Unitech sold 60% stake in its telecom venture for Rs 6120crore to Norwegian telecom firm Telenor. The deal reduced Rs1200 crore of debt from Unitech's balance sheet and also reduced the interest burden. Following the transaction Unitech's share rose 7% when the share prices of its peers reduced by 3 -4%
Unitech is a highly leveraged company. Unitech's current debt (post the telenor transaction) amounts to Rs 6917cr, D/E ratio now stands at 3.2x
With PE investments drying up and marginal cost of debt being (15% - 30%)* for the real estate players it is anybodys’s guess what made Unitech offload a majority stake in telecom business.
b) Emami
Economic times on 26th October reported that Emami is in the process of exiting from the real estate business by selling 100% stake of its wholly-owned subsidiary, Emami Realty. It is in talks with other parties for selling the stake of the company in the realty firm.
Real estate accounted to Rs 463.2 crore to Emami's group topline and Rs 18.2 cr as PAT.
Companies whose core business is not real estate might look to exit from the real estate sector and Real estate companies who have a diversified portfolio might look at concentrating at one or two core businesses. This looks like a trend whenever there is a major shakeout.
This only follows the most basic theory of economics, that in the short term due to supernormal profits a lot of players might enter an industry/sector. However in the long term only a few survive.
Friday, November 7, 2008
Selling of non-core activities
a) Unitech
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2 comments:
Very apt, I wonder you did not mention Retail. Real Estate still had shown wonderful profitability both for RE companies as well as inndividuals which made people fall for it but Retail businness never showed enough profit records yet everyone went gungho about it and joined the bandwagon.
I am sure there is demand for both RE as well as Retail chains in India, but the same will take time to come to surface and then smart people shall rake in their mulah.
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its beacuse they are cash strapped in reality ..most of the guys dont hv sufficient working capital....unitech in fact last week was in talk to sell one of its its prime delhi properties to HDFC.............teh era of eay liquidity is gone.......
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