>UNITECH (CLSA)

Fulfilled promises; new vigour

Unitech trades at 59% lower than pre-Lehman levels while the broader market is now up 2%. Also, its discount to DLF has widened from an average of 16% to 46%. Over the same period, Unitech has raised Rs16 bn in equity and Rs11bn proposed from promoters; sold assets worth Rs9bn and also found a partner for its telecom business. Greater management focus is evident in new project ramp-up with 3.2m sf of space sold over the last three months. We raise its Mar’10 NAV estimate by 17% to Rs129/share driven by volume buoyancy and consequent better price assumption. Unitech remains our best pick in the sector.

Significant improvement on project execution
Over the last three months, Unitech has launched 24 projects (in Kolkata, Gurgaon, Mumbai, Chennai etc) adding up to 13.9m sf of saleable space with an estimated total sale value of Rs54bn. 3.2m sf of this space adding up to estimated Rs11bn of value has been sold. This performance is better than our expectations and we have raised Unitech’s FY10 & FY11 volume assumptions by 100% and 33% to 12m sf and 14m sf. This is a big improvement from an estimated 4m sf and 2m sf of sales in FY08 and FY09 respectively.

Ambitious deleveraging target; asset sale appears to be on track
The company plans to lower gross debt from Rs85bn as at Mar’09 to Rs50bn by Mar’10. We believe that this target is too ambitious and we have built in debt reduction to Rs60bn by the year-end. The company has already paid about Rs7bn in debt in FY10 so far with the gross debt down to Rs78bn.

NAV raised to Rs129/share; more visibility on Mumbai projects
With improved liquidity conditions for property developers and volume buoyancy, we believe that the level of desperation among developers will reduce. We have now factored in a 10% recovery in prices in FY11 (0% earlier). Additionally, the company’s Mumbai plans have gained visibility with 0.15m sf of space sold and 2 large project (1m sf each) launches in Central Mumbai now in the offing. We raise Mar’10 NAV estimate by 17% to Rs129/share. Reduction in the landbank has partially offset the NAV increase.

Unitech trades at an unjustified 46% discount to DLF
Since the pre-Lehman days, Unitech’s discount to DLF has widened from 27% to an unjustified 46%. Over the same period, we believe that Unitech’s bankruptcy risks have reduced dramatically. Resolution of the telecom business JV means that the management can now focus on the core businessmuch more evident in improvement in execution capabilities as explained above and transparency. We raise the stock to Outperform with a target of Rs97/share set at 25% discount to Mar’10 NAV.

To see full report: UNITECH