India Unitech Ltd.

Accumulate
Real Estate & Construction CMP: Rs. 86 Target: Rs. 140

We initiate a buy on Unitech, with a target of Rs. 120-150, a mild correction up to Rs.
78 is possible in short term, and hence we initiate an accumulate call with a target
price of Rs. 140 in next 6 months

Priced on 13th June, 2009 Over last 5 trading sessions share has been consolidating its gains made over last 2
months. Our first call of buying Unitech 35 for a target of Rs.51 with an upward bias was
±% potential 50% based after discounting all future bad news. Since then dark clouds have passed over and
there is a lot of positive news flow in the counter.

Unitech touched its peak of Rs. 546.80 in Jan’08 and since then Unitech stock has fallen
and is currently trading at discount of 84% to that price.
Market Data
Beta 1.53 One year of global turmoil has taken maximum toll on leveraged companies. Unitech had a
52Wk hi/lo total debt of ~ Rs. 10,000 Crore with Debt to Equity Ratio of 2.4 (TTM) Company had to pay
243.85 /21.80
2500 Crore of debt by March’09, global credit crisis squeezed liquidity out of the system,
Marketcap, INR Crore 45374 which made it difficult for highly leveraged companies like Unitech pay its short term and
Shares in issue (mn.) 45374 long term debt. As a result of major turmoil company had to reschedule and restructure
Reuters UNTE.BO major percentage of its short term debt and some portion of long term debt.
Bloomberg UT.IN Highlights:

Company has achieved major breakthrough in terms of handling its liquidity:

th
1. April 16 : Company raised USD 325 million or 1600 crores through a sale of
shares to so-called qualified institutional buyers, in an attempt to part-retire
Share Holding Pattern (%) its short-term debt. Company will reduce its outstanding Debt to 6000
Promoters crores by FY2010 from 10,000 crores in 2008.
52%
2. Sold off Hotel property in Gurgaon at around Rs. 250 Crore and commercial
FII 27% property Saket at around Rs. 500 Crore.
Domestic Inst. & Corp Body. 11% 3. Rolled of 75% of Rs. 2500 crores due by March’09.
Public & Others 10% 4. Company has raised Rs.1000 crores long term debt with maturity of 3-5 years, to
replace short term debt.
5. Closed Telenor deal and expecting first payment within this week. Company has
declared that this money would be used to pay off debts taken by Unitech for
Unitech wireless.

Although money was raised by company at highly discounted value which will dilute
company’s future earnings by 25%, as total equity has increase from 162 crores to 204
Crore. These deals have ensured long term sustainability of Unitech which will enable
Sovid Gupta company to payback its debt and help it focus on its core strength of Construction.
sovid.gupta@fairwealth.in 0124-3024 840 Company 8000 acres of land bank, which company has said will keep it busy for next 10
years.

Company’s has made mistakes in the past for which it has paid the price as stock
price are still ruling at more than 80 percent discount to its 2008 high’s, but the fact
that with clear focus of promoters to utilise existing land bank and sell assets to
achieve financial de-leverage. We believe this along with improved liquidity and
increased credibility of it raise long term debt is enough reason to start marking its
assets to the prevailing market rates..

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Quarterly Result Round up:

Q4 Q4 Y-o-Y Q3 Q-o-Q
FY09 FY08 Growth FY09 Growth
(%) (%)
Net Sales 489 1142 -57% 983 -50%
Other Income 18 25 -27% 18 -1%
Interests costs have seen sharp rise as Total Income 508 1167 -57% 1001 -49%
company raised a lot of short term debt at
Higher Interest rates(19%) to handle the acute Total Expenditure 245 408 -40% 374 -34%
liquidity crises. PBIDT 262 759 -65% 627 -58%

