[T.S.R:17142] Unitech-What Is The Value Of Your Land? (JP Morgan)

What's your land worth?-

The discrepancy between UT's stock price and inherent land valuation is wide at the moment. Vs. Sep-10 even as the stock has declined 60%, physical prices in two of its key markets Gurgaon / Noida have been heading northwards. Marking only two prime land holdings on the company's book to market (conservatively), we estimate land value at Rs192B or a 1.7x multiple on its land cost. This is over a 4-5 year holding period implying a 12% CAGR inflation. Net of liabilities this translates into a value of Rs 62/Share. The stock then is trading at a 40% discount to its land value, which we believe is CHEAP. Upgrade to OW.

In calculating the land value, we have re-valued just two large parcels in the company' portfolio, viz. 1) 900 acres of high value land parcels along the company's traditional stronghold of Sohna Road, Gurgaon region. (Land transactions at Rs 35-100MM/Acre vs. Book value Rs 15MM/Acre) and 2) Noida land holdings especially on its 350 acre parcel in Noida (Grande). This is a prime piece of land, 20 minutes away from South Delhi, but where monetization has remained slow. Transaction rates around this parcel have ranged from Rs130-200MM/Acre (Book value Rs 49MM/Acre). 

Liquidity is not really a issue with the company having pre-sold approx. Rs 95B of property over the last two years (FY10/11). We estimate UT has yet to receive Rs 30B cash flows from these (net of construction/taxes). This coupled with its annuities of Rs2B should cover large part of its repayments, implying no stress in the business.

Earnings ramp up will be the key trigger- UT's bookings run rate over the last two years has been at Rs10-12B per Q. However, revenue recognition from RE continues to lag at Rs5.5B per Q. As FY11/12 projects contribute to revenues progressively over FY12E, we forecast earnings ramp up can be meaningfully high (JPM FY12E +90% Y/Y). 

Upgrade to OW, Mar-12 TP Rs 60/share, based on 10x FCFE and in line with current land value estimate. The upgrade is primarily due to the removal of discount on FV given issues on telco (25% previously). While there is still no clarity on it, newsflow on the same has started to subside.
 

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Nothing in this article is, or should be construed as, investment advice.

 

 

 

 

 

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