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Unitech – Disappointing Results

May 31, 2010

Unitech Ltd reported impressive sales of Rs11.3 bln (up 196% yoy, up 46% qoq) but operating margins (24.1%) again disappointed
(down 8.9 ppts yoy, flat sequentially) largely due to prior period cost adjustment and increase in construction cost. This resulted in the net profits of Rs1.79 bln, up 2% qoq (MSe – Rs1.72 bln). UT continues to capitalize 70-80% of its interest cost.

Sales performance was strong due to contribution from new projects (Garden II, Residences, Noida Unihomes and Mohali – Rs20 bln sales potential) which achieved 20% (of project cost) threshold. The company estimates roughly 50% share from new projects and 40% from past projects in the total income in F4Q10.

Net debt as at March 31, 2010 was Rs 52.81 bln (Rs55.9 bln previous quarter), implying 51.6% net gearing. This was achieved on account of warrant inflows (Rs1.9 bln) from the promoters and surplus from operations. Gross debt as at Mar’10 was Rs 60.68 bln.

Unitech FY 11 & FY 12 EPS Estimates and Stock Target
Consensus – 4.6 and 7.22
Kotak 4.3 and 5.6 with target of 65
JP Morgan 4.1 and 6.1 with target of 120
Morgan Stanley – 4.5 and 5.86
Credit Suisse 3.83 and 4.84 [This Research House is very conservative in all estimates including that for Indian SENSEX]

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