>Unitech Limited (INDIABULLS)

Diminishing sales volume

Unitech reported a weak financial performance in Q3’09 due to the intensifying slowdown in the real estate sector. The results were adversely impacted by a sharp deterioration in demand, decline in real estate prices and high finance costs. In light of the worsening prospects of the realty sector we downgrade our rating to Hold.

Property sales getting postponed: Despite a decrease in interest rates by the RBI and consequently by the commercial banks, and a cut in property prices by around 20% in new launches, the sales volume in the residential segment has so far failed to pick up. This is due to the potential buyers adopting a wait-and-watch approach in anticipation of a further decline in real estate prices. Further, a weak economic environment is pushing the expansion plans of IT/ITeS and retail companies thus impacting the commercial and retail space demand. We expect the weak demand scenario to continue at least for the next 2-3 quarters with a slow improvement thereafter.

Liquidity position improves marginally: Unitech has been able to repay Rs. 4,000 mn out of the Rs. 25,000 mn of debt due to be paid by March 2009. It has also restructured loans worth around Rs. 15,000 mn through banks and is changing its debt profile from short term to long term. It is further trying to raise funds to repay the balance.

Valuation: We have revised our NAV estimate downward to reflect the worsening prospects of the sector. We have cut our revenue and earnings estimates to factor in lower sales volume and high vacancy rates and a higher-than-expected decline in property prices in Q3’09. Our NAV based fair value estimate of Rs. 32 reflects a limited upside potential to the current share price. Hence, we downgrade our rating to Hold.

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