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Sintex + Unitech Outperformers – SSKI

January 14, 2008

SSKI equity research has an outperformer recommendation on Sintex Industries and Unitech Ltd.

Sintex Industries
Sintex Industries (Sintex) has taken another big stride. With established credentials in various unexplored but difficult to penetrate product categories, focus is now on making it big in the composites space.Sintex has acquired four companies in Europe and USA to attain scale in the composites space. The acquisitions, with estimated payback period of 3-4 years, would be highly value
accretive.

Scalability in domestic businesses remains impressive. Auto components, electrical accessories, telecom infrastructure and rural social infrastructure spaces – where Sintex offers customized products – too are ripe for explosive growth.

Valuation and Recommendation:
We first recommended Sintex in October-2006. The company is expected to grow at a 150% CAGR over FY08-10E. Upgrading FY09 and FY10 earnings estimates by 10 and 54% respectively to factor in the recent acquisitions. Sintex is expected to report a fully diluted EPS of Rs 24.8 for FY09 and Rs 44.8 for FY10. Target price for the stock is Rs 871.

Unitech Ltd:
Unitech is a formidable real estate player with a saleable area of 689 msf and a pannational, pan-segment presence. Unitech has recently added ~235m sq. ft of land to its bank of ~453m sq. ft – up 51% yoy. One of the new projects marks Unitech’s entry into the large and lucrative SRS market of Mumbai. Also, Unitech has acquired a 7m sq. ft residential project in prime location of Chennai, a 103-acre hotel site in Goa, and land parcels in Kolkata and Greater Noida.

Unitech may opt to list a REIT type business trust on the Singapore Exchange. The listing will result into creation and strengthening of funding vehicles, acceleration of cash flows into the company, unlocking value in rental assets and gains on carried interest in Unitech Corporate Parks. Most significantly, the lease capitalization rates would get compressed from 10% to ~7%, which implies 40% higher realizations on rental assets.

Sum of the Parts Valuation of Unitech.
Residential – Rs 353 / share
Office Space – Rs 106
Retail – Rs 111
Hotel – Rs 31
SRA + Redevelopment – Rs 81
SEZ – Rs 33
This amounts to a valuation of Rs 697 / share. However, the 12 month stock price target according to SSKI is 25% premium to NAV at Rs 871.

Our analyst recommends no premium on the stock [Residential real estate is Unitech’s major source of income which will have slower growth rates in the next 4-6 quarters] and recommends a 12 month price target of Rs 697.

Earlier Coverage of Unitech in 2006.

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