Margins have dipped by 1400 bps from 64% in PBIDT(before OI) 244 734 -67% 609
Q3 FY’08 to 50% in Q3 Fy’09. Operating Interest 97 98 -1% 134 -28%
margins will fall further in coming quarters
and will settle at around 40% Interests’ costs PBDT 166 661 -75% 493 -66%
stand at around 14%. As interests are linked Depreciation 5 5 -4% 4 37%
to individual projects, decreased sales will
Tax 21 131 -84% 130 -84%
impact profitability.
Reported Profit After
Tax 139 525 -74% 359 -61%
Margins
Interest/Sales(%age) 20% 9% (+1300bps) 14% (-600bps)
Operating
Profits/Sales(%) 50% 64% (-1400bps) 62% (-1200bps)
NPM/Sales (%) 26% 45% (-1900bps) 36% (-1000bps)
Source: Company Data, Capital Line

Company Description
Unitech is one of India’s largest real estate companies with over 3 decades
experience in real estate development. India’s second largest real estate company by
market cap, with land bank of 14000 acres spread across 15 cities in India. The
company, which used to be an NCR developer a few years ago, with over 84% of its
land bank in non-NCR regions at present. Unitech is planning to develop its land bank
through a mix of 51 projects in the residential, commercial, retail and hotel segments

The Company has diversified into residential, commercial, retail, entertainment and
hospitality projects

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Outlook and Valuation

Company has a debt of around Rs. 7800 crores (May’09) with interest cost of around
14%, however most of the interest payment has been capitalized and the interest will
be paid when the asset for which the loan was taken is sold. Thus, Unitech Ltd. paid
interest of only Rs 97 Crore during the quarter.
Income Statement
FY10E FY11E FY12E This along with delay in projects across the industry at lower expected Operating
margins of around 40%. Interest costs will affect NPM which we expect will go
Net Sales 3600 4500 5400 down sharply down to around 25% in FY10E.
Operating 1440 1800 2160 Company’s ability to execute projects timely along with its execution abilities will
always provide opportunity to price is properties at a premium to the market.
Profit
OPM(%age) 40% 40% 40% With huge debt problem and ability to pay suppliers and sub contractors taken care of
Interest Cost 700 625 675 we can focus company’s profitability and ability to churn out products like a factory to
Depreciation 100 55 35 have higher sales and consequently much higher cash flows will remain key.
PBT 640 1120 1450
With lower margins for low cost projects we expect Operating profit margins to
Tax 154 269 348 be near 40% as against 60% for last 3 years. Higher interest cost albeit lower
PAT 486 851 1102 overall Debt levels will bring Net Profit margins to be around 25%. We estimate
NPM 14% 19% 20% FY12E P/E ratio

EPS 2.432 4.256 5.51 Unitech Wireless-Telenor Telecom Deal

P/E* 34.95 19.97 15.43
Source: Fairwealth Estimates Unitech has a pan-India GSM license and has already got the crucial spectrum for 22
Note: Trailing P/E ratio circles. It had paid Rs 1,650 Crore as license fee for the pan-Indian license, for which
Unitech Wireless had received a valuation of more than Rs 11,000 Crore. Unitech has
so far invested Rs 138 Crore as equity in the telecom venture. Addition Unitech
Telecom has also borrowed around Rs 2,000 Crore from the holding company.
Unitech needed a partner for its telecom venture which finally ended with Telenor
coming in for 67% stake in the venture by paying Rs 6,120 Crore.

As part of the deal: Company has given following details with respect to the Unitech
wireless -Telenor

Qtr. ended March Qtr. Ended June Qtr. Ended

31, 2009* 30,2009 September 30, 2009

Telenor Cash 3.) Rs.15.0 billion

Injection 1.)Rs.12.5billion 2.) Rs.15.0 billion 4.) Rs. 11.2billion
Cumulative
Cash Injection Rs.12.5 billion Rs. 27.5 billion Rs. 53.7 billion

