Unitech Limited

We have taken 5 companies in Infrastructure Sector Unitech, DLF,

GMR Infrastructure, IRB Infrastructure Developers, Jaypee
Infratech. Unitech is our main company in focus. The valuation of
Unitech is also done projecting the cash flows for next 5 years.
Economic analysis - The Indian economy has showed remarkable resilience
and GDP is estimated to have grown at 8.6 % in real terms in 2010-11 and is
expected to grow at around 9% in 2011-12. Indian economy has recovered
through the recession and the phase of economic expansion is expected to be
continued despite of high inflation, high public debt and current account deficit
because of the focus on inclusive growth, rising income of rural segment, focus
on infrastructure development and momentum in service sector growth,
increasing labour productivity and a greater drive for reforms.
Industrial analysis - Real estate segment is highly influenced by economic
cycles. The subprime crisis was triggered by the fall of the housing prices in
United States. Profitability of the real estate companies was also impacted by
change in the product mix & increased focus towards the affordable housing
segment. The good thing is increase in infrastructure
spending by over 23% and Tax incentives extended to attract foreign funds for
financing of infrastructure projects.
Recent trends in real estate sector - Average residential capital values which
declined by 18-20 per cent in March 2009 from the highs witnessed during the
first half of 2008, remained more or less stable between March and November
2009 in most of the places. The sector experienced a pickup in demand during
the second half of 2009 across major cities mainly attributed to improvement in
economy. Commercial office lease rentals are expected to decrease by an
additional 3 per cent at most of the micro markets.
Porters analysis - Bargaining power of buyers is high because of supplydemand mismatch. There is oversupply in commercial real estates and lack of
adequate demand. This has resulted fall in the price of lease rentals. Bargaining
power of suppliers is low because there is large number of suppliers present and
the real estate companies can switch to any supplier as and when required.
Existing competition in industry is high due to higher margins and regional
players have advantage in their areas. Threat of new entrant is medium because
it is capital intensive business and it acts as an entry barrier, but 100% FDI
allowed in real estates to attract new ventures. Threat of substitutes is almost
zero.
Outlook of the sector-(2011-2015) - Housing sector Consolidation phase,
with demand, supply and prices gradually moving up in line with improvement in
economic environment. Rural housing shortage is expected to be 53.8 million

units by 2013-14.There will be huge demand in affordable and mid housing

segment. The sectors like retail, entertainment, IT on which the real estate
growth is dependent are expected to rapidly grow.
Company analysis - Profitability is expected to be impacted by operating
expenses, change in the product mix and increased focus towards the affordable
housing segment.
Comparison with competitors - The main problem with Unitech is the high
level of debt compared with its competitors. The companys net debt increased
due to land bank payments, higher construction cost and payment of telecom
licensee fees resulting in a higher debt: equity ratio. The company enjoys high
ROCE as the share of residential
business is high. It has advantage of diversified portfolio, both in terms of
product and geographies, in comparison with competitors.
Operating Performance Key operating ratios like asset turnover ratio and
inventory turnover ratios have shown improvement from 7.85 and 20.91 in 2006
to 12.24 and 878.20 in 2010 respectively.
Financial Performance Company has performed well in the last 5 years.
Sales revenue has increased by CAGR of 23.14% over the 5 years. PBIT margin
has increased from 18.35% to 31.51%.Net profit has increased from 69.64 to
544.3. Profit after tax (PAT) was Rs.675 Crores in 2009-10.Basic earnings per
share (EPS) was Rs.2.97, while diluted EPS was Rs.2.91.
Cash flows By the end of 2009-10, the consolidated debt, adjusted for cash
and cash equivalents, was reduced by around Rs. 3,178 Crores to Rs. 5,231
Crores as on 31st March, 2010. As a result, the net debt to equity ratio has
improved significantly to 0.51.
Capital Structure -. The authorized share capital of Rs.10,000 mn divided into
4000000000 equity shares (4,000 mn)of Rs.2/- each and 200 million preference
shares of Rs. 10/- each. the issued and paid-up share capital is Rs. 48.7 mn
comprising of 2438801047 equity shares of Rs. 2/- each as at 31st March 2010.
Distribution Public shareholding is 35.83% whereas promoters have 45% of
shares.
Working Capital requirements increased from Rs 10.6 mn in 2009 to Rs 12.6
mn in 2010.Net working capital was Rs - 2131 in 2006 and Rs -5706.93 in 2009.
This is mainly contributed by 9% increase in projects in progress to Rs172b
(standing at Rs177b as of 1QFY11), due to steady traction in execution in
existing and newly launched projects.
Risk Management - Unitech tries to understand measure and monitor the
various risks to which it is exposed and to ensure that it adheres, as far as
reasonably and practically possible, to the policies and procedures established by
it to mitigate these risks. Unitech is required to shorten cash cycles and increase
the speed of project execution.
Investment (in Fixed Assets) - Cash flow from investing activities improved to
negative Rs4.2b v/s negative Rs11.7b in FY09, mainly due to lower expenditure
on fixed assets and investments.

Cash Management and Short Term Investments Cash and bank balance
has remained almost same for 2009 and 2010.
Project Prepared By:
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SANYAM AGGARWAL
RAGHVENDRA VAIDYA
TUSHAR GUPTA
SHWETA ARORA
SRIKANTH K. KONDURI
NIKHIL GUPTA

(10FN-100)
(10IT-023)
(10FN-145)
(10DM-150)
(10FN-109)
(10FN-121)