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Unitech Ltd (UT)
Downgrade to UW(V): Execution and margins continue to
disappoint
3Q earnings c54% below HSBC and c48% below consensus
as execution and EBITDA margin disappointed once again
Lack of new launches hurt contracted sales (-12% q-o-q);
strong stock performance dents valuation outlook
Downgrade to UW(V) from N(V) with a revised TP of INR25
(from INR24); pick-up in execution and new launches are
potential re-rating catalysts
3Q: Earnings disappointed yet again. Unitech’s reported earnings of INR552m
(-50% y-o-y) were 54% below HSBC estimate and 48% below consensus. The weak
performance was driven primarily by slower execution as sales of INR5.1bn (-22% y-o-y)
were 23% below HSBC estimate. This was accompanied by a low EBITDA margin of c21%
(HSBC estimate of 30%, INR330m of investment write-off) and a higher tax rate of c45%.
Unitech has now reported weak EBITDA margin of c16-22% for four quarters in a row.
Contracted sales let down by limited new project launches. 3Q contracted sales at
INR9.4bn (1.7m sq ft @ INR5568psf, -12% q-o-q) were 9% below HSBC estimate. Average
realization on contracted sales was down by 6%. A key reason for the lower-than-expected
contracted sales was limited new launches of mere 1.2m sq ft during the quarter.
Cut earnings by 12-33% over FY12-14e. We expect Unitech’s execution to remain under
pressure as backlog of poor execution during FY12 and new launches during 9M FY12
(although low in 3Q) at 7.2m sq ft should exert pressure on execution over FY13-14. Hence,
we now factor in a 6-12 month delay in execution, leading to a 12-33% cut in FY12-14e EPS.
Downgrade to UW(V) from N(V) with revised TP of INR25 (from INR24). Our
downgrade reflects our view of Unitech’s weak execution and sustained margin issues. With
the EPS cut and carrying forward the valuation base to FY13e (FY12 earlier), we increase our
TP by 4% to INR25. Our TP values Unitech at a 53% discount (1 standard development below
its 5-year mean) to its FY13e net asset value (NAV) of INR52. We value Unitech at a 53%
NAV discount, at the high end of the NAV discount range of 20-55% for its peer group. A
combination of weak earnings, deteriorating business environment and the lack of share price
catalysts suggests that Unitech may continue to trade at a lower valuation multiple.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Unitech Ltd (UT)
Downgrade to UW(V): Execution and margins continue to
disappoint
3Q earnings c54% below HSBC and c48% below consensus
as execution and EBITDA margin disappointed once again
Lack of new launches hurt contracted sales (-12% q-o-q);
strong stock performance dents valuation outlook
Downgrade to UW(V) from N(V) with a revised TP of INR25
(from INR24); pick-up in execution and new launches are
potential re-rating catalysts
3Q: Earnings disappointed yet again. Unitech’s reported earnings of INR552m
(-50% y-o-y) were 54% below HSBC estimate and 48% below consensus. The weak
performance was driven primarily by slower execution as sales of INR5.1bn (-22% y-o-y)
were 23% below HSBC estimate. This was accompanied by a low EBITDA margin of c21%
(HSBC estimate of 30%, INR330m of investment write-off) and a higher tax rate of c45%.
Unitech has now reported weak EBITDA margin of c16-22% for four quarters in a row.
Contracted sales let down by limited new project launches. 3Q contracted sales at
INR9.4bn (1.7m sq ft @ INR5568psf, -12% q-o-q) were 9% below HSBC estimate. Average
realization on contracted sales was down by 6%. A key reason for the lower-than-expected
contracted sales was limited new launches of mere 1.2m sq ft during the quarter.
Cut earnings by 12-33% over FY12-14e. We expect Unitech’s execution to remain under
pressure as backlog of poor execution during FY12 and new launches during 9M FY12
(although low in 3Q) at 7.2m sq ft should exert pressure on execution over FY13-14. Hence,
we now factor in a 6-12 month delay in execution, leading to a 12-33% cut in FY12-14e EPS.
Downgrade to UW(V) from N(V) with revised TP of INR25 (from INR24). Our
downgrade reflects our view of Unitech’s weak execution and sustained margin issues. With
the EPS cut and carrying forward the valuation base to FY13e (FY12 earlier), we increase our
TP by 4% to INR25. Our TP values Unitech at a 53% discount (1 standard development below
its 5-year mean) to its FY13e net asset value (NAV) of INR52. We value Unitech at a 53%
NAV discount, at the high end of the NAV discount range of 20-55% for its peer group. A
combination of weak earnings, deteriorating business environment and the lack of share price
catalysts suggests that Unitech may continue to trade at a lower valuation multiple.
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