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Unitech Ltd
Fundamentals remain sound, telecom a drag
Having met with management today at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
„ Unitech expects to achieve sales of 10mn sq ft in FY11 and see healthy
demand for residential space in NCR even at the higher prices. They have
not seen any slowdown in the absorption though launches have been held
back due to execution bottlenecks.
„ Unitech remains fully committed to the affordable housing segment. They
continue to launch projects under Unihomes - Noida and Chennai projects
launched recently. Though absorption has slowed compared to FY10
because of increase in competition in this segment.
„ The recent issue of sale of pledged shares has been resolved with promoters
having repaid Rs1.78bn. This would release over 80mn shares from the
pledge. Unitech also clarified that of the 68% stake pledged by the promoters,
over 35% is related to debt outstanding in the books of Unitech.
„ Debt and liquidity remains comfortable with ~Rs10bn of repayment obligation
in next 12months. The internal cash flows are expected to be sufficient to
meet these obligations, though they are not looking to reduce debt further
and plan to invest the surplus in consolidating their land holdings.
„ We think the probe in 2G license issue remains a key drag though
management is confident of its position. Also its partner Telenor remains fully
committed with over Rs75-80bn already invested while debt equity ratio
currently is comfortable at 0.15x in the telecom venture leaving headroom for
further investment.
Price objective basis & risk
Unitech Ltd (UTKIF)
Our preferred valuation methodology is NAV, calculated by discounting the cash
flows from each of the real estate projects. Our price objective of Rs95 for
Unitech is based on 10% discount to our NAV of Rs106. We expect Unitech to
trade at a discount of 10% to DLF on discount to NAV basis as DLF has a
relatively better balance sheet, is more exposed to commercial with regular lease
rental income and liquid assets. Key assumptions underlying our NAV are WACC
of 14.7%, capitalization rate of 11% and inflation of 5% from FY12 on both selling
price and construction costs. On a P/E basis, at our PO of Rs95, the stock would
trade at 19x FY12E earnings. Downside risks are lower than expected sales
volume and delay in execution of projects while upside risks are runaway real
estate prices in NCR market with sustained volumes.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Unitech Ltd
Fundamentals remain sound, telecom a drag
Having met with management today at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
„ Unitech expects to achieve sales of 10mn sq ft in FY11 and see healthy
demand for residential space in NCR even at the higher prices. They have
not seen any slowdown in the absorption though launches have been held
back due to execution bottlenecks.
„ Unitech remains fully committed to the affordable housing segment. They
continue to launch projects under Unihomes - Noida and Chennai projects
launched recently. Though absorption has slowed compared to FY10
because of increase in competition in this segment.
„ The recent issue of sale of pledged shares has been resolved with promoters
having repaid Rs1.78bn. This would release over 80mn shares from the
pledge. Unitech also clarified that of the 68% stake pledged by the promoters,
over 35% is related to debt outstanding in the books of Unitech.
„ Debt and liquidity remains comfortable with ~Rs10bn of repayment obligation
in next 12months. The internal cash flows are expected to be sufficient to
meet these obligations, though they are not looking to reduce debt further
and plan to invest the surplus in consolidating their land holdings.
„ We think the probe in 2G license issue remains a key drag though
management is confident of its position. Also its partner Telenor remains fully
committed with over Rs75-80bn already invested while debt equity ratio
currently is comfortable at 0.15x in the telecom venture leaving headroom for
further investment.
Price objective basis & risk
Unitech Ltd (UTKIF)
Our preferred valuation methodology is NAV, calculated by discounting the cash
flows from each of the real estate projects. Our price objective of Rs95 for
Unitech is based on 10% discount to our NAV of Rs106. We expect Unitech to
trade at a discount of 10% to DLF on discount to NAV basis as DLF has a
relatively better balance sheet, is more exposed to commercial with regular lease
rental income and liquid assets. Key assumptions underlying our NAV are WACC
of 14.7%, capitalization rate of 11% and inflation of 5% from FY12 on both selling
price and construction costs. On a P/E basis, at our PO of Rs95, the stock would
trade at 19x FY12E earnings. Downside risks are lower than expected sales
volume and delay in execution of projects while upside risks are runaway real
estate prices in NCR market with sustained volumes.
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