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Unitech Ltd (UT IN)
UW (V): From bad to worse
4Q earnings were c97-98% below HSBCe and consensus as
execution and EBITDA margin disappoint once again
A lack of new launches hurt contracted sales (-17% q-o-q);
we cut our earnings forecasts by 12-15% in FY13-14
We retain our UW(V) with a revised TP of INR20 (from
INR25); we think any re-rating would need more visibility on
execution and new launches
4Q earnings surprise. Unitech’s reported earnings of INR23m (-98% y-o-y) were 98%
below HSBCe and 97% below consensus. The weak performance was driven by: 1) slower
execution as sales of INR7.16bn (-32% y-o-y) were 23% below HSBCe; 2) an extraordinarily
low EBITDA margin of c5% (HSBCe of 28%) primarily as all its fringe businesses (25% of
sales) reported either a loss or sub-10% margins, while the real estate business reported a
low 17% margin owing to cost escalations; and 3) a higher tax rate (c94%).
Contracted sales were let down by the limited new project launches. Q4 contracted
sales at INR7.8bn (1.8m sq ft @ INR4,352psf) were 34% below HSBCe. Average realisation
on contracted sales was down by 22%. A key reason for lower-than-expected contracted
sales was the limited new launches of 0.6mn sq ft (-85% y-o-y and -47% q-o-q) during Q4.
We cut FY13-14e earnings by 18-20%. We expect Unitech’s execution to remain under
pressure as the backlog of slow execution and new launches during FY12 will exert
pressure on further execution scale-up during FY13-14. Consequently, we lower our sales
volumes expectation by 10-15% and earnings by 18-20% over FY13-14e.
Retain UW (V) with a revised TP of INR20 (INR25 earlier). Our revised target price
reflects lower visibility on Unitech’s execution scale-up and recent earnings cut. This
leads us to increase our target NAV discount from 53% (1 std deviation below mean)
earlier to 60% (12% below 1std deviation). At a 60% NAV discount, we value Unitech at
the bottom end of the peer trading range (25-60%). A combination of weak earnings, a
deteriorating business environment and lack of share price catalysts suggests to us 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 IN)
UW (V): From bad to worse
4Q earnings were c97-98% below HSBCe and consensus as
execution and EBITDA margin disappoint once again
A lack of new launches hurt contracted sales (-17% q-o-q);
we cut our earnings forecasts by 12-15% in FY13-14
We retain our UW(V) with a revised TP of INR20 (from
INR25); we think any re-rating would need more visibility on
execution and new launches
4Q earnings surprise. Unitech’s reported earnings of INR23m (-98% y-o-y) were 98%
below HSBCe and 97% below consensus. The weak performance was driven by: 1) slower
execution as sales of INR7.16bn (-32% y-o-y) were 23% below HSBCe; 2) an extraordinarily
low EBITDA margin of c5% (HSBCe of 28%) primarily as all its fringe businesses (25% of
sales) reported either a loss or sub-10% margins, while the real estate business reported a
low 17% margin owing to cost escalations; and 3) a higher tax rate (c94%).
Contracted sales were let down by the limited new project launches. Q4 contracted
sales at INR7.8bn (1.8m sq ft @ INR4,352psf) were 34% below HSBCe. Average realisation
on contracted sales was down by 22%. A key reason for lower-than-expected contracted
sales was the limited new launches of 0.6mn sq ft (-85% y-o-y and -47% q-o-q) during Q4.
We cut FY13-14e earnings by 18-20%. We expect Unitech’s execution to remain under
pressure as the backlog of slow execution and new launches during FY12 will exert
pressure on further execution scale-up during FY13-14. Consequently, we lower our sales
volumes expectation by 10-15% and earnings by 18-20% over FY13-14e.
Retain UW (V) with a revised TP of INR20 (INR25 earlier). Our revised target price
reflects lower visibility on Unitech’s execution scale-up and recent earnings cut. This
leads us to increase our target NAV discount from 53% (1 std deviation below mean)
earlier to 60% (12% below 1std deviation). At a 60% NAV discount, we value Unitech at
the bottom end of the peer trading range (25-60%). A combination of weak earnings, a
deteriorating business environment and lack of share price catalysts suggests to us that
Unitech may continue to trade at a lower valuation multiple.
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