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India I Equities

23 April 2010

Unitech Rating: Buy

Target Price: Rs105
De-merger approved; maintain Buy Share Price: Rs84

„ Maintain Buy. Unitech’s board has approved a plan to hive off

some businesses into a new entity called Unitech Infra to un-lock
value. We see little value addition to our NAV until more progress
is made. We maintain our Buy rating and target price of Rs105.

„ 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.

Key financials Relative price performance

Year end 31 Mar FY08 FY09 FY10 e FY11 e FY12 e
Sales (Rs m) 41,152 28,502 26,906 35,916 49,495
Net Profit (Rs m) 16,362 11,921 7,141 10,473 15,864 120
EPS (Rs) 6.3 4.6 2.8 4.0 6.3 Unitech
Growth (%) 151.9 (27.2) (39.4) 46.0 55.9
PE (x) 13.3 18.3 30.1 20.6 13.2 80
P BV (x) 6.1 4.2 2.0 1.8 1.7 60
RoE (%) 58.8 27.3 9.1 9.2 13.1
RoCE(%) 24.0 11.6 8.5 9.9 14.3



Dividend Yield (%) 0.2 0.1 0.1 1.2 2.4

Net Gearing (%) 198.4 162.7 47.4 37.8 33.3
Source: Company, Anand Rathi Research Source: Capitaline, Anand Rathi Research

Anand Rathi Financial Services Limited does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment
decision. Disclosures and analyst certifications are located in Appendix 1

Anand Rathi Research India Equities

23 April 2010 Unitech – De-merger approved; maintain Buy

Unitech Infra – the new entity

Why the split
Unitech split off five business verticals into a new company Unitech Infra.
The proposed “de-merger” would be to focus on the infrastructure
businesses, which had been lagging behind the property-dominant
company, given financial and execution constraints. Management indicates
that the new company would have a dedicated and experienced team.
Most of the business vertical heads are already in place, with a new CEO
and CFO to be appointed soon. The financial health of the new company
will be much better, with only Rs3.5bn in debt and, with the infrastructure
Unitech Infra would now focus on verticals would make credit availability easier.
infrastructure and related verticals,
which was constrained while part of Fig 1 – Unitech Infra – proposed structure

Infrastructure Development Infrastructure Investments


General Construction Hospitality

Facilities and Property 32.75% interest in
Management Services Uninor (telecomms
SEZs / IT Parks
joint veture with
BOT Telenor)
Logistics Parks

Industrial Parks Township Management

Transmission Tower
Amusement Parks

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).

Anand Rathi Research 3

23 April 2010 Unitech – De-merger approved; maintain Buy

Seeking to unlock value

Infrastructure – the oldest arm
Starting in infrastructure, Unitech graduated to a property company in the
1990s. The infrastructure vertical would, to start with, pull together
general construction, BOT and the transmission tower businesses. At
present, the company continues to contract for construction s abroad
though it plans once again to expand its footprint locally. It has Letters of
Intent (LOIs) for expected orders of Rs22bn from Unitech.
For the BOT business, the company is looking for a technical partner to
start focusing on projects of between Rs20bn and Rs40bn. Given its past
Infrastructure could be a major
execution, it technically qualifies for various categories of projects.
value driver, but that would depend
on orders Unitech initially planned to sell its transmission tower business (with a
factory in Nagpur). It has an order book of Rs5.1bn (with Rs1.3bn being
developed). The business secures margins of 7-8%.

Fig 2 – Infrastructure vertical

Value Assigned (Rs bn)
Business Initially Now Remark
General Construction Nil Nil Order book expected based on future sales of Unitech
BOT Nil Nil Looking for a technical tie-up. Some lag till projects received
Transmission tower 1.0 1.5 More clarity on order book. Current order book of Rs 5.1bn
Source: Anand Rathi Research

Telecomms investments and UCP stake

Unitech’s investment in Uninor is ~Rs6bn. The three year lock-in from
the license date ends Jan ’11. The acquisition also had convenants that
Unitech could not sell its stake for three years from Telenor Investment
Investments in telecomms and the (1.5 years left) unless there is an M&A.
joint venture stake in UCP put the
maximum value at Rs34.8bn Unitech holds 40% in UCP (36% in one of six) and also obtains
management and sponsorship fees from it.

Fig 3 – Uninor and UCP stake

Value Assigned (Rs bn)
Business Initially Now Remark
Uninor Investment 21.0 21.0 Valued at 30% discount to deal value
UCP Stake 13.8 13.8 40% stake in the UCP assets; UCP listed on AIM
Source: Company, Anand Rathi Research

Amusement Park and the hospitality business

Unitech has two partially operational amusement parks, one each in Noida
(148 acres) and Rohini (62 acres). The retail malls and 22 rides each are
operational, while water parks at both locations are being constructed.

