Industry In India the real estate sector comes second in terms of employment generation, the first being agriculture industry and it contributes almost 5% of the country’s GDP. Majority of the real estate developed in India (almost 80%) is residential space with the rest being offices, malls, hotels and hospitals. India leads the pack of top real estate investment markets in Asia for 2010, according to a study by PricewaterhouseCoopers (PwC) and Urban Land Institute. Foreign direct investment (FDI) into India in the real estate sector for the fiscal year 2008-09 has been US$ 12. 2 billion approximately.
Firm Unitech Ltd is one of the largest listed real estate companies in India. Unitech Limited is a leading Real Estate and Infrastructure developer with projects in India and abroad. Along with Real estate and infrastructure development, United Ltd is also in varied other fields like in commercial spaces, hotels, amusement parks, construction of thermal power plants, transmission lines, highways, flyovers, industrial facilities, steel plants, and overseas turnkey projects. It has projects in all four regions (NCR, Mumbai, Chennai and Kolkata)Strategy -Their focus has shifted from ‘Land Banking’ to ‘Banking on Land’ -Over 7500 acres of geographically diversified, low cost land bank is being leveraged to launch projects across segments -Since more often than not, their presales meet project cost they has decided to have no capital constraints for launching new projects -Launching houses in the high volume affordable segment under “UniHomes”Brand -High volume standardized “manufacturing style” product are being implemented resulting in economies of scale and quick execution -Unitech Ltd is diversifying much more.It has recently launched a telecom service ‘Uninor’ in collaboration with Telenor a Norwegian telecommunication company. History Unitech Limited started out as a company dealing in Soil Mechanics in 1972 and diversified into construction in 1975. it was earlier know as United Technical Services.
In 1978 they did their first international project in Iraq and Libya. From 1986 till now they have done projects in various cities in India for e. g Bangalore, Gurgaon, Kolkata, Mumbai etc. SIGNIFICANT ACCOUNTING POLICIES A.Financial statement rules followed The accounts are maintained under the historical cost convention on accrual basis as a going concern Revenue a. Real Estate Projects For real Estate Projects undertaken on and after 1st April, 2004.
Revenue from real estate projects is recognized on the “Percentage of Completion Method” of accounting. b. Construction Contracts In Construction Contracts income is recognized on percentage of completion method.
c. Revenue on account of contract variations, claims and incentives are recognized upon settlement. ExpenseThe expenses incurred under natural heads of accounts for execution of works are charged to job and construction expenses. The maintenance and other expenses which are obligatory and are incurred subsequently, after Completion of project(s), are booked as expenses under the head “Real Estate Completed Projects”. Inventory evaluation I. Materials, stores & spares, tools and consumable are valued at cost or market value, which ever is lower on the basis of first in first out method reflecting the fairest possible approximation to the cost incurred in bringing the items of inventory to their present location and condition.
II. Finished stock of completed real estate projects is valued at lower of cost or net realizable value on the basis of actual identified units. III.
Work in Progress is valued at estimated cost. R&D Accounting Since the company does not own any manufacturing facility, the requirements pertaining to disclosure of particulars research & development, as prescribed under the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 are not applicable. Amortization Shuttering and tools is valued at amortized cost, spread over a period of three years. B. Notes to Accounts The consolidated financial statements have been combined on a line by line basis by adding together the book values of like items of assets, liabilities, income and expenses, after fully eliminating intra-group balances and intra-group transactions resulting in unrealized profits or losses. However, no effect in respect of different method of charging depreciation by various subsidiaries, other than the method adopted by parent company, has been considered. – The excess of cost to the Parent Company of its investment in the Subsidiary over the Company’s portion of equity of the Subsidiary is recognized in the financial statement asGoodwill. – Goodwill arising out of consolidation is not being amortized.
– The excess of company’s portion of equity of the subsidiary as at the date of its investment is treated as capital reserve. – Minority interest in the net assets of consolidated subsidiaries consist of: (a) the amount of equity attributable to minorities at the date on which investment in a subsidiary is made; and (b) the minorities’ share of movements in equity since the date the parent subsidiary relationship came into existence. – Intra group balances and intra group transactions and unrealized profits have been eliminated in full.BALANCE SHEET Analysis of Balance Sheet -% WIP capital of total asset for Unitech has reduced from 222% in 2005 to 82% in 2009 but it is still a major part of total asset. WIP Capital for DLF has been reducing over the analysis period and has reduced from 40% in 2005 to 8% in 2009 and is very less compared to Unitech. This may be due to multiple upcoming Unitech projects.
-Only 1% of total asset is Fixed asset for Unitech whereas DLF’s fixed assets account for 8%. -Investments as ratio of total asset are somewhat similar for both the companies. Most important difference between the two companies is in terms of current assets which include Cash. For Unitech it is -2% indicating that current liabilities at hand are much more than cash in hand whereas for DLF it is 71% of total asset value.
It implies that instead of keeping cash Unitech has put most of the fund in Work in progress Trend Analysis of Balance Sheet -Fixed assets of both the companies is growing over the period of time but the change in DLF’s assets is manifolds compared to Unitech. -Investments of both the companies is growing over the period of time.For Unitech the trend has been a growing one through out from 05 till 09 for Unitech however for DLF there was a dip in fixed asset in the year 2007. -Total assets of both the companies have increased. The increase in the year 2009 has not been that impressive for both the companies although they had more than doubled their total assets in 06 till 08. -For both the companies secured loans have increased from 08 and unsecured loans has reduced over the period. This dip in unsecured loans reflects the decrease in market’s faith for real estate companies in this period.
Growth Analysis of Balance Sheet -For both the companies there has been a dip in rate of increase in fixed assets in the year ending mar 09. For DLF this dip is very steep. This downward trend is due to market conditions in 2008-09 when real estate market took a big hit. -The rate of increase in Capital for Work in Progress is also showing a downwards trend and again the dip for DLF is much steeper than that of Unitech -Both the companies have invested hugely but the trend is downward for the last fiscal year.
INCOME STATEMENTAnalysis of Income Statement -Net profit for Unitech is 27. 2% for 2008 and 40. 1% for 2009 whereas for DLF it is 46. 8% for 2008 and 54. 7% for 2009 but PBDIT for Unitech is more which means it is paying large interest which is valid because Unitech’s borrowing is much larger than DLF thereby reducing net profit.
-The increase in Profit after Tax for Unitech in 2009(from 27. 2% in 2008 to 40. 1%) is substantial when compared to that of DLF (from 46. 8% to 54.
7%) -the figures are almost same for both the companies. The equity dividend offered by Unitech at 1. 2% is very less compared to DLF at 12% for FY2008-09 -A significant increase can be seen in financial expenses for both the companies in 09. it is due to the market scenarios prevalent in 2008-09. -Equity share capital for Unitech has remained constant for the last two years but it has increased for DLF.
Trend analysis of Income Statement -Operating income has reduced for both the companies when compared to last year -Retained earnings has increased for both the companies.The increase is more for Unitech. -PAT has increased for Unitech but it has decreased for DLf from 2008 to 2009. Growth analysis of Income Statement -Income for both the companies reduced in 2008-09 although it increased from 2005 till 2008 at varying pace. -Administrative expense for Unitech has decreased considerably over the last FY whereas for DLF it has increased -Unitech’s PAT for year 2009 is more than that of year 2008 whereas for DLF, year 2009’s PAT is much less than PAT for year 2008. –