLF and HDIL, where promoters’ shares are not pledged, and
Sobha where the percentage of promoters’ pledged shares has
declined, share pledge for other developers has stayed high. These
are secondary pledges for corporate loans (as in the case of Ansal
API and Orbit, and partly in the case of Parsvnath and Unitech) and
also for promoters’ own funding needs (in the case of Unitech, IBREL).
For Unitech, promoter pledge is a big concern at the moment given
the sharp fall in the stock price, although company gearing is not
much of an issue. For Ansal, Orbit and Parsvnath, both promoter
pledge and company gearing are still concerns.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Property Sector ------------------------------------------------------------------------------------------
Leverage continues to be a concern
● Amid tight liquidity and rapidly falling stock prices, we revisit some
of the fundamentals and our analysis suggests that barring Sobha
and Unitech, developers’ net debt has stayed high compared to
March 2009 levels despite promises of significant debt reduction.
● Significant equity dilution over the past 18 months too hasn’t
helped in debt reduction. Except for Sobha and Parsvnath, other
developers’ net debt reduction has been substantially lower than
equity issues, indicating that companies have not been able to
generate positive operating cash flows.
● Promoter leverage has stayed high with over 60% of promoters’
shares in the case of Unitech, Parsvnath, Orbit and Ansal pledged
as of December 2010. These are secondary pledges for corporate
loans or/and for promoters’ own funding requirements.
● Sobha and IBREL are favourably placed with moderate risks on
leverage. We like Sobha for operating cash flow generation and
moderating debt levels, and IBREL for its deep discount to fair
value. For Unitech, its attractive valuation is offset by the high
promoter share pledge, while for DLF, expensive valuation, high
gearing and negative operating cash flows are still concerns.
Debt for most developers has remained high
Despite promises made to investors in March 2009, after the Lehman
crisis, to bring down debt levels, most developers’ absolute debt has
stayed high. Net debt for DLF and IBREL has increased 47% and
68%, respectively, compared to March 2009 levels. Only Sobha and
Unitech have been able to meaningfully reduce their net debt by 35%
and 31%, respectively. While gearing levels have declined with the
exception of DLF, the asset-liability mismatch on the balance sheet
continues for most developers in the absence of operating cash flow
generation and lack of a pick-up in volumes.
Significant equity dilution hasn’t helped
Except for Sobha, where debt reduction has been more than equity
issuance, and Parsvnath, where debt reduction was almost same as
equity issuance, debt reduction for other developers has been
substantially lower than equity issuances during the past 18 months.
Promoters' pledged shares still a concern
Barring DLF and HDIL, where promoters’ shares are not pledged, and
Sobha where the percentage of promoters’ pledged shares has
declined, share pledge for other developers has stayed high. These
are secondary pledges for corporate loans (as in the case of Ansal
API and Orbit, and partly in the case of Parsvnath and Unitech) and
also for promoters’ own funding needs (in the case of Unitech, IBREL).
For Unitech, promoter pledge is a big concern at the moment given
the sharp fall in the stock price, although company gearing is not
much of an issue. For Ansal, Orbit and Parsvnath, both promoter
pledge and company gearing are still concerns.
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