th

25 March, 2009
India
Unitech Ltd.
Construction CMP: Rs. 33.90 Target: Rs. 51

We initiate a buy on Unitech, with a target of Rs. 51. Yesterday share closed up by 16% to
close at 33.90. Unitech touched its peak of Rs. 546.80 in Jan’08 and since then Unitech
stock has fallen and is currently trading at discount of 94% to that price. One year of global
Sovid Gupta +911243024840 turmoil has taken maximum toll on leveraged companies. Unitech has a debt of ~ Rs.
10,000 crore and Debt to Equity Ratio of 2.4 (TTM)
Equity Analyst: Fairwealth Securities Company had to pay 2500 crore of debt by March’09, global credit crisis squeezed liquidity
Private. Ltd. out of the system, have made it difficult for Unitech to pay its short term and long term debt.
However company has made huge efforts to solve the current liquidity crisis.

Highlights:

Company has achieved major break through in terms of handling its liquidity:

Priced on March’25, 2009

1) Rolled of 75% of Rs. 2500 crores due by March’09.
±% potential 50%
2) Company has raised Rs.1000 crores long term debt with maturity of 3-5 years, to
Target set on 25th March replace short term debt.
3) Closed Telenor deal and expecting first payment within this week. Company has
declared that this money would be used to to pay off debts taken by Unitech for
Unitech wireless.
4) Sold off Hotel property in Gurgaon at around Rs. 250 crore and is in advanced
Market Data talks for to sell office property in Saket at around Rs. 500 crore.
Beta 1.53
12M hi/lo 338/21.9 Future Estimates:
Market cap, INR Crores 45374 Income Statement (Standalone Rs. Crore)
Shares in issue (mn.) FY09E FY08 FY07
Reuters UNTE.BO Net Sales 3300 4115 3290
Bloomberg UT.IN Stock Adjustment Na -13 -13
Total 3300 4101 3276
Operating Profit 1815 2240 1866
Interest 550 317 165
Gross Profit 1265 1923 1799
Share Holding Pattern (%) Depreciation 20 21 7
Promoters 67.5% Profit Before Tax before OI 1245 1903 1792
FII 6.3% Other Income 80 165 98
Domestic Inst. & Corp Bod. 13.5%
PBT 1325 2068 1890
Public & Others 13%
Tax 265 399 486
Net Profit 1060 1669 1306
EO Items & Min. Interest 8 44 22
Adj Net profit 1052 1581 1261
EPS 6.8 10.2 8.0

Source: Fairwealth Securities Research Estimates, Company data

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 Unitech- Buy

Quarterly Result Round up:

Q3FY’09 Q3FY’08 VAR % Q2FY’09 VAR %

Net Sales 489 1142 -57% 983 -50%

Other Income 18 25 -27% 18 -1%
Total Income 508 1167 -57% 1001 -49%

Interests costs have seen Total Expenditure 245 408 -40% 374 -34%
sharp rise as company raised
PBIDT 262 759 -65% 627 -58%
a lot of short term debt at
higherest rates(19%) to PBIDT(before OI) 244 734 -67% 609
handle the acute liquidity
crises. Interest 97 98 -1% 134 -28%
PBDT 166 661 -75% 493 -66%
Margins have dipped by 1400
bps from 64% in Q3 FY’08 to Depreciation 5 5 -4% 4 37%
50% in Q3 Fy’09. Operating
margins will fall further in Tax 21 131 -84% 130 -84%
coming quarters and will Reported Profit After Tax 139 525 -74% 359 -61%
settle at around 40%
Minority Interest After NP 3 -1 1
Interests’ costs stand at
around 14%. Net Profit after Minority
136 526 -74% 359 -62%
As interests are linked to Interest
individual projects, decreased Extra-ordinary Items 2 0 0 0
sales will impact profitability
Adjusted Profit After Extra-
134 526 -74% 359 -63%
ordinary item

Margins
Interest/Sales(%age) 20% 9% (+1300bps) 14% (-600bps)
Operating Profits/Sales(%) 50% 64% (-1400bps) 62% (-1200bps)
NPM/Sales (%) 26% 45% (-1900bps) 36% (-1000bps)
Source: Company Data, Capital Line

Company Description:
Unitech is one of India’s largest real estate companies with over 3 decades experience in real estate
development. India’s second largest real estate company by market cap, with land bank of 14000
acres spread across 15 cities in India. The company, which used to be an NCR developer a few years
ago, with over 84% of its land bank in non-NCR regions at present. Unitech is planning to develop its
land bank through a mix of 51 projects in the residential, commercial, retail and hotel segments

The Company has diversified into residential, commercial, retail, entertainment and hospitality
projects.

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 Unitech- Buy

Valuations:
Company has a debt of around Rs. 8000 crores with interest cost of around 14%, however most of the
interest payment has been capitalized and the interest will be paid when the asset for which the loan was
taken is sold. Thus, Unitech Ltd. paid interest of only Rs 97 crore during the quarter.

