Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Unitech
Poor results - Cloudy skies
Event
Unitech’s 1QFY12 PAT was 29% below our forecast due to weaker sales and
EBITDA margins. We were 9% below street estimates. We cut our earnings
estimates and NAV. We maintain our Neutral rating with a revised target price
of Rs30 (Rs40 earlier). We prefer DLF, HDIL, Prestige and Sobha in the sector.
Impact
Sales momentum intact but outlook worrisome: The operational update
provided by Unitech showed an encouraging performance of sales (1.9mn
sqf). However, we remain concerned about the sustainability of the residential
market sales run rate across the NCR (National Capital Region). The
overhang is caused by shadow inventory. Our channel checks suggest that
speculators contributed 35-70% of sales in the NCR in FY10 and FY11.
Margins may bounce back but not to original levels: What worries us most
is the EBITDA margin which fell from 39% in 2QFY11 to around 20% now.
With cost inflation and product mix impacting margins, we expect a minor
rebound. It may however take at least 4 quarters for margins to go back to the
normalised level (mid-30s). This is because pricing power has been impacted
by competition from the secondary market as speculators exit completed and
half built inventory – which is more attractive than a newly launched project.
Telecom still a strain: Our channel checks and calculations (we also cover the
telecom sector) suggest that the annual run rate of cash loss in Unitech’s
telecom associate (Uninor) is ~US$1bn. With bank funding likely to get tough,
we believe Unitech will be forced to consider contributing equity to maintain its
stake and fund roll out. We believe this is the core issue which has driven
Unitech and Telenor to arbitration. We also can’t rule out the possibility of fines
imposed by the government if telecom investigation goes against Unitech.
Earnings and target price revision
Reduction in NAV estimate: Our NAV estimate has been reduced by Rs21
(to Rs59) to account for the factors discussed above. Our revised target price
now stands at Rs30 vs Rs40 previously.
Cut in earnings estimates: Similarly, our FY12, FY13 and FY14 EPS
estimates have fallen by around 19%, 20% and 12%, respectively.
Price catalyst
12-month price target: Rs30.00 based on a Sum of Parts methodology.
Catalyst: Residential price/ volume trends, noise around 2G investigation
Action and recommendation
Unitech is trading at a 51% discount to our revised NAV. This is (obviously)
due to noise related to the telecom investigation. Under a normalised
scenario, we would expect this stock to trade at a 20-30% NAV discount.
However in the prevailing scenario, we expect the stock to remain volatile and
a 50% discount seems more appropriate.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Unitech
Poor results - Cloudy skies
Event
Unitech’s 1QFY12 PAT was 29% below our forecast due to weaker sales and
EBITDA margins. We were 9% below street estimates. We cut our earnings
estimates and NAV. We maintain our Neutral rating with a revised target price
of Rs30 (Rs40 earlier). We prefer DLF, HDIL, Prestige and Sobha in the sector.
Impact
Sales momentum intact but outlook worrisome: The operational update
provided by Unitech showed an encouraging performance of sales (1.9mn
sqf). However, we remain concerned about the sustainability of the residential
market sales run rate across the NCR (National Capital Region). The
overhang is caused by shadow inventory. Our channel checks suggest that
speculators contributed 35-70% of sales in the NCR in FY10 and FY11.
Margins may bounce back but not to original levels: What worries us most
is the EBITDA margin which fell from 39% in 2QFY11 to around 20% now.
With cost inflation and product mix impacting margins, we expect a minor
rebound. It may however take at least 4 quarters for margins to go back to the
normalised level (mid-30s). This is because pricing power has been impacted
by competition from the secondary market as speculators exit completed and
half built inventory – which is more attractive than a newly launched project.
Telecom still a strain: Our channel checks and calculations (we also cover the
telecom sector) suggest that the annual run rate of cash loss in Unitech’s
telecom associate (Uninor) is ~US$1bn. With bank funding likely to get tough,
we believe Unitech will be forced to consider contributing equity to maintain its
stake and fund roll out. We believe this is the core issue which has driven
Unitech and Telenor to arbitration. We also can’t rule out the possibility of fines
imposed by the government if telecom investigation goes against Unitech.
Earnings and target price revision
Reduction in NAV estimate: Our NAV estimate has been reduced by Rs21
(to Rs59) to account for the factors discussed above. Our revised target price
now stands at Rs30 vs Rs40 previously.
Cut in earnings estimates: Similarly, our FY12, FY13 and FY14 EPS
estimates have fallen by around 19%, 20% and 12%, respectively.
Price catalyst
12-month price target: Rs30.00 based on a Sum of Parts methodology.
Catalyst: Residential price/ volume trends, noise around 2G investigation
Action and recommendation
Unitech is trading at a 51% discount to our revised NAV. This is (obviously)
due to noise related to the telecom investigation. Under a normalised
scenario, we would expect this stock to trade at a 20-30% NAV discount.
However in the prevailing scenario, we expect the stock to remain volatile and
a 50% discount seems more appropriate.
No comments:
Post a Comment