What?s your land worth? The discrepancy between Unitech?s stock price and inherent land valuation is wide at the moment.
Marking only two prime land holdings on the company?s book to market (conservatively), we estimate land value at R19,200 crore or a 1.7x multiple on its land cost.
This is over a 4-5 year holding period implying a 12% CAGR inflation. This translates into a value of R62 a share. Given this, the stock is trading at a 40% discount to its land value, which we believe is cheap. We upgrade the stock to overweight.
In calculating the land value, we have re-valued just two large parcels in the company?s portfolio ? 1.) Nine hundred acres of high value land parcels along the company?s traditional stronghold of Sohna Road, Gurgaon region (Land transactions at R35-100 mm/acre versus book value R15mm/acre); and 2.) Noida land holdings especially on its 350 acre parcel in Noida (Grande). This is a prime piece of land, 20 minutes away from South Delhi, but where monetisation has remained slow. Transaction rates around this parcel have ranged from R130-200mm/acre (Book value R49mm/acre).
Liquidity is not really an issue with the company having pre-sold approximately R9,500 crore of property over the last two years (FY10-11). We estimate Unitech has yet to receive R3,000 crore cash flows from these, i.e. net of construction/taxes. This coupled with its annuities of R200 crore should cover large part of its repayments, implying no stress in the business. Earnings ramp-up will be the key trigger ? Unitech?s bookings run rate over the last two years has been at R10-12B per Q.
We put the target price at R60 a share, based on 10x FCFE and in line with current land value estimate. The upgrade is primarily due to the removal of discount on FV given issues on telco (25% previously).
JP Morgan