Emkay upgrades Unitech to BUY; cuts price estimate
| Categories Chandigarh, Finance | |Emkay Shares and Stock brokers upgraded BUY rating on Unitech with a price target of Rs 237 as against current market price of Rs 171 (June 30).
Unitech reported its Q4FY08 and FY08 results which were lower than broking houses estimates.
During Q4FY08, the company reported revenue of Rs 11.6 billion as compared to Rs 15.9 billion in Q4FY07.
However, Q4FY07 includes revenue and net profit of Rs 9 billion and Rs 4.5 billion from the stake sale in commercial property to United Corporate Park. Therefore, on like-to-like basis the company`s revenue increased by 67.8%. For FY08, the company reported revenue of Rs 41.4 billion and net profit of Rs16.2 billion. After adjusting for revenue and net profit recognition from UCP stake sale in FY07, revenue and net profit increased by 120% and 174% respectively. Driven by higher interest rate regime in the near term, we are increasing our WACC assumption from 15% earlier to 17%. The broking house, therefore, downgraded NAV estimates for Unitech from Rs 313 to Rs 296.
The broking house there shall be near term problems in the real estate segment due to higher interest rate, both for the home buyer and the developer. The broking house is revising target price from Rs 362 to Rs 237. Its new target price is based on 20% discount to the NAV, which is in-line with international companies (primarily China based).
The company has 55 million sq ft under development of which 30 million sq ft is in the residential segment. The company intends to launch projects in Southern India, NCR, Mohali andKolkata to the tune of 40millionsqft in the next 12-15 months.
During FY08, the company sold 7 million sq ft in the residential segment. Customer
advances, which reflect the pre-sales that the company does in the residential segment, increased from Rs 45 billion in FY07 to Rs 71 billion in FY08.
Due to higher construction cost, land bank payments and payment for fees of telecom licensee, net debt increased from Rs 29.5 billion in FY07 to Rs 71 billion in FY08. As of FY08, net gearing stands at 1.9x. The management stated in the conference call that it intends to reduce net gearing to 1.1-1.2x, which will essentially be led by stake sale in the telecom business and lower land acquisition payment in FY08. Average cost of debt for FY07 and FY08 were 10.8% and 12.05% respectively.
Having invested Rs 16 billion in telecom business the company has expressed its intention not to infuse any further capital into this business. The company intends to divest 26% stake in the venture and raise fresh capital for the expansion in the telecom segment.
The management has guided for Rs 30 billion of construction cost in FY08 as compared to Rs18 billion in FY07. Its numbers factor in construction cost of Rs 33 billion for FY08. For FY08, the company expects Rs 8.1 billion of interest cost, including interest that will becapitalized on account of commercial properties.
Unitech`s unpaid land bank stands at Rs 40 billion to be over next few years of the land bank payment (which is required to be paid to the government) will be paid on revenue accruing basis as well. The company does not intend to add to further landbank, expect for few lucrative deals that may come across in future.
The broking house is revising their NAV estimates for Unitech from Rs 313 to Rs 296. ``Our downward revision of the NAV is on account of increase in WACC assumption from 15% to 17%. We are also revising our target price downward from Rs 362 to Rs 237. Our new target price is based on 20% discount to the NAV``, the broking house said while commenting on company`s valuation.
