Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Results below estimates on slower execution
Unitech (UT) reported Q3FY11 revenue of INR 6.6 bn (below our estimate of
INR 7.5 bn). Reported revenue was flat due to continued labour shortage during
major part of the quarter. EBITDA margin declined 760bps Q-o-Q due to nonoperating
loss of INR 376 mn on account on sale of aircraft. Adjusted for this,
estimated core EBITDA margin of 37% was ahead of estimate. Due to one-time
EBITDA loss and high effective tax rate of 40% for the quarter, reported PAT of
INR 1.1 bn was significantly below our estimate of INR 1.5 bn.
Volumes marginally improve Q-o-Q; execution to pick up
The company sold 2.2 msf in Q3FY11 versus 2.0 msf in Q2FY11 and 3.0 msf in
Q1FY11. It sold 7.2 msf in 9mFY11 worth INR 33.5 bn compared to 15.7 msf
worth ~INR 60 bn in FY10. Also, UT delivered 1.1 msf of past projects in
Q3FY11. Execution activity is robust with projects launched post March 2009
progressing steadily with structure/foundation work in progress in 82% projects
(76% in Q2FY11) and total workforce across project sites has increased 16% Qo-
Q to 22,461. Further, with ~73% of past projects at handover/finishing stage,
revenue recognition is expected to pick up in the coming quarters.
Net debt decreases Q-o-Q; net DER down to 0.45x (0.54x in Q2FY11)
UT’s net debt dipped from INR 58.5 bn in Q2FY11 to INR 51.5 bn in the current
quarter due to proceeds from warrant conversion and customer advances. The
company has also acquired a new land parcel in Noida during the quarter for
development of mid-income housing. In terms of debt maturity profile, the
company has debt repayment of INR 10 bn in FY12E UT’s with current interest
cost at 12.5% which has increased 50 bps Q-o-Q.
Outlook & valuations: 2G, stock pledge overhang; downgrade to ‘HOLD’
We have revised our SOTP value for UT to INR 83 (INR 97 earlier) on the back of
slower-than-expected volumes in FY11-12E, increased cost of capital, and
execution delays. Thus, while the stock appears attractive from a valuation
perspective, performance in the near-to-medium term may be affected by nonbusiness
factors such as developments on the 2G case and the large promoter
stock that is pledged (65% of promoter holding). Hence, we downgrade our
recommendation on the stock to ‘HOLD’ (the stock was ‘UNDER REVIEW’) and
rate it ‘Sector Underperformer’ on a relative return basis.
Company Description
Founded in 1972 as a consultancy firm for soil and foundation engineering, UT is
currently a leading real estate developer with a pan-India presence including NCR,
Chennai, Kolkata, Kochi, Bangalore, Mumbai, etc. The company has over three decades
of experience in real estate, construction, and infrastructure development space and
currently has a total land bank of around 9,059 acres in which the company’s share is
approximately 7,466 acres. UT’s real estate projects include residential complexes,
commercial offices, retail malls, IT parks, integrated townships, golf courses, and
amusement parks.
Investment Theme
Robust balance sheet with FY11E debt-equity at ~0.45x
After two rounds of fund raising and assets sale of INR 10 bn, Unitech (UT) has a much
healthier balance sheet. Further, with a rapid execution, UT has repaid further debt, and their
current debt – equity stands at 0.5x. Further, the company’s huge 7,546 acres land bank is
largely paid for, while the unpaid land cost of INR 22 bn, is payable over four-five years.
Right-sized products and regional diversification to expand market size
The company has cut the value of its offerings by ~50% through a mix of cut in margins, cost
engineering, and reducing the size of apartments. These low-ticket size products have received
tremendous response from customers, which is evident from the fact that the company sold
16.6 mn sq ft in FY10, higher than even the peak run rate of 2005–06. However, with volumes
slowing down in FY11, sustainability of volumes in a rising interest rate/property price
environment is a key monitorable.
Proven track record; strong construction and execution capability
UT has strong construction and execution skills with over three decades of experience in
infrastructure and real estate development. The management has demonstrated its ability to
manage and operate in India’s complex business environment. The past two years have amply
emphasized the same with several key deliverables—money raising through path breaking QIPs,
securing telecom licences, tying up a partner for the telecom venture at attractive valuations in
a hostile environment, and entering into a deal with Lehman Brothers for a Mumbai SRA project
at attractive valuations.
Key Risks
Execution slippages can cause value depletion
UT has launched 26.2 mn sq ft in FY10 itself along with the ongoing 56 mn sq ft. The
execution on such a large scale can pose issues related to time and cost overruns and of
quality management, which can deplete the value for shareholders of UT.
