Unitech’s Mumbai joint venture falls apart

Unitech Ltd, India’s second-largest realtor by market capitalisation, has parted ways with Omkar, its Mumbai joint venture partner for slum rehabilitation projects.

Omkar is a part of the Ghasiram Gokalchand Group, a steel business house in the metropolis.

Both partners held equal stake in the venture, called Unitech Omkar.

A Unitech spokesperson confirmed the development. “The joint venture has been cancelled and we are reworking the relationship,” the spokesperson said.

Unitech has already infused Rs 250 crore into the venture, which had launched projects at discounted prices in prime localities like Worli in order to raise cash upfront.

The projects were being executed at the entity level.

Following the parting of ways, ongoing projects will continue as special purpose vehicles (SPVs), sources said.

Any new investment that Unitech makes from hereon in slum rehabilitation schemes would be of an SPV nature, sources said.

Suhas Harinarayanan, Suman Memani and Arun Aggarwal of Religare Securities see a maximum impact of 8% on the share price of Unitech because of this development.

“The net asset value will be impacted by 5% before even considering any refunds,” they said in a note.

“We take the value of the Mumbai business at a 40% discount to account for possible expiry of venture with Omkar developers in Mumbai,” Harinarayanan, Memani and Aggarwal said.

Another analyst from a domestic brokerage said Unitech has already launched around 1 million square feet of projects under the venture and was supposed to a similar number down the road. These now stand cancelled.

“Unitech’s two joint ventures in Mumbai are valued at Rs 10 per share. The Omkar venture was valued at Rs 3-5 per share,” said the analyst, who did not wish to be named.

Shivalik Ventures, Unitech’s other joint venture with Rohan Developers promoted by Haresh Mehta is developing the Golibar commercial project in Santacruz.

Unitech has a portfolio of 42 million square feet through joint ventures in Mumbai of which 50% is its own share.

The Unitech Omkar joint venture has launched projects in Worli, called The Residences. It has pre-sold around 20% of the project.

Another one is in Chembur where Phase I has been sold out and it was expected to launch the second phase, apart from the Woodside and Ascot projects in Dadar, central Mumbai.

“People invested in the Worli project because Unitech came in as partner It will havea big fallout because more projects were in the incubation stage,” said another analyst.

Unitech generated 11% of its sales from Mumbai last year.

It intends to garner 20-25% of its topline from the metropolis by fiscal 2012.

The company was expecting gross margins of 67% from the Worli project compared with 51% and 57% from projects in Noida and Gurgaon, respectively.

Meanwhile, Unitech has to repay Rs 2,200 crore debt by March 2011. Sources said the company is looking to refinance Rs 700-1,100 crore of loans.