Telenor
Ownership 33.33 50 67%

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Unitech has a market Cap of around Rs. 15,032
crores. Company has total available land bank
at around14000 acres. Company’s MD Mr.
Sanjay Chandra recently said in a press
interview that land cost for the company remains
at around Rs. 100-120 per sq. ft. and available
land bank enough to last 15 years.
Company will develop 8,000 acres over next
10 years and sell some assets to reduce the
debt to a more manageable 6000 crores by
FY10.
.
TECHNICAL OUTLOOK:
Source: IRIS
UNITECH is in along term bullish trend .The stocks has formed a good support at 67-70 levels .So any
correction in the short term in the stock should be used as a buying opportunity in the stock for a price Target of
135 in next 3-4 months.
Fairwealth Securities
Accumulate-Unitech
Investment Advice:
At the beginning of 2008 when all analysts rated Unitech as buy at CMP of Rs. 600 they
mentioned following downside risks.
 Tightening of Interests rate 

 Restricted Overseas borrowing and change in FDI regulations, 

  Rise in steel and cement prices 
  Delay in completion of planned projects and 
 Overall decline in Indian Economics 
All the downside risks along with massive unexpected slump in Real Estate markets
and tight credit markets got realized as a result of which we saw deep and long
correction in Real Estate markets pushing Unitech stock prices down by 95%.
  Interest rates on Home Mortgage are below 2007 rates. 
 Government is considering change in current FDI rules to allow Unitech with
 Overseas borrowing. 
  Government has been quick to boost Indian Economy through its Fiscal stimulus. 
 Raw material prices have dropped by more than 50% giving some respite to
 developers. 
Real Estate markets have started looking up with prices settling at 20% discount to Jan’
2008 prices.
We believe that Real Estate markets in India are yet to bottom out, however we also believe
that share markets either discounts or overprice the reality and in this case all bad news has
been discounted. The fact is that company holds 14000 acres of land, 8000 acres of which
will be developed in next 10 years is enough reason to stay invested and even buy the share
at these levels.

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Key Risks:

We believe following risks are already hurting the company’s financials and will continue to do so
in coming 2-3 quarters.

 Slowdown in employment industry hiring will continue to hurt residential demand and
 commercial demand to some extent. 
 Uncertain economic scenario is putting off investors and buyers alike, who are waiting for
situation to improve and may be get in at even lower prices. We believe most of this risk has
 tapered and demand is seen rising again
 Profitability of the company will remain low for multiple reasons

1) Higher Raw material costs.
2) Lower profitabability on existing properties due to lower prices, higher interest
costs as it was capitalized.
3) Company’s plans to build low price, lower margins mass market residential
properties in future.

Main risk that we see will put downwards pressure on the stock price will not be Company risk
as was the case with the initiating call at Rs. 35 in March, rather Macro Economic Risks of India
as a country and Real Estate as a sector are much greater, thus if India

Price Performance Unitech is the second largest Real Estate

Company in India. With reduction in debt levels,
expanded Equity and inflow of cash through sale
of Assets and Qualified institutional Placements,
we believe long term sustainability of the
company is no more a concern.

We expect Unitech to outperform Nifty and DLF

in the long term. We see valuation of Unitech
around Rs. 200 a share. We expect short term
correction to Rs.78 after which we share can
bounce back to 120-150 levels over next 4
months.

Source: Capital Line

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Income Statement Standalone Fund Flow Statement:

200803 200703 200603 BALANCE SHEET CONSOLIDATED
(12) (12) (12) 200803 200703 200603
INCOME :
SOURCES OF FUNDS :
Net Sales 4115 3290 926
Share Capital 325 162 12
Other Income 165 98 28
Reserves Total 3276 1832 247
Stock Adjustments -13 -13 291
Total Shareholders Funds 3600 1994 260
Total Income 4266 3375 1245
Minority Interest 116 1 24
Secured Loans 6231 3896 956
Total Expenditure 1861 1410 1043
Unsecured Loans 4235 1722 195
Total Debt 10466 5618 1151
Operating Profit 2405 1964 202
Total Liabilities 14182 7614 1434
Interest 317 165 52
APPLICATION OF FUNDS :
Gross Profit 2088 1799 150
Net Block 1159 712 444
Depreciation 21 7 11
Capital Work in Progress 2098 215 127
Profit Before Tax 2068 1792 139
Investments 1416 455 14
Tax 395 483 49
Current Assets, Loans & Advances
Fringe Benefit Tax 2 1 1
Inventories 13608 8700 3087
Deferred Tax 2 1 1
Net Profit before Sundry Debtors 746 146 103
1669 1306 87
Minority Interest Cash and Bank 1408 1023 390
Minority Interest 7 0 3 Loans and Advances 2944 1840 286
Net Profit after Minority
1661 1306 84 Total Current Assets 18706 11708 3866
Interest
Extraordinary Items 37 23 -4 Less : Current Liabilities and Provisions
Adjusted Net Profit 1625 1283 88 Current Liabilities 8256 4898 2916
Source: Company Report, Capital Line Provisions 935 578 87
Total Current Liabilities 9191 5476 3003
Net Current Assets 9515 6232 863
Net Deferred Tax -6 0 -15
Total Assets 14182 7614 1434
Contingent Liabilities 1599 2144 838
Source: Company Report, Capital Line

