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Unitech Ltd
▲ Overweight
Previous: Neutral
UNTE.BO, UT IN
What's the land value? At least Rs 62/share, in our view.
What's your land worth?- The discrepancy between UT’s stock price and
inherent land valuation is wide at the moment. Vs. Sep-10 even as the
stock has declined 60%, physical prices in two of its key markets Gurgaon
/ Noida have been heading northwards. Marking only two prime land
holdings on the company’s book to market (conservatively), we estimate
land value at Rs192B or a 1.7x multiple on its land cost. This is over a 4-5
year holding period implying a 12% CAGR inflation. Net of liabilities this
translates into a value of Rs 62/Share. The stock then is trading at a 40%
discount to its land value, which we believe is CHEAP. Upgrade to OW.
• In calculating the land value, we have re-valued just two large
parcels in the company’ portfolio, viz. 1) 900 acres of high value land
parcels along the company’s traditional stronghold of Sohna Road,
Gurgaon region. (Land transactions at Rs 35-100MM/Acre vs. Book
value Rs 15MM/Acre) and 2) Noida land holdings especially on its 350
acre parcel in Noida (Grande). This is a prime piece of land, 20 minutes
away from South Delhi, but where monetization has remained slow.
Transaction rates around this parcel have ranged from Rs130-
200MM/Acre (Book value Rs 49MM/Acre).
• Liquidity is not really a issue with the company having pre-sold
approx. Rs 95B of property over the last two years (FY10/11). We
estimate UT has yet to receive Rs 30B cash flows from these (net of
construction/taxes). This coupled with its annuities of Rs2B should cover
large part of its repayments, implying no stress in the business.
• Earnings ramp up will be the key trigger- UT’s bookings run rate over
the last two years has been at Rs10-12B per Q. However, revenue
recognition from RE continues to lag at Rs5.5B per Q. As FY11/12
projects contribute to revenues progressively over FY12E, we forecast
earnings ramp up can be meaningfully high (JPM FY12E +90% Y/Y).
• Upgrade to OW, Mar-12 TP Rs 60/share, based on 10x FCFE and in
line with current land value estimate. The upgrade is primarily due to the
removal of discount on FV given issues on telco (25% previously).
While there is still no clarity on it, newsflow on the same has started to
subside.
What’s driving returns? A Du pont analysis of land bank
A simple returns (ROCE) and Du pont analysis of UTs returns shows that
1. Gurgaon region is the current cash cow in the company, driving over 70%
of the EBITDA.
2. Noida’s Grande parcel (large MTM value but low monetization) could be a
future earnings driver, but near term faces competition from Jaypee, in our
view. While UT has created value here just by sitting on land, better
monetization may help the market better understand the potential of this
asset.
3. In the rest of India, parcels (Hyd/ Chennai etc) is where the main problem
lies. While the company has approx Rs 55B land cost on these, EBITDA
contribution of the same is sub 10%. The returns here could be scaled up
using Unihomes model. However as of now the scale up is not as high as we
would like it to see. Even assuming a 14% ROCE as base case, we estimate
the company needs to generate Rs 7B as EBITDA. Assuming an average
ASP of Rs2,200 psf and margins of 20%, we forecast under Unihomes the
company needs to sell close to 16 msf just to achieve that. Against this the
company's current sales run rate is around 3-4 msf only.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Unitech Ltd
▲ Overweight
Previous: Neutral
UNTE.BO, UT IN
What's the land value? At least Rs 62/share, in our view.
What's your land worth?- The discrepancy between UT’s stock price and
inherent land valuation is wide at the moment. Vs. Sep-10 even as the
stock has declined 60%, physical prices in two of its key markets Gurgaon
/ Noida have been heading northwards. Marking only two prime land
holdings on the company’s book to market (conservatively), we estimate
land value at Rs192B or a 1.7x multiple on its land cost. This is over a 4-5
year holding period implying a 12% CAGR inflation. Net of liabilities this
translates into a value of Rs 62/Share. The stock then is trading at a 40%
discount to its land value, which we believe is CHEAP. Upgrade to OW.
• In calculating the land value, we have re-valued just two large
parcels in the company’ portfolio, viz. 1) 900 acres of high value land
parcels along the company’s traditional stronghold of Sohna Road,
Gurgaon region. (Land transactions at Rs 35-100MM/Acre vs. Book
value Rs 15MM/Acre) and 2) Noida land holdings especially on its 350
acre parcel in Noida (Grande). This is a prime piece of land, 20 minutes
away from South Delhi, but where monetization has remained slow.
Transaction rates around this parcel have ranged from Rs130-
200MM/Acre (Book value Rs 49MM/Acre).
• Liquidity is not really a issue with the company having pre-sold
approx. Rs 95B of property over the last two years (FY10/11). We
estimate UT has yet to receive Rs 30B cash flows from these (net of
construction/taxes). This coupled with its annuities of Rs2B should cover
large part of its repayments, implying no stress in the business.
• Earnings ramp up will be the key trigger- UT’s bookings run rate over
the last two years has been at Rs10-12B per Q. However, revenue
recognition from RE continues to lag at Rs5.5B per Q. As FY11/12
projects contribute to revenues progressively over FY12E, we forecast
earnings ramp up can be meaningfully high (JPM FY12E +90% Y/Y).
• Upgrade to OW, Mar-12 TP Rs 60/share, based on 10x FCFE and in
line with current land value estimate. The upgrade is primarily due to the
removal of discount on FV given issues on telco (25% previously).
While there is still no clarity on it, newsflow on the same has started to
subside.
What’s driving returns? A Du pont analysis of land bank
A simple returns (ROCE) and Du pont analysis of UTs returns shows that
1. Gurgaon region is the current cash cow in the company, driving over 70%
of the EBITDA.
2. Noida’s Grande parcel (large MTM value but low monetization) could be a
future earnings driver, but near term faces competition from Jaypee, in our
view. While UT has created value here just by sitting on land, better
monetization may help the market better understand the potential of this
asset.
3. In the rest of India, parcels (Hyd/ Chennai etc) is where the main problem
lies. While the company has approx Rs 55B land cost on these, EBITDA
contribution of the same is sub 10%. The returns here could be scaled up
using Unihomes model. However as of now the scale up is not as high as we
would like it to see. Even assuming a 14% ROCE as base case, we estimate
the company needs to generate Rs 7B as EBITDA. Assuming an average
ASP of Rs2,200 psf and margins of 20%, we forecast under Unihomes the
company needs to sell close to 16 msf just to achieve that. Against this the
company's current sales run rate is around 3-4 msf only.
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