UAE-based Etisalat exiting the Indian telecom market and Norwegian telco Telenor looking for a new partner may be good news for the real estate businesses of DB Realty and Unitech. Etisalat has been in a joint venture with the DB Group, and Telenor with Unitech, for their respective telecom businesses.
Analysts believe that the management and promoters of both Unitech and DB Realty will now be able to concentrate full-time on their real estate businesses, which was suffering for long due to 2G spectrum allocation controversy. These companies recorded steep fall in net profits, piled up debt in the books and experienced delays in execution of projects till the third quarter of 2011-12. DB Realty registered a drop of 89 per cent and Unitech 50.4 per cent in net profit.
On their part, though, the two companies — Unitech and DB Realty —have been maintaining that telecom and real estate are two separate business and one does not have a bearing on the other. While Unitech did not comment on the matter on Monday, DB Realty’s group director (business strategy and finance) N Shridhar said Etisalat’s decision to shut down the operations of its Indian joint venture was taken “independently” by Etisalat UAE. “This decision has no bearing or impact on the financials of DB Realty,” he said, adding, “this matter is for Etisalat DB to comment on as it is not related to DB Realty and there is no connection between the two entities whatsoever.”
Even so, a senior executive of DB Realty, on the condition of anonymity, said promoters Vinod Goenka and Shahid Balwa were “fully devoting their time and energies” to the business and interests of the group. “They are ensuring that all projects go full stream and commitments are met,” he told Business Standard. “They are also ensuring that relations are reinforced and reinstated.” Also, people close to Unitech point out that the company’s core real estate business would get a boost once telecom is out of their way.
The National Real Estate Development Council (Naredco) pointed out these companies would make a comeback in a big way in their core operations. “Once they are off telecom, they will invest more in real estate and make a comeback,” according to R R Singh, Naredco director-general.
Once the parting takes place, the management’s attention will be devoted to real estate, agrees Sanjay Sharma, managing director, Qubrex. After getting into the telecom sector and the subsequent 2G case, they have not been able to consolidate on what they have in hand. “The pace of the projects has slowed down considerably,” adds Sharma.
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But again, all depends on the parting. According to Anubhav Gupta, analyst at Kim Eng Securities, the comeback of these groups would depend on the penalty or compensation demanded by their JV partners in telecom. “Both Unitech and DB Realty may have to shell out large sums as compensations,” he says. “This will put further pressure on their property businesses.”
Given that Unitech has a net debt of Rs 5,100 crore, Gupta says that Unitech will have to borrow more to make a write-off. He, however, added that he was not recommending these stocks to the investors at this point.
Many believe Unitech may have an edge over DB Realty as the former is more experienced in the sector. Also, an analyst who tracks these two companies notes that DB Realty is solely concentrated in Mumbai, while Unitech is more diversified in terms of its land banks. However, Sanjay Dutt, chief executive, Jones Lang LaSalle, a global property consultant, says DB Realty management is “very focused” on its business. “They have clear business strategies.”
A DB Realty executive says the promoters’ presence will be of “tremendous” help to the business. “When the group was in telecom, it was Etisalat which was running the business — and our promoters were only investors,” he adds.
The Supreme Court had, on February 2, cancelled all the 122 telecom licences granted under the 2G scam-tainted A Raja’s regime. Pan-India licences of both Unitech Wireless (with Telenor as the majority JV partner) and Etisalat DB (with Etisalat as the majority stakeholder) got cancelled as part of this order.