Unitech -Revenue recognition subdued.- Kotak Sec

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Unitech (UT)
Property
Revenue recognition subdued. UT’s revenue recognition was lower than expected
and sales booking and launches were subdued compared to 1QFY11 though not so low
to trigger concerns. Debt increased by approx. 10% qoq due to the telecom business.
Progress and hand over from its older projects continues and with customers advances
of Rs10 bn indicates a steady liquidity position. We retain our SELL recommendation
with a target price of Rs74/share in line with our NAV.




Revenues lower than estimates, EBITDA margin expands
Unitech reported 2QFY11 EBITDA of Rs2.5 bn (-14% qoq, -15% yoy and 24% below estimates),
2QFY11 revenues at Rs6.4 bn (-22% qoq, +27% yoy and 31% below estimates) and PAT of Rs1.7
bn (-3% qoq, -2% yoy and -13% below estimates). As per the company, heavy monsoons and
unavailability of labor in the NCR region due to the Commonwealth games delayed construction
activity during the quarter, implying lower-than-expected revenue booking.

EBITDA margins expanded to 39.2% versus 35.5% in 1QFY11 and our estimate of 35.5%. We
have been highlighting that EBITDA margins for Unitech remain volatile – they had been high
earlier on account of one-off rev booking (1Q/2QFY10) and then were adversely impacted by
upward revision in cost estimates (3Q/4QFY10) of projects under construction.

We are currently building in EBITDA margins of 37.1% in FY2011E and 34.2% in FY2012E
compared to 24/36/39% in the previous three quarters. We expect Unitech’s EBITDA margins to
benefit from better operating leverage as Unitech benefits from lower construction cost and larger
scale of operations. With 2QFY11 EBITDA margin of 39.2%, our concern of downside risks to our
margin estimates has declined though given the continual increase in input costs, further upwards
revisions in cost estimates can’t be ruled out.


􀁠 In 2QFY11, Unitech has delivered 1 mn sq. ft (0.9 mn sq. ft in 1QFY11) across Gurgaon,
Noida, Kolkata and Lucknow.
􀁠 Unitech has close to 20,000 workers deployed across various construction sites which is
marginally lower than 21,000 in March 2010, an all-time peak



Launches and sales subdued vs 1QFY11
􀁠 Unitech launched 1.8 mn sq. ft in 2QFY11 (2.76 mn sq ft in 1QFY11) and sold 2 mn sq ft in
2QFY11 (3 mn sq ft in 1QFY11). This takes the total area launched since March 2009 to 28.6
mn sq. ft (excluding Mumbai). Pricing seems to have increased across micro-markets on a qoq
basis.
􀁠 Out of the total area launched of 28.6 mn sq. ft, it has managed to sell 19.7 mn sq. ft until
end-2QFY11. In 2QFY11, Unitech sold 2.0 mn sq. ft versus 3 mn sq. ft in 1QFY11. Total sales
value in 2QFY11 was Rs1 bn with Gurgaon and NOIDA accounting for 76% of area sold.
Residential area sold was 1.4 mn sq. ft while 0.5 mn sq. ft was commercial and retail. Average
selling rates in 2QFY11 were 9% higher in residential and 13% lower in non-residential
compared to 1QFY11.