Nov 16, 2011, 12.17 PM IST | Source: Moneycontrol.com

Buy Unitech; target Rs 45: PINC Research

PINC Research is bullish on Unitech (UT) and has recommended buy rating on the stock with a target price of Rs 45 in its November 15, 2011 research report.

Buy Unitech; target Rs 45: PINC Research

PINC Research is bullish on Unitech (UT) and has recommended buy rating on the stock with a target price of Rs 45 in its November 15, 2011 research report.

Unitech's (UT) Q2FY12 revenue at Rs 6,261mn increased by 5% QoQ and in line with our estimate. EBIDTA margins improved sequentially by 196 bps to 22.1%(Pince-23.6%) and going forward we expect margins to improve further as contribution of older projects reduces. Unitech's asset value is strong but management has to focus on certain key decisions such as 1) reducing debt level further with some large asset sale (may be stake sale in UCP) or creating a basket of non-core assets for sale that will help improve cash inflow and strengthen the business, (2) Increasing the work force further to improve the execution level which is likely to help saving both financial cost and generate cash flows faster.(3) approval of court decision for listing of Unitech Infra.

UT's Q2FY12 revenue at Rs 6,261mn increased 5% QoQ and in line with our estimate. Area sold during the quarter was at 1.8msf (1.56 -residential; 0.24- non residential) v/s 1.9msf in Q1FY12. Company delivered 0.5msf during the quarter and launched 2.8msf. Going ahead we expect 9.6 msf and 10.4 msf of sales in FY12e and FY13e respectively. (See table on Pg 2) EBIDTA margins improved sequentially by 196 bps to 22.1% in Q2FY12 but substantially lower( 1700 bps) on YoY basis. The raw material cost as percentage of sales in Q2FY12 is 68% which was 75% in Q1FY12 and 57.3% during Q2FY11. We expect margins to further improve as revenue contribution from older projects decline. EBIT margin for Real estate segment improved 400 bps to 30% as against 26% in the previous quarter. Average realization during the quarter improved to Rs 5,933psf for the area sold from Rs 5,362psf in Q1FY12. Net Debt sequentially reduced by Rs 1,860mn in Q2FY12. Net D/E now stands at 0.43 (v/s 0.44 on June'11).In absolute terms debt is still high and we believe that company should start focusing on large size assets( UCP stake dilution) and non core assets sale to improve free cash flow for strengthening the business and margins.

We maintain 'BUY' with a reduced target price of Rs 45 (from Rs 55) post 40% discount to NAV . We believe Unitech Infra listing and new launches from the company are likely to be key triggers going forward, says PINC Research report.

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