Ambit Capital Pvt Ltd.

Ambit Capital Pvt Ltd.

Sector Update
Real Estate
Price Performance - DLF Price performance lacking fundamental
 

support
 

  What has changed since our report (Dt24th Mar 2009):
$SU $XJ -DQ
6HQVH[ '/)85+6 The stock prices have rallied sharply since we initiated coverage (DLF- Rs167 to Rs212,
27% up), (Unitech- Rs28 to Rs39, 39% up) and HDIL (Rs76 to Rs116, 53% up). However,
Source: Capitaline
in our view the recent rally is not supported by fundamentals due to a weak economy
and slow down in the IT/ITES sector.

What has not changed:

Price performance - Unitech 1. Macro conditions still remain weak - Our channel checks indicate that sales
  volumes are still down 80-90% YoY and property prices continue to drop. Sharp

 
slowdown in the economy and in the IT/ITES sector will maintain weakness in sales
 volumes and property prices.
 
$SU $XJ -DQ
2. Survival, not earnings, remain the core issue-Solvency worries continue to rise
6HQVH[ 875+6

Source: Capitaline a) Continued low sales volumes imply low cash inflow - Our channel checks
have confirmed that sales volumes continue to be very low; this has maintained
pressure on cash flows.

b) Rising cancellations is an added pressure on cash flow - Increase in

Price performance - HDIL
cancellations (as per media reports) has increased the pressure on the already
 

stretched cash flows for all three real estate companies. Recent reports have
  indicated a sharp rise in cancellations for properties of DLF in Chennai and

  Gurgaon. The report suggests that the buyers of properties at both locations
$SU $XJ -DQ are insisting on cancellations of their bookings and refund of their booking
6HQVH[ +',/5+6
amounts.
Source: Capitaline
c) Raising cash through selling hotel sites has marginal success - To raise
cash, most companies (including Unitech and DLF) are selling completed/partially
constructed hotel properties for the past few months. However, there has been
very limited success in selling these properties. Unitech has been able to sell
Relative Performance only one out of six hotel properties it intended to sell in the past few months.

Perfm(%) 1M 3M 12M YTD Maintain ‘Sell’ on Unitech and DLF; Downgrade HDIL to ‘Sell’
DLF 57.2 0.8 (64.3) (22.7)
Unitech 69.0 16.4 (84.0) 3.1 We reiterate ‘Sell’ on Unitech (Target Rs22 downside of 44%) and DLF (Target Rs80,
HDIL 85.6 12.4 (76.2) (9.4 downside of 62%), and downgrade HDIL to ‘Sell’ (Target Rs67, downside of 42%).
Sensex 40.0 (2.3) (65.3) (19.2)
BSE Sensex Nifty
Our downgrade on HDIL is supported by the company’s weak fundamentals due to (a)
10,742 3,343 deteriorating balance sheet (rising debt equity ratio)(b) increasing pressure on cash
flows due to weak sales and falling TDR demand, and (c) probability of higher FSI sales
Source: Bloomberg
that could drive down NAV.

Valuation summary
Analyst CMP Target Price NAV FY10PE FY10P/BV
Amit Agarwal (Rs) (Rs) (Rs/Share) (x) (x)
Tel.: +91-22-3043 3274
DLF 212 80 99 28.6 1.5
amitagarwal@ambitcapital.com
Unitech 39 22 73 24.1 1.4
Parikshit Kandpal HDIL 116 67 168 20.3 0.7
Tel.: +91-22-3043 3201
parikshitkandpal@ambitcapital.com Source: Company, Ambit Capital Research

S ECTOR U P DA T E 09 APRIL 2009 1

 Ambit Capital Pvt Ltd.

DLF — Company financial snapshot

Profit and Loss (Rs. Mn) Details of NAV

FY09E FY10E FY11E
Sales 101,748 56,202 64,924 Rs mn Rs/share Comments
Cost of Const 40,731 27,862 33,855 NAV (Land Bank) 493,319 289
EBIDTA 50,689 19,268 21,337 Less Dankuni 17,149 10
Rising Depreciation 1,648 2,128 2,785 Less Bidadi project 67,035 39
Interest exp 4,311 4,907 5,550 NAV (land bank)
interest... adjusted for changes 409,135 240
PBT 48,030 16,273 17,918
Tax 6,794 3,650 4,549 Less Net Debt (FY10E) 239,980 141 Debt as on
FY10E
but PAT 41,236 12,623 13,369
NAV 169,155 99
declin- Shares outstanding (mn) 1,705
Profit and Loss Ratios
ing NAV(Rs/share) 99
EBIDTA Margin 50% 34% 33%
profits Net Profit Margin 40% 22% 20% Discount to NAV 20%
P/E (x) 8.8 28.6 27.0 Target Price (Rs/share) 80 Rounded off
EV/EBITDA (x) 11.4 31.4 29.6 Source: Ambit Capital Research
Dividend yield (%) 1.2% 0.0% 0.9%