Liquidity risk
Our valuation approach for Unitech is justifiable on a land bank valuation basis. A shift in
liquidity environment may result in investors valuing cash flows over balance sheet
valuation, causing underperformance of the stock from the current levels.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Results below estimates on slower execution
Unitech (UT) reported Q3FY11 revenue of INR 6.6 bn (below our estimate of
INR 7.5 bn). Reported revenue was flat due to continued labour shortage during
major part of the quarter. EBITDA margin declined 760bps Q-o-Q due to nonoperating
loss of INR 376 mn on account on sale of aircraft. Adjusted for this,
estimated core EBITDA margin of 37% was ahead of estimate. Due to one-time
EBITDA loss and high effective tax rate of 40% for the quarter, reported PAT of
INR 1.1 bn was significantly below our estimate of INR 1.5 bn.
Volumes marginally improve Q-o-Q; execution to pick up
The company sold 2.2 msf in Q3FY11 versus 2.0 msf in Q2FY11 and 3.0 msf in
Q1FY11. It sold 7.2 msf in 9mFY11 worth INR 33.5 bn compared to 15.7 msf
worth ~INR 60 bn in FY10. Also, UT delivered 1.1 msf of past projects in
Q3FY11. Execution activity is robust with projects launched post March 2009
progressing steadily with structure/foundation work in progress in 82% projects
(76% in Q2FY11) and total workforce across project sites has increased 16% Qo-
Q to 22,461. Further, with ~73% of past projects at handover/finishing stage,
revenue recognition is expected to pick up in the coming quarters.
Net debt decreases Q-o-Q; net DER down to 0.45x (0.54x in Q2FY11)
UT’s net debt dipped from INR 58.5 bn in Q2FY11 to INR 51.5 bn in the current
quarter due to proceeds from warrant conversion and customer advances. The
company has also acquired a new land parcel in Noida during the quarter for
development of mid-income housing. In terms of debt maturity profile, the
company has debt repayment of INR 10 bn in FY12E UT’s with current interest
cost at 12.5% which has increased 50 bps Q-o-Q.
Outlook & valuations: 2G, stock pledge overhang; downgrade to ‘HOLD’
We have revised our SOTP value for UT to INR 83 (INR 97 earlier) on the back of
slower-than-expected volumes in FY11-12E, increased cost of capital, and
execution delays. Thus, while the stock appears attractive from a valuation
perspective, performance in the near-to-medium term may be affected by nonbusiness
factors such as developments on the 2G case and the large promoter
stock that is pledged (65% of promoter holding). Hence, we downgrade our
recommendation on the stock to ‘HOLD’ (the stock was ‘UNDER REVIEW’) and
rate it ‘Sector Underperformer’ on a relative return basis.
Company Description
Founded in 1972 as a consultancy firm for soil and foundation engineering, UT is
currently a leading real estate developer with a pan-India presence including NCR,
Chennai, Kolkata, Kochi, Bangalore, Mumbai, etc. The company has over three decades
of experience in real estate, construction, and infrastructure development space and
currently has a total land bank of around 9,059 acres in which the company’s share is
approximately 7,466 acres. UT’s real estate projects include residential complexes,
commercial offices, retail malls, IT parks, integrated townships, golf courses, and
amusement parks.
Investment Theme
Robust balance sheet with FY11E debt-equity at ~0.45x
After two rounds of fund raising and assets sale of INR 10 bn, Unitech (UT) has a much
healthier balance sheet. Further, with a rapid execution, UT has repaid further debt, and their
current debt – equity stands at 0.5x. Further, the company’s huge 7,546 acres land bank is
largely paid for, while the unpaid land cost of INR 22 bn, is payable over four-five years.
Right-sized products and regional diversification to expand market size
The company has cut the value of its offerings by ~50% through a mix of cut in margins, cost
engineering, and reducing the size of apartments. These low-ticket size products have received
tremendous response from customers, which is evident from the fact that the company sold
16.6 mn sq ft in FY10, higher than even the peak run rate of 2005–06. However, with volumes
slowing down in FY11, sustainability of volumes in a rising interest rate/property price
environment is a key monitorable.
Proven track record; strong construction and execution capability
UT has strong construction and execution skills with over three decades of experience in
infrastructure and real estate development. The management has demonstrated its ability to
manage and operate in India’s complex business environment. The past two years have amply
emphasized the same with several key deliverables—money raising through path breaking QIPs,
securing telecom licences, tying up a partner for the telecom venture at attractive valuations in
a hostile environment, and entering into a deal with Lehman Brothers for a Mumbai SRA project
at attractive valuations.
Key Risks
Execution slippages can cause value depletion
UT has launched 26.2 mn sq ft in FY10 itself along with the ongoing 56 mn sq ft. The
execution on such a large scale can pose issues related to time and cost overruns and of
quality management, which can deplete the value for shareholders of UT.
Liquidity risk
Our valuation approach for Unitech is justifiable on a land bank valuation basis. A shift in
liquidity environment may result in investors valuing cash flows over balance sheet
valuation, causing underperformance of the stock from the current levels.
No comments:
Post a Comment