Unitech :Slow execution continues to impact revenue: Nomura research,

Unitech’s struggles in improving its execution continue, as liquidity for
the company remains tight. In this scenario, its revenue recognition is
faltering, and 1QFY13 results disappointed yet again on the top line,
which missed our and consensus estimates by 30% and 38%,
respectively. EBITDA margins at 20% were in line with our estimate of
21%, while a lower interest cost recognized on the P&L helped the
company report a PAT of INR459 mn, slightly below our estimate. Our
target price and rating are under review.
The sales run rate has started dipping, as Unitech now focuses more on
execution than new launches. Also, with execution significantly delayed
on many projects, the scope to launch new projects remains limited. The
company sold 1.5mn sqft of projects in 1QFY13 worth INR7 bn, down
from 1.8mn sqft in 4QFY12 and 1.9mn sqft in 1QFY12, a fall in line with
the dip in the overall property market. The company managed to deliver
only ~0.8mn sqft in 1QFY13. Deliveries of older projects launched before
2009 at 0.3mn sqft in 1Q were still extremely slow, despite 80% of the
older projects being in finishing or handover stage. The company has
provided the balance sheet for FY12, where consolidated net debt is
down INR3.25 bn YoY at INR54 bn, which is a minor positive.

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Key results highlights
 1QFY13 revenues at INR4.1bn (-32% YoY and -43% QoQ) came in
lower than our and Street expectations of INR5.9bn and INR6.6bn,
respectively.
 EBITDA margins at 20% were in line with our estimate of 21%.
However, from the segment results, EBIT margins in the real estate
segment are extremely low at 13.5%, which is a concern.
 Below the EBITDA level, lower interest cost at INR1.2 bn vs. our
estimate of INR3.4 bn saved the day for Unitech and helped it report
PAT only slightly below our estimate of INR497 mn.
 The average residential realisation was up QoQ to INR4,215/sqft (vs
INR 3,863/sq ft in 4QFY12). The Noida region was a larger contributor
to sales in the last two quarters, with Gurgaon slowing down
significantly with the dependence on National Capital Region (NCR)
as a whole still continuing.
 Execution remains a key disappointment, as the company managed to
deliver only an additional 0.8mn sqft even with ~80% of the older
projects being in finishing or handover stage. Of this, 0.3mn sqft was
from older projects launched before 2009 and 0.4mn sqft from projects
launched after 2009.
 On the balance sheet side, inventory moved up by a large INR10 bn
YoY as of Mar’12, with a similar reduction in fixed assets, which could
be a case of realignment of some land parcels.
 Short-term loans and advances are down ~INR5 bn. The auditors
have remarked that, of the total INR43.2 bn of short-term loans and
advances, INR16.1 bn has been outstanding for long period and they
are unable to ascertain the recoverability of the same.