Fig 4 – Amusement parks: present status

Project Area (sq ft) Location Status
Great India Place 1,200,000.0 Noida - 148 a Leased and Operational
Grand Galleria 350,000.0 Noida - 148 a Under construction
Water Park - Noida NA Noida - 148 a Under construction
Phases 3,4,5 NA Noida - 148 a Planned
Metro Walk 200,000.0 Rohini, Delhi Leased and Operational
Water Park - Noida NA Rohini, Delhi Under construction
Chandigarh NA Chandigarh Planned, land in possession
Source: Company, Anand Rathi Research

Anand Rathi Research 4

23 April 2010 Unitech – De-merger approved; maintain Buy

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

Fig 5 – Amusement parks and the hospitality business

Value Assigned (Rs bn)
Business Initially Now Remark
Noida Amusement Park 4.6 7.0 Extra FSI of 2.5m sq ft in Noida not valued
initially, some incremental value to rides buss
Rohini, Delhi Amusement Park 1.4 1.6 Some incremental value to rides business
Chandigarh Amusement Park Nil Nil Under litigation; to be cleared in due course.
Launch 3 years away
Hospitality NA NA Since development plans weren’t fixed, had taken
market value of respected land parcel in Unitech
Source: Company, Anand Rathi Research

Logistics and industrial park; property management

The company has one logistics park near Kona, in Kolkata, already
launched for lease/sale, to be handed over in phases. Two industrial parks
are planned in the NCR, one of 315 acres (could be extended to 500 acres)
where Unitech held a 50% stake and the other, over 86 acres, recently
acquired. Initially, we had initially assumed only land values for our

Fig 6 – Logistics and industrial Park; property management

Business Area (Acres) UT Stake Remark
Kolkata International Logistic Park 73.0 90% Land Value taken initially
Farukhnagar Industrial Park 315.0 50% To be launched soon; supporting
Group housing and Commercial
MewatIndustrial Park 86.0 100% New Land Acquisition;
Development post a year
Facilities and property management; 10.3 (m sq ft) 100% Manages Unitech properties
Township management
Source: Anand Rathi Research

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.

Anand Rathi Research 5

23 April 2010 Unitech – De-merger approved; maintain Buy

Unitech – After the split

Given that the current net worth of Unitech Infra is stated at fair value,
for the “de-merger” process, Unitech’s books would first have to be re-
stated. Indications from the management put the book value at between
20% and 25% of Unitech Infra’s fair value (Rs49.8bn). We await further
clarity from the management.

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.

Fig 8 – Land bank: before and after the split

(in acres) Land Available UT's Share
Land Bank - as of June'09 9,060.2 7,467.0
At Unitech Infra’s book value of Noida Amusement Park 148.0 58.5
Rs49.8bn, value added to Unitech Rohini Amusement Park 62.2 31.1
would be Rs3 a share Chandigarh Amusement Park 73.7 73.7
Kolkakata Logistic Park 73.0 65.7
Farukhnagar industrial park 315.0 157.5
UCP land bank 197.5 79.0
Hospitality projects 93.9 84.5
Post De-merger UT land Bank 8,096.8 6,917.0
Source: Company, Anand Rathi Research

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.

Fig 9 – Value addition to Unitech

Unitech Infra - Net worth (Rs m) 49,795.0
For Unitech - o/s shares for 35% stake (m) 1,408.7
total o/s shares in Unitech Infra 4,024.9
Book value of Unitech Infra (Rs / share) 12.4
35% of BV of Unitech Infra (Rs / share) 4.3
Post 30% holding company discount (Rs / share) 3.0
Source: Anand Rathi Research

Anand Rathi Research 6

Appendix 1
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the
compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research
analyst(s) in this report.

Important Disclosures on subject companies

Rating and Target Price History (as of 22 April 2010)
Date Rating TP (Rs) Share
Unitech Price
500 1 1-Dec-09 Buy 127 1
400 2 5-Apr-10 Buy 105 2



0 2









The research analysts, strategists, or research associates principally responsible for the preparation of Anand Rathi Research have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking
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%

Anand Rathi Research Ratings Distribution (as of 31 Mar 10)

Buy Hold Sell
Anand Rathi Research stock coverage (118) 61% 12% 27%
% who are investment banking clients 8% 0% 0%

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