Balance Sheet (Rs. Mn) Cash Flow (Rs. Mn)

FY09E FY10E FY11E FY09E FY10E FY11E
rising Total Assets 510,883 563,901 631,386 Profit after tax 41,236 12,623 13,369
Fixed Assets 141,522 183,992 235,778 Other Income (3,300) (4,039) (4,916)
inven-
Current Assets 332,950 343,498 359,198 Depreciation 1,648 2,128 2,785
tory... Minority interest (355) (355) (355)
Other Assets 36,411 36,411 36,411
Total Liabilities 510,883 563,902 631,387 Share of profit/loss of associates 0 0 0 weak
Total Networth 233,502 245,771 255,375 Net working capital (100,263) 3,084 13,986
cashflows
Total Debt 215,130 244,130 271,130 CF from Operating Activities (61,033) 13,441 24,869
will lead are a
Current Liabilities 58,356 70,106 100,987 Capital Expen Investments (49,517) (44,598) (54,570)
to rise in CF from investing activities (110,550) (31,157) (29,702) concern
Minority Interest 3,895 3,895 3,895 Source:: Company, Ambit Capital Research
debt Incr (decr) in borrowings 92,000 29,000 27,000
Balance Sheet Ratios (%) Issuance of equity 0 0 0
RoE 19.5% 5.2% 5.3% Net Dividends (4,262) - (3,410)
RoCE 10.4% 2.9% 2.7% Others 3,300 4,039 4,916
Net Debt/Equity 0.9 1.0 1.1
Total Debt/Equity 0.9 1.0 1.1 CF from financing activities 91,038 33,039 28,506
P/BV 1.5 1.5 1.4 Net change in cash (19,512) 1,882 (1,195)

Risks Ratings
Low High
1 2 3 4 5
Quality of earnings

Transparency

Net Debt/Equity

Working Cap. Req.

Quality of mngmnt

Depth of mngmnt

Promoters

Corporate Governance

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 Ambit Capital Pvt Ltd.

Unitech — Company financial snapshot

Profit and Loss (Rs. Mn) NAV Calculation

FY09E FY10E FY11E Rs mn comments
Sales 28,468 17,526 26,728
Gross NAV 190,207 NAV based on the
Cost of Const 13,441 8,486 12,020
methodology above
EBIDTA 12,567 7,433 11,841
Unitech share of UCP 945 Based on the average
Sharp rise Depreciation 330 387 501
trading price
in interest Interest exp 2,710 5,177 5,396
PBT 10,994 3,335 7,484 Less Net debt 89,840 Debt as on Mar 2010
...
Tax 2,218 686 1,890 Land cost of the hotels 686 Based on the average
PAT 8,776 2,649 5,594 purchase price of land
will
Telecom Investment 16,500 Telecom investment
maintain Profit and Loss Ratios at book value
pressure EBIDTA Margin 44% 42% 44%
NAV 118,497
on profit Net Profit Margin 31% 15% 21%
P/E (x) 7.3 24.1 11.4 Shares outstanding (mn) 1,623
EV/EBITDA (x) 5.1 8.6 5.4 NAV(Rs/share) 73
Dividend yield (%) 0.4% 0.1% 0.2%
Discount to NAV 70%
Target Price (Rs/share) 22
Source: Ambit Capital Research

Balance Sheet (Rs. Mn) Cash Flow (Rs. Mn)

rising FY09E FY10E FY11E FY09E FY10E FY11E
Total Assets 247,269 259,210 286,403 Profit after tax 8,776 2,649 5,594
inven-
Fixed Assets 41,035 49,291 60,753 Other Income (1,467) (1,467) (1,540)
tory...
Current Assets 190,943 194,628 210,360 Depreciation 330 387 501
Other Assets 15,291 15,291 15,291 Share of profit/loss of associates - - -
Total Liabilities 247,269 259,210 286,404 Net working capital (10,416) (1,234) 3,552
will drive Total Networth 44,531 47,105 52,540 CF from Operting Activities (2,776) 335 8,107 Cashflow
up debt Total Debt 109,196 114,196 117,196 Capital Expenditure Invest (9,924) (8,643) (11,963) will
Current Liabilities 92,383 96,750 115,509 CF from investing activities (12,700) (8,307) (3,856) remain a
Minority Interest 1,159 1,159 1,159 Incr (decr) in borrowings 4,476.3 5,000.0 3,000.0
concern
Issuance of equity - - -
Balance Sheet Ratios (%) Net Dividends (249.7) (75.4) (159.1)
RoE 21.2% 5.6% 11.0% Others 1,466.7 1,466.7 1,540.1
RoCE 9.1% 5.0% 7.5%
Net Debt/Equity 1.9 1.9 1.8 CF from financing activities 5,693.4 6,391.4 4,381.0
Total Debt/Equity 2.0 2.0 1.9 Net change in cash (7,007.0) (1,915.8) 524.5
P/BV 1.4 1.4 1.2

