| Stock data (21 May 2009) | BSE |
| Share Price (Rs.) | 71.9 |
| No. Of Shares (Mn Nos.) | 1623.4 |
| Market Cap (Rs.Mn) | 116,639.5 |
| 52 week high/low (Rs.) | 279.9/21.8 |
| Average Volume (6 month) (Mn Nos.) | 396.5 |
| Source: BSE | |
Unitech Ltd was incorporated in 1972 as United Technical Consultants Ltd. The company started as a soil and foundation engineering consultancy firm, promoted by a group of engineers led by Ramesh Chandra. It diversified into construction in 1975 and got its first international project in Iraq and Libya in 1978. In order to tap the opportunity in the Indian real estate market the company launched its first residential project, South City-I in 1986, which was completed in 1992. Since then there has been no looking back and the company is now into construction of industrial plants, infrastructure projects, development of residential and commercial projects, leisure and entertainment projects, hospitality projects, shopping malls and various other types of construction. The company has also ventured into mobile telecom business recently.
So far, Unitech has built more than 100 residential projects, 50 commercial properties, hotels, highways, flyovers, schools, airports, amusement parks, transmission lines and other heavy constructions. The company today has pan India presence and is the second largest listed real estate company in India with a market capitalization of Rs.116.6bn
Shareholding Pattern
The promoter group holds 50% in the company. The single largest share holder is Prakausali Investment with a holding of 26.71%. The Managing Director, Sanjay Chandra holds 4.08%. Prakausali Investment is a Non-Banking Finance Company promoted by the family members of Sanjay Chandra. The rest 19.2% is held by other financial institutions and companies (belonging to the promoter group).
Key Milestones
The key milestones achieved by the company since incorporation are given in the table below:
| Timeline | Milestone / Event |
| 2008 | - Forays into Telecom - Expanded into the Mumbai market |
| 2007 | - Commenced operations in UAE (Dubai) - Awarded title of Superbrand by Superbrand India |
| 2006 | - Won biggest land deal in India, 343 acres of prime land in Noida - Awarded Chandigarh Amusement Park project |
| 2005 | - Entered Kolkata - Awarded the title of Business Superbrand |
| 2004 | - Expanded into Greater Noida, U.P |
| 2003 | - Launched the first mega residential project, Uniworld City in Gurgaon - Entered Noida, U.P |
| 1998 | - Awarded the ISO 9002 certification |
| 1996 | - Constructed the Radisson Hotel, Delhi |
| 1992 | - Consolidated in Gurgaon with South City-I |
| 1988 | - Entered Bangalore |
| 1987 | - Entered Lucknow and Mumbai |
| 1986 | - Ventured into real estate and started shaping Gurgaon, Haryana |
| 1978 | - First international project in Iraq and Libya |
| 1975 | - Diversified into construction |
| 1972 | - Started out as a company dealing in soil mechanics |
| Source: Company | |
Financial performance
The company has a track record of healthy operating performance in its 22 years history as a listed company. The consolidated revenue and EBITDA of the Company have grown at a CAGR of 86.02% and 212.12% over the last three years. This significant increase in the revenue and earnings has been mainly due to the large scale of operations and efficient and timely execution of projects. The value of work done has grown at a CAGR of 78.89% over the last three years. Thus, the highlights of the profit and loss account are primarily a reflection of the company’s performance in executing projects.
