Top Five Investments

This is a complete plan from selecting a stock, purchase, hold and realise of profit. During the course of holding the stock, we will also guide you when to sale part of your stock to protect capital or add more of the stock to maximise  return.

• Huge land bank spread across the country: Unitech has 13,923 acres of land spread across all major cities of the country. Nearly 70% of the land has been purchased from the government with clear titles.

• Operating margins likely to fall but remain at higher levels: The operating margin is likely to decline from the current 59.9% due to the expected fall in property prices and a shift in focus towards low-margined middle income housing. However, lower steel and cement prices are expected to partially offset the decline in the margins.
• Short-term liquidity likely to improve: Unitech is struggling with short term liquidity concerns due to its high leverage and debt obligation of Rs. 27 bn due by the end of FY09. We believe that it can tide over the current situation through the sale and monetising of its assets.
• Attractive valuation : Unitech's stock currently trades at a 43.4% discount to our fair value estimate of Rs. 46, which incorporates the substantial decline in real estate prices across all segments. We believe that the stock has a long-term upside potential as the Company has a huge land bank at diversified locations, a strong asset base, and the expertise and execution skills.

Internal Factors

Credibility & Reliability

Our view is neutral about reliability of the promoters as till promoters are not very PR savvy. Again, there is nothing negative about the promoters. But as per credibility of the management, this is the second largest Realty firm in India and among top 50 in the world - proves their worth.

Promoters Holdings

Promoters holding is at 51.0%. We expect the promoters may liquidate some of their holding to raise working capital..

Management

Primarily a family driven business. Unitech also employed more than 500 engineers and 30 architects. Family driven business are more stable in nature but less likely to change.

Group Companies

Unitech does not have group companies. They have some holding in unrelated business. We think, unitech may come out of all these venture to have full focus on realty business.

Financials

Unitech’s consolidated revenue declined 3% yoy, from Rs. 10.1 bn in Q2’08 to Rs. 9.8 bn in Q2’09, due to the slowdown in the construction and real estate sales. Construction revenue declined 64% yoy, from Rs. 517.9 mn in Q2’08 to Rs. 186.7 mn in Q2’09. However, revenue increased 6.9% yoy in H1’09. We expect revenue to fall at a CAGR of 15.4% between 2008 and 2010, due to the liquidity crisis and the slowdown in demand. In spite of the decline in revenue, the EBIDTA margin increased considerably to 62% in Q2’09, from 50% in Q2’08, due to a drop in cement and steel prices, resulting in a significant 28.3% drop in the real estate construction cost. The margin for H1’09 increased 6.5 pts on a yoy basis, from 53.4% in H1’08 to 59.9% in H1’09. We believe that the margin will come under pressure due to the expected fall in property prices.As per the financial result of Q3, Infosys had registered a growth of 35.75% over corresponding quarter of previous year. EPS rose to Rs 27.91 from Rs 24.3 in the previous Quarter. Gross profit margin is 36.55% and Net Profit Margin is 29.17%.

External Factors

Industry Health

One of the biggest effected industry. All the companies in realty sectors are trading at 25 to 75% of their earlier valuations.

Market Sentiments

Overall market sentiment is negative for all sectors. But it is positive for unitech in the last couple of days. The stock has already gained 40% from it's ever low of Rs 22.80.

Fund House Preferences

34 schemes are holding unitech at present..

Growth & Risk Factors

Short Term Risk

Volatility of the market may cause some reduction of price from current level.

Long Term Risk

We do not see any long term risk of this stock from current level.

Future Growth

We expect that, Unitech will grow at least @30% in the next five years.

Conclusion

If the prices of the reality sectors stock are to be believed, then it seems that housing will never be in demand again. In fact realty is the biggest effected sector of the recession and this gives excellent opportunity for investor to pick some real value stocks at cheap price. Unitech is one of them. Stock need to be watched very closely for some time due to the liquidity crisis, which may spell disaster for a company). But we believe, this is a good buy at current level and once this recession is over, this stock might spell fortune for the investors who will pick up the stock now. So, an investors action should be - pick the stock, watch the price closely for some time, keeping in mind the stop loss. Once the crisis is over, leave the stock for three four years to reap the benefit.