With delay in projects across the industry at lower expected Operating margins of around 40%. Interest
costs will effect NPM which we expect to go down sharply down in FY10E.

Considering all the mentioned factors we still believe that company’s ability to execute projects remain
strong and with huge land bank of 14000 acres we woud value the share price of the company at Rs. 50
per share, even if property value further moves goes down.

Key to valuations at this point in time is not the profitability or debt, but how fast the company is able to
reschedule its debt, able to get enough funds to restart stalled projects by injecting liquidity and how
quickly it will sell completed units even if at lower profitability.

At the CMP of Rs 34, Unitech is trading at 3.3x FY08 EPS of 10.2 and 5x FY09E EPS of Rs 6.8.

We believe most of the concerns are already priced in, and recommend a BUY with a target price of
Rs.51, a 50% upside from here. At the target price the stock would be valued at 7.3x FY09E EPS of Rs
6.8, implying an upside potential of 50%.

Unitech Wireless-Telenor Telecom Deal

Unitech has a pan-India GSM license and has already got the crucial spectrum for 22 circles. It had paid
Rs 1,650 crore as license fee for the pan-Indian license, for which Unitech Wireless had received a
valuation of more than Rs 11,000 crore. Unitech has so far invested Rs 138 crore as equity in the
telecom venture. Addition Unitech Telecom has also borrowed around Rs 2,000 crore from the holding
company. Unitech needed a partner for its telecom venture which finally ended with Telenor coming in for
67% stake in the venture by paying Rs 6,120 crore.

As part of the deal: Company has given following details with respect to the Unitech wireless -Telenor
Qtr. ended March Qtr. Ended June 30, Qtr. Ended September 30,
31, 2009* 2009 2009
Telenor Cash 3) Rs.15.0 billion
1) Rs.12.5 billion 2) Rs.15.0 billion
injections 4) Rs. 11.2 billion
Cumulative Cash
Rs.12.5 billion Rs. 27.5 billion Rs. 53.7 billion
injection

Telenor Ownership 33.33 50 67%

Note: Changed according to latest announcement of increased dilution from 60% to 67%.

According to the deal Telenor will inject Rs. 5370 crore of new Equity in 4 tranches for 67% partnership.
Telenor will maintain ownership share when Unitech limited converts Rs. 500 crore of share holder to
equity. Telenor will put additional funds of Rs. 750 crore in Unitech wireless, taking its total investment to
Rs. 6120 crore in 2009.

Additionally Unitech Wireless will use Rs. 400 crore of cash received to payoff debt to Unitech Ltd.

Debt and Guarantees totalling Rs. 2100 crore will be transferred to Unitech Wireless.

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 Unitech- Buy

Key Risks:
According to our estimates Unitech will see an immediate jump in share prices as soon as it is
out of troubled waters or in other words as soon as it gets enough financing to pay off short term
debts and enough capital to fund its expansion over next 4-6 months. Another major risk to
company’s growth is slow down in Real Estate markets led by Flattish to negative growth in IT
sector. Company has huge capacities coming up in both residential and real Estate segment,
however Company is even struggling to sell current capacities.

We believe following risks are already hurting the company’s financials and will continue to do so
in coming 2-3 quarters.

 Slowdown in IT hiring will continue to hurt residential demand.

 Job losses/ pay cuts across sectors is putting off investors, also buyers are waiting for
developers to cut prices further, although demand has started picking up investors are awaiting
a momentum in Indian Real Estate Sector.
 Companies have stalled expansion process, industry confidence suggests demand is picking
up however if that doesn’t happen it could delay commercial lease agreements and put
additional pressure on company’s commercial sales.
 Unitech similar to other players in the segment was building capacities for the SEC A segment,
which has higher margins. However real demand lay in the growing Indian middle class. Going
forward as company’s build apartments with lower built up area and lower persq. Ft. area
margins will most definitely fall in future.
 Higher raw material prices will put pressure on margins.

Share prices of Unitech have dropped by

around 90% over last year while other players in
the sector have fallen between 70% and 80%.