Risks Ratings
Low High
1 2 3 4 5
Quality of earnings

Transparency

Net Debt/Equity

Working Cap. Req.

Quality of mngmnt

Depth of mngmnt

Promoters

Corporate Governance

S ECTOR U P DA T E 09 APRIL 2009 3

 Ambit Capital Pvt Ltd.

HDIL — Company financial snapshot

Profit and Loss (Rs. Mn)

FY09E FY10E FY11E NAV Calculation
Sales 14,673 11,847 19,613 Rs mn Comments
Cost of Const 3,212 3,939 8,947 NAV 76,373 NAV based on the
EBIDTA 11,461 7,908 10,667 methodology above
Increasing Depreciation 40 100 208 Mumbai Airport Project 14,209
debt Interest exp 5,025 6,598 7,712 Virar SEZ Land 8,625 2300 acres @ Rs15mn/
Other income 556 584 613 acre (25% of market
PBT 6,951 1,794 3,359 value)
Tax 561 220 509 Gross NAV 99,208
But PAT 6,390 1,574 2,851 Less unpaid land bank - As given by the company
declin- Less Net debt 52,817 Debt as on Mar 2010
ing Profit and Loss Ratios NAV 46,390
EBITDA margin (%) 78% 67% 54% Shares outstanding (mn) 275
profits
Net profit margin (%) 44% 13% 15% NAV/share 168.00
P/E (x) 5.01 20.35 11.23 Premium/Discount -60%
EV/EBITDA (x) 6.6 10.7 8.6 Price Objective (Rs/share) 67
Dividend yield (%) 0 0 0 Source: Ambit Capital Research

Balance Sheet (Rs. Mn) Cash Flow (Rs. Mn)

FY09E FY10E FY11E FY09E FY10E FY11E
Total Assets 96,621 108,102 120,365 Profit after tax 6,390 1,574 2,851
Slow
Fixed Assets 1,023 2,458 5,031 Other income 556 584 613
sales but Current Assets Other adjustments (556) (584) (613)
91,668 101,713 111,404
rising Other Assets 3,930 3,930 3,930 Depreciation 40 100 208
assets... Total Liabilities 96,621 108,101 120,364 Net working capital (19,454) (8,879) (6,340)
Total Networth 42,160 43,316 45,619 CF from Operating Activities (13,024) (7,205) (3,281) Cashflow
Total Debt 44,143 53,143 60,143 Capital Expen/ Investments (2,367) (1,535) (2,780) under
will lead
Current Liabilities 10,318 11,643 14,603 CF from investing activities (2,367) (1,535) (2,780) pressure
to rising Incr (decr) in borrowings 13,000 9,000 7,000
debt Balance Sheet Ratios (%) Issuance of equity (0) - -
RoE 15.2% 3.6% 6.2% Net Dividends (645) (419) (548)
RoCE 13.2% 8.1% 9.9%
Net Debt/Equity 1.0 1.2 1.3 CF from financing activities 12,355 8,581 6,452
Total Debt/Equity 1.0 1.2 1.3 Net change in cash (3,035) (160) 391
P/BV 0.76 0.74 0.70

Risks Ratings
Low High
1 2 3 4 5
Quality of earnings

Transparency

Net Debt/Equity

Working Cap. Req.

Quality of mngmnt

Depth of mngmnt

Promoters

Corporate Governance

S ECTOR U P DA T E 09 APRIL 2009 4

Ambit Capital Pvt Ltd.
Explanation of Investment Rating

Investment Rating Expected return

(over 12-Month period from date of initial rating )
Buy >15%
Hold 5% to 15%
Sell <5%

S ECTOR U P DA T E 09 APRIL 2009 5

Ambit Capital Pvt Ltd.
Ambit Capital Pvt. Ltd.
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Phone : +91-22-3043 3000
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S ECTOR U P DA T E 09 APRIL 2009 6