CONSOLIDATED CASH FLOW

200803 200703 200603
Cash Flow Summary
Cash and Cash Equivalents at Beginning of the year 1022.73 389.94 271.76
Net Cash from Operating Activities -975.03 2074.49 224.67
Net Cash Used in Investing Activities 3187.44 -725.46 308.28
Net Cash Used in Financing Activities 4548.01 3432.74 651.13
Net Inc/(Dec) in Cash and Cash Equivalent 385.54 632.79 118.18
Cash and Cash Equivalents at End of the year 1408.27 1022.73 389.94
Source: Company Report, Capital Line

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Coverage:
Our Stock coverage and Returns:

BUY REPORTS:
% return
Price on
Stock Target Price as on Call date % return absolute Relative
26th may
to Sensex
Set Target
Stock Sensex Stock Stock Sensex
Date Price
Educomp 22-Jan-09 2750 1715 8814 2,861.10 66.83% 57.85% 8.98%
Havells 30-Jan-09 280 115 8325 281 144.35% 67.12% 77.22%

Jaiprakash
12-Feb-09 110 73 9466 185.6 154.25% 46.98% 107.27%
Associates

Lupin 03-Feb-09 780 630 8607 862.6 36.92% 61.65% -24.73%

Tata Steel 06-Mar-09 250 152 8325 368.7 142.57% 67.12% 75.44%
M&M 12-Mar-09 440 345 8344 633.8 83.71% 66.74% 16.97%
Unitech 25-Mar-09 51 34 9667 77.15 126.91% 43.92% 82.99%
Punj Lloyd 30-Mar-09 120/145 85 9549 179.8 111.53% 45.70% 65.83%
Sintex Industries 16-Apr-09 240 137 10,947 218.5 59.49% 27.09% 32.39%
Alok Industries 26-Apr-09 28 14 11,371 21 50.00% 22.36% 27.64%

SELL REPORTS:
% return
Price on
Stock Target Price as on Call date % return absolute Relative
26th may
to Sensex
Bharat Electronics
Ltd
21-May-09 1059 1319 13,736 1,343.55

Note: Based on 25th May 2009 Sensex closing of 13,913

Note: All calls are initial/ first time calls
Note: All reports can be accessed on our website under http://www.fairwealth.in/Research.aspx

Note:
Fundamental and Technical reports are independently given and investors are advised to take their decision based on their investment
profile and holding periods.

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Disclaimer

This publication has been prepared solely for information purpose and does not constitute a solicitation to any person to buy or sell a security. While
The information contained therein has been obtained from sources believed to be reliable; investors are advised to satisfy themselves before making
Any investments. Fairwealth Securities Pvt Ltd does not bear any responsibility for the authentication of the information contained in
the reports and consequently, is not liable for any decisions taken based on the same. Further, Fairwealth Research Reports only provide information
Updates and analysis. All opinion for buying and selling are available to investors when they are registered clients of Fairwealth Investment Advisory
Services. As a matter of practice, Fairwealth refrains from publishing any individual names with its reports. As per SEBI requirements it is stated that,
Fairwealth Sec Pvt Ltd., and/or individuals thereof may have positions in securities referred herein and may make purchases or sale while this report is
in circulation.

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