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UBS Investment Research
Unitech
W eak Q1; but valuations at trough
Event: Q1 below UBSe and consensus; but operationally better
Revenues and earnings were down 28% and 45% YoY; and down on QoQ basis as
well. Changing revenue recognition mix towards mid-income projects, higher
construction costs led to lower EBITDA mgn (20%), in our view; adjusted for
retail develop sale these margins would be higher at 29%. Marginal reduction in
consol net debt to Rs53.3bn (vs. 54bn in 4Q11) and D/E of 0.45x was positive.
Pre-sales of 1.9msf (vs. 2msf in 4Q), improved execution (1.6msf delivered) and
stable receivables QoQ was better.
Impact: Maintain our FY12-14E; but would look for EBITDA trends
We are already below consensus and factored – 1) increased mix of mid-income
projects, 2) some margin pressures due to higher costs and 3) some impact of
higher interest costs. However, would monitor its EBITDA margins trends ahead.
Action: Maintain Buy, a high risk-reward opportunity
We believe news flow on - ongoing 2G investigations; risk of margin calls on high
pledge (33.5% of equity) may remain an overhang. However, with stock trading at
close to 2-year low, trough valuations and mgmt efforts to step-up core real estate
business – focus on new-launches, construction activity and pace of delivery and
operationally a relatively better 1Q keeps us positive.
Valuation: at trough levels
With stock trading at 66% discount to NAV and 0.7x FY11 P/BV, we maintain
Buy with price target of Rs52 based on 40% disc to NAV factoring in higher risks.
We believe the stock offers good return potential over a 12-mth period.
Operational Highlights
Pre-sales were holding up with 1.9msf generating a potential Rs10.2bn in Q1
(vs. 2msf generating similar Rs10bn in Q4). Residential sales (1.66msf)
generated Rs 7.25bn with non-residential sales (0.24msf) contributed
Rs2.95bn. Company continues to target pre-sales of Rs50bn in FY12.
Launch momentum remains steady with 3.2msf in FY11 (over 8msf
launched since Jan’11). With increased presence in new cities eg. Bangalore,
Chennai, other tier II & III cities.
Importantly, execution momentum seems to be picking up – 1) 1.6msf was
delivered higher than 1.3msf than Q4.
Net debt reduced marginally to Rs53.3bn (vs. 54 billion in 4Q11) with net
D/E will in control at 0.45. Of this Rs8bn is due for re-payment in FY12;
however avg interest costs is likely to go up in coming qtrs (vs.13% in 1Q12).
Valuations in attractive zone
While extreme negative sentiments and news flow on back of ongoing 2G
investigations may remain an overhang on stock performance; most concerns
appear priced in at current levels. Further, with stock valuations at trough levels
(similar to credit crisis period) at 1) 66% disc to our reduced base NAV of Rs86,
45% disc to our bear-case NAV of Rs52; and 2) at 0.7x P/BV; we see attractive
risk-reward and believe the stock can offer good return potential over a 12-mth
period, to investors with relatively higher risk appetite.
We maintain our NAV of Rs86
Our price target of Rs52 is based on a 40% discount to NAV of Rs 86. Our NAV
estimate factors in slower execution, risk of delay and likely higher cost of
capital of 17% in a tightening funding environment with 2G investigations
underway and high pledged equity. Our NAV does not value Unitech’s telecom
business (Rs 12/share). Other NAV assumption ascribe 78% value to company’s
residential portfolio, while commercial assets (including UCP investments)
contribute 22%; other assumptions being as under.
Table 3: NAV assumptions
Price escalation nil
Cost of capital 17%
Tax rate 25%
Devt volume (msf) 395
Execution delay 1-2 years
Source: UBS estimates
Stock at 44% disc to bear-case NAV
With stock trading at 44% discount to our bear case NAV of Rs52 that factors 1)
five-year development visibility (80msf, 38% of NAV), 2) no value for telecom
exposure and 3) undeveloped land reserves (62% of NAV); we foresee stock
valuations at trough levels. Our bull case builds in 10% higher prices,
Rs12/share for telecom investment, faster execution cycle, lower debt levels and
higher value for its telecom investments. We believe this provides a good
perspective on downside risks and upside potential to NAVs.
Unitech
Unitech, 74%-owned by the Chandra family, is one of India's largest and most
diversified real estate companies. It is a leading developer of residential
apartments, commercial/IT parks, and retail malls. Unitech holds a pan-India
telecom licence; it has sold a 60% stake in this venture to Telenor, which is
based in Norway.