Source: Capital Line

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Unitech has a market Cap of around Rs. 5500
crores. Company has total available land
bank at around14000 acres. Company’s MD
Mr. Sanjay Chandra recently said in a press
interview that land cost for the company
remains at around Rs. 100-120 per sq. ft. and
available land bank enough to last 15 years.
.
Company also has plans to raise USD 500
million through PE’s at project as well as
company level.
TECHNICAL OUTLOOK: Unitech
Fairwealth Securities
Unitech- Buy
Investment Rational
At the beginning of 2008 when all analysts rated Unitech as buy at CMP of Rs. 600 they
mentioned following downside risks.
 Tightening of Interests rate
 Restricted Overseas borrowning and change in FDI regulations,
 Rise in steel and cement prices
 Delay in completion of planned projects and
 Overall decline in Indian Econmics
All the downside risks along with massive unexpected slump in Real Estate markets and
tight credit markets got realized as a result of which we saw deep and long correction in Real
Estate markets pushing Unitech stock prices down by 95%.
We believe that Real Estate markets in India are yet to bottom out, however we also believe
that share markets either discounts or overprice the reality and in this case all bad news has
been discounted. The fact is that company holds 14000 acres of land. Millions of square feet
of developement in various stages, and ownership in a telecom company valued at over Rs.
3000 crores
We do not believe Unitech is out of blues as yet, however most of the above factors have
revised themselves, which should reflect in stock prices of Unitech.
 Interest rates on Home Mortgage are below 2007 rates.
 Government is considering change in current FDI rules to allow Unitech with
Overseas borrowing.
 Government has been quick to boost Indian Economy through its Fiscal stimulus.
 Raw material prices have dropped by more than 50% giving some respite to
developers.
 Real Estate markets have started looking up with prices settling at 20% discount to
Jan’ 2008 prices
UNITECH has given a good
breakout above 28 levels. The
stock has seen a good support
around levels 25-28 .One could
buy the stock on very declines for
Target of 50.
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 Unitech- Buy

Annexure:

1. Income Statement: Fund Flow Statement:

200803 200703 200603
Income Statement (Standalone Rs. Crore)
SOURCES OF FUNDS :
2008(12) 2007(12) 2006 (12) Share Capital 325 162 12
Reserves Total 3276 1832 247
INCOME
Total Shareholders Funds 3600 1994 260
Net Sales 4115 3290 926
Minority Interest 116 1 24
Stock Adjustment -13 -13 291 Secured Loans 6231 3896 956
Total 4101 3276 1218 Unsecured Loans 4235 1722 195
Expenditure : Total Debt 10466 5618 1150
Total Liabilities 14182 7614 1434
Raw Materials 78 118 146
APPLICATION OF FUNDS :
Power & Fuel Cost 54 4 32
Net Block 1159 712 444
Employee Cost 96 64 42 Capital Work in Progress 2098 215 127
Other Manuf. Expenses 1505 1156 759 Investments 1416 455 14
S&A Expenses 103 57 50 Current Assets, Loans &
Miscellaneous Expenses 24 25 33 Advances

Total Expenditure 1861 1410 1043 Inventories 13608 8700 3087

Operating Profit 2240 1866 175 Sundry Debtors 746 146 103
Interest Cash and Bank 1408 1023 390
317 165 52
Loans and Advances 2944 1840 286
Gross Profit 1923 1799 150
Total Current Assets 18706 11708 3866
Depreciation 21 7 11
Less : Current Liabilities
Profit Before Tax before OI 1903 1792 139 and Provisions
Other Income 165 98 28 Current Liabilities 8256 4898 2916
PBT 2068 1890 167 Provisions 935 578 87
Tax 399 486 52 Total Current Liabilities 9191 5476 3003
Net Profit 1669 1306 87 Net Current Assets 9515 6232 863
EO Items & Min. Interest 44 22 -1 Net Deferred Tax -6 0 -15.08
Adj Net profit 1581 1261 88 Total Assets 14182 7614 1434
Source: Company Report, Capital Line Contingent Liabilities 1599 2144 838
Source: Company Report, Capital Line

2. Cash Flow Statement:

200803 200703 200603
Cash Flow Summary
Cash and Cash Equivalents at Beginning of the
year 1022.73 389.94 271.76
Net Cash from Operating Activities -975.03 2074.49 -224.67
Net Cash Used in Investing Activities 3187.44 -725.46 -308.28
Net Cash Used in Financing Activities 4548.01 3432.74 651.13
Net Inc/(Dec) in Cash and Cash Equivalent
385.54 632.79 118.18
Cash and Cash Equivalents at End of the year
1408.27 1022.73 389.94
Source: Company Report, Capital Line

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 Unitech- Buy

Disclaimer

This publication has been prepared solely for information purpose and does not constitute a solicitation to any person to buy or sell a security. While
the information contained therein has been obtained from sources believed to be reliable; investors are advised to satisfy themselves before making
any investments. Fairwealth Securities Pvt Ltd does not bear any responsibility for the authentication of the information contained in
the reports and consequently, is not liable for any decisions taken based on the same. Further, Fairwealth Research Reports only provide information
updates and analysis. All opinion for buying and selling are available to investors when they are registered clients of Fairwealth Investment Advisory
Services. As a matter of practice, Fairwealth refrains from publishing any individual names with its reports. As per SEBI requirements it is stated that,
Fairwealth Sec Pvt Ltd., and/or individuals thereof may have positions in securities referred herein and may make purchases or sale while this report is
in circulation.

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