>UNITECH LIMITED (JP MORGAN)

Allaying execution concerns

■ Allaying execution concerns - Unitech has provided an operating update on its sales and project execution to date, a pleasant and encouraging surprise on disclosures. Key highlights are:

1. Total Rs40B of sales, 10.1 msf booked this year. The ASP of these sales is Rs3,870psf helped by contribution from commercial projects. Against this our estimate of sales for Unitech for FY10 is Rs62B (at ASP of Rs3,460). Typically, sales bookings are 2H weighted on account of festival season. However, UT does expect the ASP to come down to around Rs3,000psf going forward as contribution from Unihomes (affordable homes) starts to rise.

2. Onsite workforce has gone up +300% in 6 months to 15,600 people. Most of the ramp up is coming in from Gurgaon and Noida projects (core markets).

3. Focus is shifting towards project delivery. Of the total 30msf of ongoing projects (to be delivered over next 3 years):

• There is 22 msf (10.7K units) of past projects which are expected to be delivered by Mar-11. Of this, on almost 5.7msf (26%), handover and finishing work is going on (i.e. deliveries are being done) and on 11.6msf (52%), structure is ready and internal work is in progress. Inflows and construction outflows on these projects are mostly matched and hence are largely cash flow neutral to the company.

• Of the new projects (8msf) - on 3.7msf (45% of the projects), initial construction work has commenced. Against the total sales company has received 10-15% of the value as booking amount.

■ Maintain OW. Our PT of Rs102/share is based on a 2x adjusted FY10E BPS (ROE =20%, COE=16%, G=12%). Key risks to our PT include (a) Approval risk in new market entry; (b) Execution delays; and (c) de-rating of the physical property market (esp. in Mumbai/NCR/Chennai).

To read the full report: UNITECH