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23 April 2010
Unitech Infra – the new entity. The new entity would own
Unitech’s divisions such as GCC, Towers, IT SEZs, amusement
park and telecoms. The advisors have put the new entity’s fair
value at Rs49.8bn (approximately 4x actual book value), which
after the split would be stated as book value and have debt of
Rs3.5bn. We await clarity from the “de-merger” documents and Key data UT IN/UNTE.BO
financial re-statements. 52-week high/low Rs118/40
Sensex/Nifty 17461/5230
Seeking to unlock value. The de-merger is to focus on infra and 3-m average volume US$71.4m
related verticals and unlock value in them. At present, the largest Market cap Rs199bn/US$4470m
value (Rs34.8bn) arises from its telecoms stake and share in UCP. Shares outstanding 2386.6m
Free float 56%
We await project progress/details in the construction and BOT
Promoters 45%
businesses before adding value.
Foreign Institutions 32%
Domestic Institutions 4%
For Unitech. Although Unitech would control 35% of the new
Public 19%
entity, we would assign a holding company discount (30%), which
would add little (Rs3 a share) to current valuations.
Valuation. Our target is on par with the Mar ’11 NAV of Rs105.
At the current market price, the stock trades at 1.8x FY11e P/BV.
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Source: Company
“De-merger” scheme
After the split, Unitech would hold 35% in Unitech infra and act as a
sponsor for further activities. The board approved a swap ratio of 1:1; the
Unitech shareholders would get one remaining 65% of Unitech Infra would be divided equally among
share of Unitech Infra (at Rs2 FV) Unitech’s shareholders.
and Unitech would hold 35% of
Unitech Infra After the “de-merger” process (of approvals from the board, exchanges,
shareholders, creditors and the judiciary), the shares of the new entity
would be listed. This would take four to six months. Management has
indicated listing in CY10.
Arriving at a fair value
According to provisional 9MFY10 figures provided, Unitech Infra had a
net profit of Rs0.5bn on revenue of Rs3.2bn.
Unitech Infra has debt of Rs3.5bn and a net worth of Rs49.8bn. The net
worth has been arrived at using the fair-value method, book value being
significantly less than the fair value. For most of the assets in Unitech
Infra, value unlocking is only on the horizon. Most of the value, though,
would be derived from investments in the telecomms venture and in
Unitech Corporate Parks (UCP).
In FY07 the company had divested part of the equity in Rohini and the
Noida amusement parks to private equity firms at Rs13.5bn. A third
amusement park is planned in Chandigarh over 73 acres.
The company has indicated developing 11 hotels (2,100 rooms) in the the
next seven to eight years. Of these, one on NH8, in Gurgaon and another
in Kolkatta (Mariott) are being constructed. Given the business downturn
and financial constraints, in FY09-10 management had slowed down its
hospitality plans. Unitech eventually plans to monetize the hotel
properties.
In property management, the company has 10.3m sq. ft. and manages
various townships and golf courses constructed by Unitech.
Value addition
Given clarity in assets to be “de-merged” and some development plans,
this would add Rs5bn to the value (from our initial case of Rs45bn). We
await further clarity in financials and development/order book of the
infrastructure vertical.
Fig 7 – Financials
9MFY10 Unitech Unitech Infra Remark
Net Worth 101.8 49.8 Fair value of Unitech Infra taken
Debt 63.5 3.5
D/E 0.62 0.07
Example - Post Demerger
Net Worth 89.4 49.8 Assuming book value to be 25% of Unitech Infra
fair value (current management estimates)
Debt 60.0 3.5 Debt of Rs 3.5bn to transfer
D/E 0.67 0.07 Debt / equity to go up slightly
Source: Company
Land bank
Unitech’s land-bank share before the split, according to the last QIP
document, was 7,467 acres (of 9,060 acres). The split removes 550 acres
from the current share of Unitech land bank. The company has been
acquiring small land parcels in Gurgaon for its new township (Nirvana
County 2 – 700 acres) to make the land contiguous. Approx. 100 acres is
“guided” to be acquired by end-FY11.
Value addition
Given Unitech Infra’s book value at ~Rs50bn, with Unitech holding a
35% stake, the value addition after the split would be Rs3 a share, at a
30% holding-company discount.
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Anand Rathi Ratings Definitions
Analysts’ ratings and the corresponding expected returns take into account our definitions of Large Caps (>US$1bn) and Mid/Small Caps (<US$1bn) as described
in the Ratings Table below.
Ratings Guide
Buy Hold Sell
Large Caps (>US$1bn) >20% 5-20% <5%
Mid/Small Caps (<US$1bn) >30% 10-30% <10%
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