Orbit Corporation – Not Yet Out Of Woods

Realty has been one sector which has been hammered from all corners. Orbit Corporation is one company which has been witnessing a constant decline on the bourses on account of poor financial performance for the past two years. If we consider the performance for Q2FY14, it seems that the company is not out of woods yet.

While the company posted a marginal increase in the topline the bottomline took a severe beating which resulted into losses for the quarter. For the Q2FY14 the company posted a consolidated topline of Rs 31.96 crore as against Rs 20.94 crore posted in June 2013. On the bottomline front the company has posted loss of Rs 26.67 crore for Q2FY14 as against profit of Rs 21.17 crore in June 2013. The performance on YoY basis has also been pathetic and hardly deserves any mention.

We are of the opinion that the balance sheet of the company has been highly leveraged and this very factor is playing havoc on its financials. As on 30th September 2013 the total Debt on the books of the company stands at Rs 718 crore. Further there are non convertible debentures to the tune of Rs 290 crore. On the performance front the management has stated that the company has been incurring around Rs 45 – 46 crore in interest cost every quarter is in addition to Rs 120 crore spent annually for corporate overheads. Further poor sales in the previous quarters and reduced inventory churn have added to the company’s woes.

Now going ahead the company has identified 6 projects for Debt Reduction programme. Company’s other investments in the various properties to be strategically monetized to reduce debt. Four projects will be sold for the same, while two of them will see a stake sale in FY14. Company has engaged with all lenders for adequate moratorium to recoup the average 18 months delay in delivery of projects due to erstwhile regulatory deadlock. The management expects a turnaround in the next 2-3 quarters. Simultaneously, debt will be reduced by around Rs 250 crore by Q4 of the current fiscal. Interest costs will also be pared down to Rs 35-40 crore per quarter.

However we are of the opinion that the company is yet to come out of woods and hence we recommend the investors to stay away from the counter.