Unitech: Unlocking value

The company’s step to demerge its non-core businesses is a positive for the stock.

On Tuesday, Unitech took the first step towards restructuring its corporate structure. This included de-merging the company’s non-core businesses (telecom, hotel and SEZs) into separate entities to unlock shareholder value.

Among various businesses, it holds 32.8 per cent in telecom venture Uninor valued around Rs 4,000 crore (considering that its foreign partner Telenor acquired 67.2 per cent for Rs 6,800 crore). Unitech also has a 40 per cent stake in five SEZs and an IT park, together valued at Rs 1,383 crore, according to Ambit Research.

The move to restructure is being seen in a positive light. “Real estate is the main contributor (88-90 per cent) to Unitech’s revenues. The demerger will not only unlock value but also provide liquidity. It will help the company focus on the real estate segment,” said Param Desai, analyst, Angel Securities.

Unitech — predominantly a national capital region (NCR)-focused developer — has diversified its land bank base, which comprises 13,758 acres (saleable area of 696 million sq ft) spread over Chennai, NCR, Kolkata and Tier-III cities.

Notably, its prospects have improved in the recent past. The company sold around 12 msf (million square feet) residential space during the first nine months ended December 2009, as against three msf in 2008-09. HSBC estimates that it will sell 13.6 msf residential space in 2009-10, 14 msf in 2010-11 and 15.5 msf in 2011-12. The recovery in the property sector has also allowed the company to raise $900 million over the past 12 months, easing liquidity problems. Its debt-equity has come down from 1.9 in 2008-09 to 0.6 as on December 2009, which will help it accelerate project execution, states the HSBC report.

For now, its share price captures most of these positives. “I don’t think there is any immediate short-term trigger for the stock as the demerger will take some time,” said Desai. The stock ended flat at Rs 76 yesterday and trades at a P/E of 15 times 2010-11 estimated earnings.