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Reduce – Unitech, Parsvnath and Ansal Properties

August 1, 2007

Results of Unitech, Parsvnath Developers and Ansal properties and Infrastructure have been below Dalal Street expectations. Here is recommendation from Citi research.

Unitech Ltd:
Unitech’s standalone 1Q FY08 revenue and earnings recorded strong growth in 1Q, with volumes pre-sold at higher price realizations early on, now recognized in 1Q FY08. On a consolidated basis revenues and earnings were higher, but 10% lower than estimates. New residential project launches in Kolkatta, Gr.Noida, where price realizations are lower, we believe margins will decline to ~50% by FY08-09E.

Pre-sale volumes are down significantly, particularly in Delhi/NCR. Primary sale prices are stagnating, but secondary-market prices are down 15-20% across markets; and potential supply risk remains.

While Unitech’s scale, low-risk/high return model deserves 10% premium, with stock already trading at 37% premium to NAV of Rs391, upside looks priced in. Valuations do not leave any margin for error from potential execution delays; as a result risk/reward looks unfavorable. Reduce Unitech as estimated Target price is Rs 430.

Parsvnath Developers Ltd:
Parsvnath reported a strong 1QFY08 with stand-alone revenues growing 40% YoY to Rs3462m, EBITDA growing 104% YoY to Rs1138m and net profit growing 131% YoY to Rs845m. Consolidated revenue of Rs4035m and PAT of Rs1022m were, however, below estimates.

Key risks include, concentration in Tier II and III cities, with high exposure to the NCR region and high share of plotted development that lacks pricing power.

Sell with the stock currently trading at an 8% premium to our NAV estimate of Rs 328 per share.

Ansal Properties and Infrastructure Ltd:
Ansal Properties reported mixed results with stand-alone revenues declining 2% YoY but EBITDA and net profit growing 17% and 15% YoY respectively. The company reported consolidated revenues of Rs1827m, EBITDA of Rs532m and net profit of Rs325m, but no comparables available.

Key Concerns include concentration in NCR and Tier III cities in the North, where the risk of prices softening is high; high dependence on plotted development and risk of delays in large township projects, particularly Dadri (27% of our NAV value), is high as land is still being acquired. Ansal API is already trading below its fair value / NAV of Rs 300.

In a separate development, S&P has said that Indian Realty Stocks are the Most Expensive in the World.

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