Unitech: Muted quarter:: IDFC Sec

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Unitech: Muted quarter; estimates lowered on account of Omkar JV break-up
Result: Q2FY11


Highlights of Q2FY11 results
􀂙 Unitech reported 27% yoy growth (down 22% qoq) in consolidated revenues for Q2FY11 at Rs6.4bn but was 19%
below our estimate of Rs8bn. Heavy monsoons (especially in the NCR) as well as labour constraints due to Common
Wealth Games affected construction during the quarter, thereby resulting in lower revenue recognition.


􀂙 Consolidated EBITDA came in at Rs2.5bn (down 15% yoy, 14% yoy) and was 4% below our estimate of Rs2.6bn.
EBITDA margins stood at 39.2% (up 4% qoq) against our estimate of 33%. Higher than estimated margins was mainly
due to lower revenue recognition from past projects during the quarter. We believe margins will remain volatile over
the next 3-5 quarters as recognition from past projects continues to impact margins negatively.
􀂙 Tax rate for the quarter decreased to 24% against 31% in Q1FY11.
􀂙 Resultant, PAT came in at Rs1.7bn (down 3% yoy and 4% qoq), ~7% higher than our estimate of Rs1.6bn. PAT margins
stood at 27% (22% in Q1FY11) and was higher than our estimate of ~21% for the quarter.
􀂙 Gross debt increased by ~Rs7bn at Rs67bn (Rs60bn earlier). Increase in debt was due to an accounting change
resulting in consolidation of telecom business and is represented by corresponding increase in investments. Gearing
for the company increased to 0.54x (against 0.48x in Q1FY11)
􀂙 During the quarter, Unitech acquired ~50acres of land mainly in Gurgaon and spent ~Rs1.5-2bn for the acquisition.
Entire acquisition was funded through internal accruals and no additional debt was taken for land purchase.
􀂙 Demerger of Unitech Infra is in various processes of approval and is expected to be completed by March 2011, post
which the company will be listed on the exchanges. CEO for Unitech Infra was hired during the quarter with further
hiring of management team in progress.
􀂙 Unitech has confirmed that the JV with Omkar has fallen apart and the company would be looking to exit from the
venture with suitable return on its initial investment (~Rs1.5bn). However, till the entire payment is received, Unitech
will continue to hold economic interest in the ongoing projects of the JV (~1.5msf).


VALUATIONS & VIEW
Unitech’s H1FY11 performance has been muted with extended monsoon affecting construction activity in the NCR region.


However, we expect H2FY11 to be stronger both in terms of sales volume and revenue recognition as construction activity
picks up. Resultant, we maintain our volume estimates for FY11 (12msf vs. 5msf sold in H1FY11). However, margins will
continue to be under pressure as revenue gets recognized from past projects. Given the strong cashflows from ~22msf of
sold projects, sustained momentum in new launches, continued focus on execution and value unlocking from listing of Unitech Infra as also from possible takeover of UCP, we continue to remain bullish on Unitech. However, we adjust our
valuation and estimates for the following:

a) Break-up of JV with Omkar (total saleable area - 16msf; Unitech’s share – 8msf) except for 1.5msf of ongoing projects
wherefrom Unitech gets its return on investment (as also visible from Unitech’s operational update which now
doesn’t provide details on the Omkar JV projects)

b) Roll forward of NAV to March 2012 estimates
Resultant, our new FY12E NAV stands at Rs131 per share (Mar-11 NAV of Rs130 per share) and includes Rs22 per share
for Unitech Infra. Also, our revenue and net profit estimates get reduced by 10%/12% in FY11 and 8%/9% in FY12. At par
with FY12E NAV, our Mar-12 target price stands at Rs131 per share. Maintain Outperformer.