Unitech Ltd. Reports 98% Drop in Q4 Profit
Unitech Ltd., a prominent Indian real estate company, announced a significant 98% decline in its consolidated net profit for the January-March quarter. This substantial drop is attributed to the prevailing high interest rates on loans and elevated property prices, which have considerably dampened the demand for both residential apartments and commercial shopping malls. Profit for the fiscal fourth quarter plummeted to INR22.6 million, a stark contrast to the INR1.03 billion recorded a year earlier. This figure fell considerably short of the INR790 million average estimate from a Dow Jones Newswires poll of five analysts.
Sales also experienced a downturn, decreasing by 32% to INR7.16 billion from INR10.54 billion in the same period last year. The company, along with other real estate businesses in India, has been grappling with weakened demand amidst a slowing economy. The Reserve Bank of India's decision to raise interest rates thirteen times between March 2010 and October 2011, before finally easing them in April 2012, added to the sector’s struggles. The combination of rising living costs and a reluctance among most real estate developers to implement substantial price reductions further deterred potential buyers.
Annual Performance and Future Outlook
Unitech's financial performance for the fiscal year ending March 31 also reflected these challenges. The company's net profit for the entire year experienced a 56% drop, reaching INR2.48 billion, while recorded sales declined by 23% to INR24.46 billion.
"Financial year 2011-12 was a very challenging year, particularly in terms of availability as well as cost of funding for real estate projects,” said Ajay Chandra, Unitech’s managing director. “This has resulted not only in an increase in financing costs for the company, but also adversely affected construction activity.”
Despite the difficult circumstances, Mr. Chandra expressed optimism for the current financial year, anticipating "significantly better" performance due to a gradual improvement in funding availability in recent months and expectations of lower interest rates. He detailed that the organization is aiming to deliver close to nine million square feet of space in this financial year, a substantial increase from the 3.4 million square feet delivered last year. This ambitious target is supported by Unitech's bookings of 7.19 million square feet in the previous financial year, which comprised 6.34 million square feet of residential bookings, amounting to a total of INR38.08 billion. The company launched projects totaling 7.81 million square feet in the last financial year.
Mr. Chandra further elaborated that he anticipates the current financial year to be “significantly better” as there has been a gradual improvement in the availability of funding in recent months, coupled with the expectation of lower interest rates moving forward.