Unitech : Present and future

We have just seen the past of Unitech (Link Here). Now, I am trying to analyze the present and future of Unitech.

Present:

As a real estate company Unitech is facing major effects from the slow down in economy along with high interest rate. Earlier during the bull phase they aggressively tried to expand with over dependence on debt, than cash flow.

But, if we consider the present indications, the company gradually reduced its debt (From 8000+ Crs to odd 2700 Crs (standalone)), and in process of trying to reduce the 6300+ Cr consolidated debt step by step selling of non core assets .

Valuations

At today’s CMP (Rs 21/-) the stock is valued at 31 PE. But considering the next financial cycle we cannot term it as expensive.

Future : What lies ahead ?

Barring the uncertainties, and neglecting few management issues, Unitech gives ample opportunities for a long term bargain hunter.  Can be added to portfolio with a 5 to 7 year view in SIP at Rs. 24/- or below.   

Logic behind the call

Unitech have on going projects of more than 38 million sq ft. At the prevailing low sales value it self per sq ft, they are selling more than Rs. 7000/- per sq ft. That will be having more value than 27000 Crs. At economic peak, company achieved a NP margin around 40%. If we assume in next bull phase, even if company achieves a NP margin around 30 %, that will translate in to 8000 Crs! (Caution: But some part of the projects might have already sold,so we can consider another alternative calculation)

In another angle: In last bull phase company increased it's sales from 250 Crs to 4000  Crs. (16 times). Taking half of the sale increase in next time will give us 8 times. Present sales are around 1700 Crs. So in the next cycle peak sales may be around 13000 Crs. And taking a very conservative net profit of 20 % alone also will give us a NP of 2600 Crs. If we assume a nominal PE this time (only 15), then also the total MCap will be 39000 Crs, and which is 7 times higher than the present MCap. Literally translate the target price to Rs. 140+ in the long term (May be in next 4 to 7 years).

(Disclaimer: These information’s are taken from latest Annual Report, and no guarantee for the genuineness of these figures. And above calculations are made considering these facts/values.) 

Disclosure : Not yet invested.