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While Unitech plans to aggressively monetise its landbank, we still expect a muted performance
given ongoing sector headwinds and risks of collateral damage from telecom issues. Rising debt
and debtors are other key concerns. We cut our FY12-13F PAT and TP. Maintain Sell despite
underperformance.
Despite Unitech's aggressive launch plans, we continue to expect muted performance
Given sector headwinds, Unitech’s FY11 performance was muted both financially (OP margin
down 540bp yoy and PAT down 16%) and operationally (launches down 60% yoy to 10.4msf,
sales down 45% to 9.2msf, sales booking down 39% to Rs43.2bn). The tightening liquidity in the
sector has been exacerbated for Unitech by the indictment of Unitech Wireless in the 2G licence
probe and its FY12 debt repayment of Rs10bn. Unitech has made aggressive launch plans to
address these issues (ytd, it has launched 6msf of its CY11 target of 10msf) and has guided for
sales booking of Rs50bn (up 16% yoy) in FY12. We feel this is achievable given its reasonably
monetisable land parcels in National Capital Region (seen on our visits to its 26 sites), led by
Gurgaon (which accounted for c50% of the 26msf sold in FY10-11), provided execution speeds
up (12.7msf of older projects and 17.5msf of new projects sold are under construction). We also
expect EBITDA margin pressure to persist (c32% in FY12F vs. 37% in 9MFY11) due to a rising
contribution from tier-2 cities.
Increasing debt and debtors, coupled with telecom woes, are our key concerns
Fallouts from Unitech’s aggressive business model have included a 69% yoy rise in debtors in
FY11 (vs a 10% revenue increase), net debt increasing 17% qoq to around Rs54bn in 4QFY11
and land payables rising 34% yoy to Rs23.9bn in FY11. Its auditors have made observations
(though not qualified) on delays in repayment of debt obligations and risks of non-realisation of
receivables. If the ongoing 2G telecom licence probe persists, we would expect access to credit
to get even more difficult and the execution pace to slow.
Maintain Sell as telecom issue limits potential upside, in our view
We factor in sector headwinds and cut our FY12/13F earnings by 43%/55%. We raise our
discount on NAV to 40% from 10% on both stock- and sector-specific headwinds and no longer
ascribe any value to Unitech’s telecom investment. Overall, we cut our FY12F NAV 16% to
Rs71ps and our TP 58% to Rs30ps. While we like its monetisable land parcels in Gurgaon, we
maintain our Sell rating (despite the recent underperformance) given: 1) potential collateral
damage on account of the telecom issue overhang; 2) the weakening balance sheet; and 3)
execution concerns.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
While Unitech plans to aggressively monetise its landbank, we still expect a muted performance
given ongoing sector headwinds and risks of collateral damage from telecom issues. Rising debt
and debtors are other key concerns. We cut our FY12-13F PAT and TP. Maintain Sell despite
underperformance.
Despite Unitech's aggressive launch plans, we continue to expect muted performance
Given sector headwinds, Unitech’s FY11 performance was muted both financially (OP margin
down 540bp yoy and PAT down 16%) and operationally (launches down 60% yoy to 10.4msf,
sales down 45% to 9.2msf, sales booking down 39% to Rs43.2bn). The tightening liquidity in the
sector has been exacerbated for Unitech by the indictment of Unitech Wireless in the 2G licence
probe and its FY12 debt repayment of Rs10bn. Unitech has made aggressive launch plans to
address these issues (ytd, it has launched 6msf of its CY11 target of 10msf) and has guided for
sales booking of Rs50bn (up 16% yoy) in FY12. We feel this is achievable given its reasonably
monetisable land parcels in National Capital Region (seen on our visits to its 26 sites), led by
Gurgaon (which accounted for c50% of the 26msf sold in FY10-11), provided execution speeds
up (12.7msf of older projects and 17.5msf of new projects sold are under construction). We also
expect EBITDA margin pressure to persist (c32% in FY12F vs. 37% in 9MFY11) due to a rising
contribution from tier-2 cities.
Increasing debt and debtors, coupled with telecom woes, are our key concerns
Fallouts from Unitech’s aggressive business model have included a 69% yoy rise in debtors in
FY11 (vs a 10% revenue increase), net debt increasing 17% qoq to around Rs54bn in 4QFY11
and land payables rising 34% yoy to Rs23.9bn in FY11. Its auditors have made observations
(though not qualified) on delays in repayment of debt obligations and risks of non-realisation of
receivables. If the ongoing 2G telecom licence probe persists, we would expect access to credit
to get even more difficult and the execution pace to slow.
Maintain Sell as telecom issue limits potential upside, in our view
We factor in sector headwinds and cut our FY12/13F earnings by 43%/55%. We raise our
discount on NAV to 40% from 10% on both stock- and sector-specific headwinds and no longer
ascribe any value to Unitech’s telecom investment. Overall, we cut our FY12F NAV 16% to
Rs71ps and our TP 58% to Rs30ps. While we like its monetisable land parcels in Gurgaon, we
maintain our Sell rating (despite the recent underperformance) given: 1) potential collateral
damage on account of the telecom issue overhang; 2) the weakening balance sheet; and 3)
execution concerns.
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