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Fine print
Unitech’s FY11 annual report highlights improving cashflow profile driven
by c.50% reduction in the working capital which was the key positive.
Reclassifying a part of previous year’s (Mar’10) cash balance as an exotic
investment and writing off half of that during FY11 was a big negative.
Near 4x jump in public deposit base of Unitech during FY11 and some
good response to recent launches indicate that retail investor / buyer
faith in Unitech has not been shaken as much. We lower target price to
Rs35/share (50% discount to NAV) implying 11xMar’13CL earnings.
Cash write-off of Rs1.14bn; understated operating margins
Unitech reclassified Rs2.3bn of cash (current account with foreign banks) to
an investment (yield enhancement certificate) for its Mar10 accounts.
Rs1.14bn or half of this was written off in FY11 via P&L – 14% of its FY11
PBT. Possibility of a further write-off of Rs1.16bn in FY12 exists as well. On
the positive side though, the write-off implies that Unitech’s Ebitda margins in
FY11 were actually higher by 3.6ppt in FY11 than reported 29%.
Improved FCF, warrant conversion supported land purchases
Unitech’s net debt was flat YoY during FY11. Company raised Rs6.8bn from
warrants in FY11 which largely supported the land purchase expense of
c.Rs8bn. Including capex and land purchase, improvement in cash flows from
operations (CFO) was substantial as Unitech reported a net negative Rs6.3bn
in CFO during FY11 vs. negative Rs16.9bn in FY10. If land purchases were to
stop, we expect Unitech to generate Rs4-5bn in annual positive cash
flows/debt reduction over FY12-13.
Public deposits grow as secured lending declines; debtors rise
While Unitech’s total gross debt declined by Rs1.6bn in FY11, its unsecured
debt rose Rs7.8bn to Rs20.0bn as it replaced secured debentures of Rs7.2bn
with public deposits. Public deposits at end Mar11 reached Rs9.3bn or 16% of
total gross debt – not very expensive though at 12-14% - same as the
debentures they replaced. Debtor situation deterioration is a concern with
debtors rising 69% YoY to Rs21.5bn. Pileup has mostly happened in GNoida
properties and certain commercial projects sold before FY09.
Execution to be focus in FY12
Unitech’s non-property revenues declined 22% YoY in FY11 to Rs2.3bn, as
construction business declined. Key disappointment was a slow 12% YoY rise
in realty revenues to Rs29.5bn. Unitech’s execution ramp-up was slower than
expected here. Deliveries declined 38% YoY to 4.3m sf. Management has
recognized project execution as a key focus area for FY12.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Fine print
Unitech’s FY11 annual report highlights improving cashflow profile driven
by c.50% reduction in the working capital which was the key positive.
Reclassifying a part of previous year’s (Mar’10) cash balance as an exotic
investment and writing off half of that during FY11 was a big negative.
Near 4x jump in public deposit base of Unitech during FY11 and some
good response to recent launches indicate that retail investor / buyer
faith in Unitech has not been shaken as much. We lower target price to
Rs35/share (50% discount to NAV) implying 11xMar’13CL earnings.
Cash write-off of Rs1.14bn; understated operating margins
Unitech reclassified Rs2.3bn of cash (current account with foreign banks) to
an investment (yield enhancement certificate) for its Mar10 accounts.
Rs1.14bn or half of this was written off in FY11 via P&L – 14% of its FY11
PBT. Possibility of a further write-off of Rs1.16bn in FY12 exists as well. On
the positive side though, the write-off implies that Unitech’s Ebitda margins in
FY11 were actually higher by 3.6ppt in FY11 than reported 29%.
Improved FCF, warrant conversion supported land purchases
Unitech’s net debt was flat YoY during FY11. Company raised Rs6.8bn from
warrants in FY11 which largely supported the land purchase expense of
c.Rs8bn. Including capex and land purchase, improvement in cash flows from
operations (CFO) was substantial as Unitech reported a net negative Rs6.3bn
in CFO during FY11 vs. negative Rs16.9bn in FY10. If land purchases were to
stop, we expect Unitech to generate Rs4-5bn in annual positive cash
flows/debt reduction over FY12-13.
Public deposits grow as secured lending declines; debtors rise
While Unitech’s total gross debt declined by Rs1.6bn in FY11, its unsecured
debt rose Rs7.8bn to Rs20.0bn as it replaced secured debentures of Rs7.2bn
with public deposits. Public deposits at end Mar11 reached Rs9.3bn or 16% of
total gross debt – not very expensive though at 12-14% - same as the
debentures they replaced. Debtor situation deterioration is a concern with
debtors rising 69% YoY to Rs21.5bn. Pileup has mostly happened in GNoida
properties and certain commercial projects sold before FY09.
Execution to be focus in FY12
Unitech’s non-property revenues declined 22% YoY in FY11 to Rs2.3bn, as
construction business declined. Key disappointment was a slow 12% YoY rise
in realty revenues to Rs29.5bn. Unitech’s execution ramp-up was slower than
expected here. Deliveries declined 38% YoY to 4.3m sf. Management has
recognized project execution as a key focus area for FY12.
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