| Particulars | 2005 | 2006 | 2007 | 2008 |
| Revenues (Rs. Mn) | 6,649.0 | 9,545.0 | 33,881.0 | 42,801.1 |
| EBITDA (Rs. Mn) | 779.0 | 1,966.7 | 19,278.7 | 23,687.2 |
| PAT (Rs. Mn) | 348.0 | 876.5 | 13,055.0 | 16,691.9 |
| EBITDA (%) | 11.7 | 20.6 | 56.9 | 55.3 |
| PAT (%) | 5.2 | 9.2 | 38.5 | 39.0 |
| ROCE (%) | 11.2 | 33.7 | 65.5 | 46.4 |
| ROE (%) | 17.8 | 10.3 | 23.8 | 16.0 |
| Debt-Equity (x) | 1.92 | 4.02 | 2.00 | 2.38 |
| Shares in Issue (Mn) | 1,623.4 | 1,623.4 | 1,623.4 | 1,623.4 |
| EPS (Basic) Rs. | 0.2 | 0.5 | 8.0 | 10.3 |
| Source: Company | ||||
The consolidated revenue of the company rose by 26% to Rs.42,801.1m during FY08 as against Rs.33,881.0m during the previous year. The consolidated profit after tax (PAT) jumped by 28% to Rs.16,691.9m, as compared to Rs.13,055.0m in the previous year ended March 31, 2007. The PBDIT growth is slightly lower than the growth in revenues because of change in the product and the project mix. Real estate remains Unitech’s primary business segment accounting for over 87% of the company’s income from operations. Revenues from the real estate business increased by 24.77% to Rs.36.02bn in 2007-08 from Rs.28.77bn in 2006-07 while PBIT (without un-allocable overheads) increased by 22.27% to Rs.23.48bn in 2007-08.
The company enjoys high ROCE as the share of residential business is high (70% of area being developed in real estate business) where there is faster churning of capital due to substantial cash upfront payment from customers in the form of advances. ROCE declined during FY08 as compared to FY07 because during 2006-07, sale of 60% stake in six office projects to Unitech Corporate Parks PLC contributed significantly to the revenue and profit. The company’s net debt increased from Rs.29.5bn in FY07 to Rs.71bn in FY08 due to land bank payments, higher construction cost and payment of telecom licensee fees resulting in a higher debt:equity ratio.
Significant land reserves acquired at competitive prices: The Company has a large, low cost and well diversified land bank which is sufficient to meet its development plans for the next seven to eight years. As of 31 March 2009, the Company had 11,178.52 acres of land reserves. These land reserves are spread across the country in key Tier I and Tier II cities such as the NCR, Mumbai, Kolkata, Chennai, Bangalore, Hyderabad, Kochi, Mohali, Chandigarh, Goa and Vishakhapatnam. The company intends to focus on exploiting its existing land bank to develop its future projects in order to improve the cash realisation from its projects. In addition, the Company plans to acquire new land very selectively and only when it considers that the acquisition affords an exceptional value proposition for it. I think Unitech is well positioned to grab a significant portion of the 5%+ CAGR growth of the Indian real estate market in the next four years.
Improving cash flow to reduce debt: The company completed the sale of one of its hotel properties, “Courtyard by Marriott”, situated in Gurgaon, Haryana for Rs.2.3bn in January, 2009. In addition, the company has sold off its commercial office block in Saket, Delhi (which was originally built as the company’s corporate office) for Rs.5bn and plans to sell certain projects in Kochi and Gurgaon. The Company is also planning to raise Rs.16bn during FY10 from selling four of its hotels which are currently under construction in Noida, Gurgaon and Kolkata. Further, the company is planning to induct private equity into some of its projects. The Company intends to use its improved cash flows to reduce its debt and thereby improve its debt to equity ratio. It plans to cut down its debt by at least Rs.10bn by the end of FY10 which will improve its debt:equity ratio from 2.38 to 2.00.
New Business Initiatives: The company has entered the telecom sector through its subsidiary Unitech Wireless. Unitech Wireless received pan-Indian telecommunication licenses in all 22 telecom circles in February 2008 and has, as of 13 February 2009, received initial spectrum (4.4 Mhz) in 21 telecom circles. Unitech Wireless expects to commence providing telecom services by the end of the third quarter of 2009. Telenor, the world’s seventh largest telecom operator has agreed to acquire 67.25% stake in Unitech Wireless in four phases. Two phases are already complete in which Telenor has acquired 49% stake for a total of Rs.23.8bn. These funds will help the company in clearing off part of its debt. Also, the entry of Unitech into the telecom sector will help the company to reduce its excessive dependence on the real estate sector. However, the downside is the intense competition from established players that have a pan India footprint.
