Unitech - FY2010 Annual Report Analysis - Motilal Oswal

UNITECH: FY10 Annual Report Analysis: Greater focus on execution and faster monetization; Comfortable leverage; Buy

- Management intent of bringing about greater focus evident: The management intent of bringing about greater focus is evident in Unitech's annual report for FY10. It points to the shift in the company's strategy to quick monetization and faster execution following the emergence of the real estate (RE) sector from a period of crisis. The company's decision to demerge Unitech Infra is also aligned with its strategy to bring about greater focus in each of its business verticals.

- Continued momentum in sales and new launches: Unitech has maintained the momentum in sales and new launches in FY10, with its strong and practical focus on the affordable/mid-income housing segment. Unitech, which has constructed ~35msf of residential projects since its inception, has launched ~26msf of new real estate projects and sold ~16.6msf in FY10, with cumulative sales value of ~Rs70b.

- Leverage comfortable: In FY10, Unitech's gross debt declined by ~38% to Rs53b (from Rs84b in FY09), with its net debt-equity ratio (DER) at 0.51x. The company is one of the most comfortable on the leverage front among the large cap RE companies (~0.7x). Customer advances grew 8% to Rs80.2b (standing at Rs86.4b in 1QFY11), reflecting the healthy cash flow on account of strong sales during FY10. We expect DER to increase in FY11 due to an approved demerger scheme, as reserves are likely to decline.

- Trades at 14% discount to NAV; maintain Buy: Unitech (UT IN; Mkt Cap US$4.2b, CMP Rs82, Buy) quotes at 18.8x FY12E EPS of Rs4.3 and 1.9x FY12E BV of Rs43.8. It trades at ~14% discount to its FY12E NAV of Rs96/share. It has a relatively strong balance sheet, with low leverage of ~0.5x, strong near-term cash flows, and earnings visibility of 24% CAGR over FY10-12. Key catalysts that could further drive up our NAV estimate in the near to medium term are (1) likely listing of UT Infra sometime in 3QFY11 (all approvals received), and (2) acquisition of UCP. We maintain Buy, with a price target of Rs96.

Source : Equity Bulls

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