Statement of Risk
Key risks to Unitech include rising interest rates, slowdown in economic growth,
changes in regulatory policy
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Unitech
W eak Q1; but valuations at trough
Event: Q1 below UBSe and consensus; but operationally better
Revenues and earnings were down 28% and 45% YoY; and down on QoQ basis as
well. Changing revenue recognition mix towards mid-income projects, higher
construction costs led to lower EBITDA mgn (20%), in our view; adjusted for
retail develop sale these margins would be higher at 29%. Marginal reduction in
consol net debt to Rs53.3bn (vs. 54bn in 4Q11) and D/E of 0.45x was positive.
Pre-sales of 1.9msf (vs. 2msf in 4Q), improved execution (1.6msf delivered) and
stable receivables QoQ was better.
Impact: Maintain our FY12-14E; but would look for EBITDA trends
We are already below consensus and factored – 1) increased mix of mid-income
projects, 2) some margin pressures due to higher costs and 3) some impact of
higher interest costs. However, would monitor its EBITDA margins trends ahead.
Action: Maintain Buy, a high risk-reward opportunity
We believe news flow on - ongoing 2G investigations; risk of margin calls on high
pledge (33.5% of equity) may remain an overhang. However, with stock trading at
close to 2-year low, trough valuations and mgmt efforts to step-up core real estate
business – focus on new-launches, construction activity and pace of delivery and
operationally a relatively better 1Q keeps us positive.
Valuation: at trough levels
With stock trading at 66% discount to NAV and 0.7x FY11 P/BV, we maintain
Buy with price target of Rs52 based on 40% disc to NAV factoring in higher risks.
We believe the stock offers good return potential over a 12-mth period.
Operational Highlights
Pre-sales were holding up with 1.9msf generating a potential Rs10.2bn in Q1
(vs. 2msf generating similar Rs10bn in Q4). Residential sales (1.66msf)
generated Rs 7.25bn with non-residential sales (0.24msf) contributed
Rs2.95bn. Company continues to target pre-sales of Rs50bn in FY12.
Launch momentum remains steady with 3.2msf in FY11 (over 8msf
launched since Jan’11). With increased presence in new cities eg. Bangalore,
Chennai, other tier II & III cities.
Importantly, execution momentum seems to be picking up – 1) 1.6msf was
delivered higher than 1.3msf than Q4.
Net debt reduced marginally to Rs53.3bn (vs. 54 billion in 4Q11) with net
D/E will in control at 0.45. Of this Rs8bn is due for re-payment in FY12;
however avg interest costs is likely to go up in coming qtrs (vs.13% in 1Q12).
Valuations in attractive zone
While extreme negative sentiments and news flow on back of ongoing 2G
investigations may remain an overhang on stock performance; most concerns
appear priced in at current levels. Further, with stock valuations at trough levels
(similar to credit crisis period) at 1) 66% disc to our reduced base NAV of Rs86,
45% disc to our bear-case NAV of Rs52; and 2) at 0.7x P/BV; we see attractive
risk-reward and believe the stock can offer good return potential over a 12-mth
period, to investors with relatively higher risk appetite.
We maintain our NAV of Rs86
Our price target of Rs52 is based on a 40% discount to NAV of Rs 86. Our NAV
estimate factors in slower execution, risk of delay and likely higher cost of
capital of 17% in a tightening funding environment with 2G investigations
underway and high pledged equity. Our NAV does not value Unitech’s telecom
business (Rs 12/share). Other NAV assumption ascribe 78% value to company’s
residential portfolio, while commercial assets (including UCP investments)
contribute 22%; other assumptions being as under.
Table 3: NAV assumptions
Price escalation nil
Cost of capital 17%
Tax rate 25%
Devt volume (msf) 395
Execution delay 1-2 years
Source: UBS estimates
Stock at 44% disc to bear-case NAV
With stock trading at 44% discount to our bear case NAV of Rs52 that factors 1)
five-year development visibility (80msf, 38% of NAV), 2) no value for telecom
exposure and 3) undeveloped land reserves (62% of NAV); we foresee stock
valuations at trough levels. Our bull case builds in 10% higher prices,
Rs12/share for telecom investment, faster execution cycle, lower debt levels and
higher value for its telecom investments. We believe this provides a good
perspective on downside risks and upside potential to NAVs.
Unitech
Unitech, 74%-owned by the Chandra family, is one of India's largest and most
diversified real estate companies. It is a leading developer of residential
apartments, commercial/IT parks, and retail malls. Unitech holds a pan-India
telecom licence; it has sold a 60% stake in this venture to Telenor, which is
based in Norway.
Statement of Risk
Key risks to Unitech include rising interest rates, slowdown in economic growth,
changes in regulatory policy
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