[T.S.R:17996] Unitech-Sell; Bank Debts Unlikely To Be Refinanced

We spoke to Unitech management to take stock of key updates so far in Q2-FY12. It is

encouraging to see company's operational performance is largely on track, despite a

challenging macro environment and promoter-related issues. Having said that, we think

financially FY12 will be a year largely similar to FY11- execution is slow and margins

are strained, given inflationary and funding pressures

.



Launch target of ~10msf by Sept-11 will be achieved — Management seemed

confident of making it to the ~10msf launch guidance by Sept-11. Further to the ~7msf

launched up to Jun-11, new projects have been launched in Gurgaon and Chennai. A

planned pipeline is in place for the upcoming festive season.



Resi pricing growth has moderated — Company mentioned that prices are rising

across most locations, though at a slower rate (~10-12% annualized) in their key

operating segment (mid-income). Chennai prices could see more upsides.

Management feels that there is no scope for price cuts in the Gurgaon market now.



Leasing biz yet to feel the heat of global macro woes — Leasing has been quite

strong the last 1-1.5 years (leased ~3.0msf) and global macro worries have not yet

affected business. The company looks to maintain the leasing runrate of 0.5-0.75msf

/quarter. Rentals have gone up 15-20% in Gurgaon; Noida and Kolkata remain steady.



Deleveraging on the cards — Debt to the tune of ~Rs 10bn is due in FY12. So far in

1HFY12, repayments have been funded through internal cash flows, as banks have

been wary of refinancing. Overall Unitech is looking to reduce debt by ~10-15% in

FY12. Average cost of debt has gone up to ~13.8-14% (up 175-200bps since last year).



Cut Estimates; Maintain Hold — We build in higher construction spends, further

moderation in execution schedule, higher cost of debt and incorporate the FY11 annual

report. This results in reduced TP of Rs 32 and ~18-23% cut in profit estimates. We

believe debt refinancing is critical as it will free up internal cash flows to fast track

execution.

Key risks: Execution pace, pricing and changes in macro environment.

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