If seeing is believing, we lack belief!

8m sqft of sales and counting, but no construction!
We visited Unitech’s project sites in NCR, Chennai and Kolkata, which accounted for more than 80% of Unitech’s 8m sqft of residential sales
(~6.5m sqft on pro-rata basis) in the past 7 months. There was no sign of development activity on the new projects (see Appendix). Our channel
checks with the company officials and brokers suggest more than 60% of sales are to investors who have paid a notional token amount of 5-
10% of total cost as the booking amount. Unitech has raised approx INR1.5b through these sales bookings but we were surprised to see no
construction progress even after 6-7 months of the launch of some of the projects. In comparison, HDIL has made visible progress in the
construction of its newly launched residential projects in Mumbai, which provides more confidence on its sales. Developer cash flows are frontend loaded and lack of construction progress despite huge project launches raises concerns about diversion of funds to other projects and
whether cash receipts for the stated bookings has been obtained.

Several excuses cited for delay in start of construction

Unitech maintains that approvals were largely responsible for the delay in the Chennai project while providing investors time to make up front payments led to the delay in NCR and Kolkata. Given Unitech’s foray into affordable housing where EBITDA margins are lower (30%), large delays can significantly affect overall profitability of projects.

Old projects make progress; REDUCE on low visibility
We noted incremental construction progress, during our site visits, in Unitech’s older residential projects in NCR and Kolkata. Unitech has
approx 27m sft of projects under construction outside of new launches. More than 40% of total expenses are typically incurred in the final stages of a project in fittings, floorings, etc by which time bulk of customer payments (approx 70%) are already received resulting in a cash flow
mismatch. Unitech has used 50% of total QIP proceeds (approx INR22b) to repay debt and the remainder will be deployed for working capital.
Gross debt amounts to approx INR68.5b (0.42x Debt/Equity). We maintain REDUCE and TP of INR50 (1x P/B and INR10 for telecom biz)
as visibility on new sales is low with high risk of cancellations.

To read the full report click on: UNITECH