Unitech: Heavy monsoon a drag on construction; Buy:: Anand Rathi

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Unitech: Heavy monsoon a drag on construction; Buy


 2Q review. PAT stood at `1.74bn in 2Q, 4% below our estimate
(`1.81bn). Management said the heavy monsoons in NCR and
labour shortage due to CommonWealth Games led to slow down in
construction in 2Q. Debt from real-estate business remained largely
unchanged but `6.9bn was added to the books, mainly for some
‘structural changes’ in the holding company’s wireless business. Net
D/E stood at 0.53x. We roll over our NAV to `89 in Mar ’12e from
`105 in Mar ’11e due to calling-off of one Mumbai JV (`3.4/share),
lower sales volumes and delay in foray into new markets.


 Operations update. Unitech sold 2m sqft worth `10.13bn (vs. 3m
sqft in 1Q). Average realisation in native markets improved ~10% as
projects nearing completion commanded higher prices. Delivery
stood at 0.95m sqft in 2Q. Unitech acquired some land in 2Q for
~`2.5bn at Gurgaon, Noida (on deferred payment) and Chennai.

 Change in stance, again. As per its press release, management has
revised its strategy, to coincide launch of projects with start of
construction. This is likely to improve cash flows, but delay launches
as construction would commence only post approvals.

 Debt. Unitech increased its land-acquisition spend in 2Q (to
+`2.2bn) for incremental land purchases in Gurgaon and Chennai,
and new land in Noida. Also, it plans acquiring stake from few
minorities in some projects, which will result in lower debt reduction
than guided/estimated earlier. Our FY11e net D/E stands at 0.53x.

 Valuation and risks. We roll over our NAV to `89 in Mar ’12e
from `105 in Mar ’11e At CMP, the stock trades at 1.7x FY12e PBV.
Risks. Market slowdown; delay in launches and entry in new markets.