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Unitech’s (UT IN, Mkt Cap US4.2$b, CMP Rs81.2, BUY)
Revenues stood at Rs6.5b up ~26.5%YoY , EBITDA stood at Rs2.5b a decline of ~15%YoY, while EBITDA margin stood at 39.2% v/s 58.4% in 2QFY10 while net
profit is down by 2.4%YoY to Rs1.7b
Total area delivered during 2QFY11 stood at ~0.95msf bringing the overall delivery in 1HFY11 to 1.9msf. We model FY11 deliveries at 6msf.
Key catalysts for Unitech which could further drive up our NAV in the near to medium term could be 1) likely listing of UT Infra sometime in 1QFY12 and 2) successful acquisition of UCP.
Unitech trades at ~14% discount to its FY12 NAV of Rs96/share. It has a comfortable balance sheet with low leverage of ~0.5x, strong near term cash flow and earnings visibility of 24% CAGR, FY10-12E.
Revenue below estimate; EBITDA as expected
Unitech's 2QFY11 results were in line with our estimates at the EBITDA level.
EBITDA was down ~15% YoY at Rs2.5b (in line with our estimate). EBITDA margin
was 39.2% (v/s our estimate of 31%) as against 58.4% in 2QFY10 and 35.5% in
1QFY11.
The reason for the sharp variance in EBITDA margin vis-à-vis our estimate was nonbooking
of prior period expenses (we had estimated Rs350m) during 2QFY11.
Improvement in EBITDA margin can also be attributed to higher revenue contribution
from higher-margin non-residential projects during 2QFY11.
Post 3QFY10 results, the management had shared that there had been a cost reevaluation
to the tune of ~Rs4b in its old projects (~22msf), primarily due to cost
escalation and accumulation of interest cost. While ~Rs2b out of Rs4b was charged
off in 3Q/4QFY10 itself, the management had indicated at the beginning of FY11 that
the balance Rs2b (cost overrun on ~15msf of old projects) would be booked within
FY11 due to which EBITDA margins could get impacted. However, they have now
explained that due to slower progress in construction, they now expect the prior period
cost adjustment to happen over the next 6-7 quarters.
Revenue was up ~26.5% YoY at Rs6.5b (lower than our estimate of Rs8.1b). Net
profit declined 2.4% YoY to Rs1.7b (in line with our estimate). The muted revenue
booking was primarily due to slower execution progress in 2QFY11 on account of
heavy monsoon and labor issues as a result of the Commonwealth Games.
Sales and new launches muted due to monsoon impact
During the quarter, Unitech launched ~1.8msf (v/s ~2.8msf in 1QFY11) of projects
across NCR and Chennai. It sold ~2msf (v/s ~3msf in 1QFY11), with NCR contributing
~80%. The decline in sales momentum is largely attributed to heavy impact of monsoon
and lower new launches. The new launches of 1.8msf are primarily from later phases
of existing projects in NCR and new launches such as Unihomes and Gardens in
Chennai.
Residential sales were 1.5msf (v/s ~2.6msf in 1QFY11), accounting for Rs6.9b (v/s
Rs9.8b in 2QFY11), while commercial/retail sales were 0.54msf (v/s Rs0.4msf
in1QFY11), aggregating to Rs3.3b (Rs3.1b for 1QFY11).
In 2QFY11, the average realization was Rs4,567/sf (up 20% QoQ) for residential
projects and Rs6,081/sf (v/s Rs7,790/sf in 1QFY11) for commercial projects.
To deliver ~15msf over FY11-13
Unitech hopes to deliver ~32msf (22msf of old projects and ~10msf of recent projects)
over FY10-12, implying ~18,000 apartments. Total delivery of old projects in FY10
was ~6.8msf (v/s 5.62msf up to December 2009).
Total area delivered during 2QFY11 was ~0.95msf, bringing the overall delivery in
1HFY11 to 1.9msf. We model FY11 deliveries at 6msf. There are 16 projects across
cities, where handing over of possession is in progress; handing over has commenced
in Escape, Harmony, Arcadia (Gurgaon) and Cascades, Heights (Greater Noida) in
1HFY11
Of the ~23.1msf under construction since FY07, Unitech has delivered ~8.6msf till
1QFY11, with ~14.5msf remaining to be delivered over the next few years. Of the
total 14.5msf to be delivered, NCR accounts for 9.5msf and Kolkata for 4.4msf.
Gross debt up due to transfer of Rs5b debt from telecom JV
In terms of leverage (~0.53x), Unitech is one of the most comfortable among largecap
real estate companies (average of ~0.7x).
In 2QFY11, gross debt was up Rs7b to Rs67b (v/s Rs60b in 1QFY11). The key
reason for this increase was ~Rs5b of additional debt coming to Unitech's books on
account of change in holding structure in the telecom venture. Management mentioned
that their holding in the telecom venture is through various subsidiaries (which hold
debts and convertibles), and this increase is as a result of consolidation/conversion of
one of these companies, which has also led to increase in investments from Rs12.4b in
March 2010 to Rs17.9b as at September 2010.
During the quarter, customer advances increased by Rs9b to Rs94.9b (v/s Rs86.4b in
1QFY11); this reflects the healthy cash flows that Unitech is enjoying due to its strong
sales performance in FY10 (sales of ~13.3msf).
As at the end of 1QFY11, projects under progress stood at Rs102b (up 12% YoY),
while loans and advances were Rs60.7b (up 17% YoY).
Valuation and view
Unitech trades at ~14% discount to its FY12E NAV of Rs96/share. It trades at 18.9x
FY12E EPS of Rs4.3 and 1.9x FY12E BV of Rs43.7/share. It has a comfortable balance
sheet, with low leverage of ~0.5x, strong near-term cash flows and earnings visibility of
26% CAGR over FY10-12. Key catalysts that could further drive up NAV in the near to
medium term are: (1) likely listing of UT Infra sometime in 1QFY12, and (2) successful
acquisition of UCP. Maintain Buy.
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