UNITECH Monsoon and labour shortage slow execution: Edelweiss

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UNITECH
Monsoon and labour shortage slow execution


�� Revenue below estimates, declines Q-o-Q to INR 6.4 bn
Unitech (UT) reported Q2FY11 revenue of INR 6.4 bn (below our estimate of INR
8.0 bn); it dipped 22% Q-o-Q which the company attributes to heavy monsoons
and shortage of labour due to Commonwealth Games in the NCR region (in line
with our reason for estimating a Q-o-Q revenue dip). Total workforce across
project sites declined to 19,376 during the quarter from 20,239 in Q1FY11.
Despite the 22% Q-o-Q revenue decline, UT’s EBITDA declined only ~14% as
EBITDA margins improved to 39% on the back of change in the product mix.


�� 2 msf sold; volumes decline Q-o-Q but realisations improve
The company sold 2.0 msf in Q2FY11 versus 3.0 msf in Q1FY11 and 15.7 msf in
FY10. Gurgaon and Noida/Greater Noida accounted for majority of sales (~80%
with 1.6 msf). Transaction value for the quarter stood at INR 10.1 bn (1.4 msf of
residential sales at est. INR 4,752/sf and 0.5 msf of commercial at est. INR
6,075/sf), at an average realisation of INR 5,113/sf. Overall, in H1FY11, UT sold
~5 msf worth ~INR 23 bn (our full year estimate was ~13 msf of new sales in
FY11). With the company revising its launch strategy to improve realizations by
timing launches with commencement of construction, we have cut our FY11 sales
volume estimate to ~11.5 msf.

�� Execution muted; pick up expected going forward
UT delivered 0.9 msf of past projects in Q2FY11, compared to 0.9 msf in Q1FY11
and 1.2 msf in Q4FY10. It currently has to deliver ~14.5 msf of past projects
and execution activity in post March 2009 launches is progressing steadily with
structure/foundation work in progress in 76% projects.

�� Net debt rises Q-o-Q; net DER up 0.54x (0.48x in Q1FY11)
The company’s net debt jumped from INR 51.6 bn in Q1FY11 to INR 58.5 in
Q2FY11 as gross debt increased by INR 0.7 bn to INR 67.1 bn (INR 60.1 bn as of
Q1FY11). As per management, rise in debt can be attributed to the telecom
business and is not a fresh borrowing.

�� Outlook and valuations: Revising NAV to INR 97/share; maintain ‘BUY’
We have revised our SOTP value for UT to INR 97 (INR 106 earlier) on the back
of slower-than-expected volumes in FY11-12E, increased debt at the
consolidated level, and other balance sheet adjustments. We maintain
‘BUY/Sector Performer’ recommendation/rating on the stock.