| Particulars | Q2FY09 | Q3FY09 | Q3FY08 |
| Net Sales (Rs.Mn) | 9,831 | 4,893.9 | 11,421.0 |
| EBITDA (Rs.Mn) | 6,092.0 | 2,443.0 | 7,573.80 |
| PAT (Rs.Mn) | 3589 | 1,360.5 | 5,257.8 |
| EBITDA Margin (%) | 62.0 | 49.9 | 64.3 |
| PAT Margin (%) | 36.5 | 27.8 | 46.0 |
| EPS (Rs. ) | 2.6 | 0.8 | 3.2 |
| Source: Company | |||
Results Update - Q3FY09
The company’s revenue plunged by 57.1% YoY from Rs.11,421m to Rs.4,893.9m in Q3FY09. This was due to fall in revenues across the business segments including real estate, construction and consultancy but more so in the real estate market. The company derives 60-70% of the revenue from residential real estate which showed a downward trend since the beginning of the fourth quarter of FY08. The revenue from real estate business fell by 63.2% YoY, construction by 62.2% YoY and consulting by 19.8% YoY. The quarter witnessed a considerable fall in real estate demand leading to a huge decline in property prices. EBITDA Margin declined from 64.3% to 49.9% YoY due to lower realization rate and 10.1% increase in staff cost.
Future plans
Key Strategies
| Strategy | Expected Result |
| Developing high quality projects at competitive prices | Consolidate its position as a leading real estate developer in India |
| Increased focus on the affordable housing segment | Competitive advantage in this segment of the housing market |
| Implementation of value engineering | To reduce costs and enhance customer value |
| Reducing capital-intensive projects | Strengthening its financial position |
| Source: Company | |
Capex: Unitech Wireless has plans to spend approximately Rs.75bn during the first three years of its operations and estimates that the total funding requirement for the telecom project including network rollout based on 2G technology will be Rs.150bn. Unitech Wireless expects to fund its capital expenditure through its internal cash resources, external funding through debt and shareholder contributions.
SWOT analysis
| trengths | Weaknesses |
| · Strong brand and customer experience. · Large scale of operations. · Diversified portfolio, both in terms of product and geographies. · Large land reserve that can be developed in the future. · Track record of profitability | · Business heavily dependent on the performance of the real estate market in India. · High debt to equity ratio. · Negative net cash flows from operating and investing activities for the past three years. |
| Opportunities | Threats |
| · Focus on affordable housing, a segment where a demand-supply mismatch exists. · The housing investments are expected to grow to Rs.17,338bn between 2006-07 to 2010-11 as compared with Rs.9,810bn invested in the previous five years. (CRISIL) · Entry into the growing Indian telecom market. | · Intense competition among the peer group to grab maximum market share. · Global economic slowdown may continue to affect the business of the company. |
Valuation and recommendation
Unitech’s revenue is estimated to grow at a CAGR of 8.8% over FY08-11, EBITDA by 8.0% and PAT by 7.9%. I expect growth to be led by higher scale of operations and new business initiatives. The EBITDA margin is expected to be 54%+ due to low cost of land and efficient and timely execution of projects.
| Particulars | FY08 | FY09 | FY10E | FY11E |
| Revenues (Rs. Mn) | 42,801 | 35,359 | 44,199 | 55,248 |
| EBITDA (Rs.Mn) | 23,687 | 20,703 | 24,844 | 29,812 |
| EBITDA (%) | 55 | 59 | 56 | 54 |
| PAT (Rs.Mn) | 16,692 | 13,416 | 16,769 | 20,962 |
| EPS (Rs) | 10.3 | 8.3 | 10.3 | 12.9 |
| Shares in Issue (Mn) | 1623.4 | 1623.4 | 1623.4 | 1623.4 |
| P/E* (x) | 7.0 | 8.7 | 7.0 | 5.6 |
| *Price@71.85 as on 21 May 2009 Source: Company/Analyst Estimate | ||||
| | ||||
| Company | EPS TTM | P/E | Price |
| Unitech | 4.46 | 16.1 | 71.85 |
| DLF | 9.09 | 37.6 | 341.95 |
| HDIL | 53.6 | 5.6 | 300.3 |
| Akruti City | 72.09 | 6.2 | 448.25 |
| India Bulls Real Estate | 1.87 | 109.8 | 205.3 |
| Source: Company/BSE | |||
At a CMP of Rs.71.85, the company is trading at 7.0 times its FY08 earnings. It is trading at a discount to selected peer group companies. I believe current valuations are attractive and recommend a ‘BUY’ on the stock.
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