Company update

INDIA RESEARCH

Rs517
9 January 2008
Unitech OUTPERFORMER
BSE Sensex: 20870
Mkt Cap: Rs839.2bn; US $21.4bn
Transforming earth to gold

Stock data
Unitech is a formidable real estate player with a saleable area of 689 msf and a pan-
Reuters UNTE.BO
national, pan-segment presence – a position reinforced by a series of recent high
Bloomberg UT IN IRR acquisitions. Unitech has an option of listing a business trust on the Singapore
1-yr high/low (Rs) 547/160 Exchange. Besides providing access to cheap capital, the listing will enable Unitech
1-yr avg daily volumes 1.45 to fetch higher realizations for its rental assets, preparing ground for a significant
Free float (%) 25.4
re-rating. We forecast a significant scale-up for Unitech in the next three years with
~6x rise in revenues and ~7x jump in profits. The real estate AMC and a successful
telecom foray provide additional value triggers. We estimate Unitech's FY09 NAV at
Relative price performance
Rs697 per share. We believe the stock should trade at a 1.25x premium to NAV,
indicating a fair value of Rs871 – 68% upside from CMP. Reiterate Outperformer.
260 Unitech Sensex

195

130 Ability to acquire prime and value-accretive projects: Unitech has recently added
65
~235m sq. ft of land to its bank of ~453m sq. ft – up 51% yoy. One of the new
projects marks Unitech’s entry into the large and lucrative SRS market of Mumbai.
-
Also, Unitech has acquired a 7m sq. ft residential project in prime location of Chennai,
Jan-07

May-07

Jan-08
Mar-07

Jul-07

Sep-07

Nov-07

a 103-acre hotel site in Goa, and land parcels in Kolkata and Greater Noida. These
prime projects entail nominal upfront investment and offer high IRRs.
A Singapore REIT-type listing – multiple benefits: Unitech may opt to list a REIT-
type business trust on the Singapore Exchange. The listing will result into creation and
strengthening of funding vehicles, acceleration of cash flows into the company,
Performance (%)
3-mth 6-mth 1-yr 3-yr
unlocking value in rental assets and gains on carried interest in Unitech Corporate
Unitech 58.3 96.8 130.3 22134
Parks. Most significantly, the lease capitalization rates would get compressed from 10%
Sensex 14.2 38.7 53.8 225.1 to ~7%, which implies 40% higher realizations on rental assets.
Stock offers 68% upside – reiterate Outperformer: We estimate Unitech’s NAV at
Rs1,130bn (Rs697/ share). Unitech follows a very conservative accounting policy,
which has led to understated profits, estimated at ~Rs48bn. Given its ability to source
high IRR projects, strong management, entry into telecom business and asset
management and a robust business model, we believe the stock should trade at a
premium of 1.25x to NAV or Rs871 per share (based on FY09E NAV).

Key valuation metrics

Shirish Rane As on 31 Mar FY06 FY07 FY08E FY09E FY10E
[email protected] Net sales (Rs m) 12,275 32,883 48,320 99,014 234,960
91-22-6638 3313 Adj. net profit (Rs m) 846 13,047 19,680 39,546 111,551
Shares in issue (m) 812 1,623 1,623 1,623 1,623
Aashiesh Agarwaal, CFA Adj. EPS (Rs) 1.0 8.0 12.1 24.4 68.7
[email protected] % growth 145.3 671.0 50.8 100.9 182.1
91-22-6638 3231 PER (x) 495.9 64.3 42.6 21.2 7.5
Price/Book (x) 148.0 42.0 17.9 8.7 3.6
IDFC - SSKI Securities Pvt. Ltd.
701-702 Tulsiani Chambers, EV/EBITDA (x) 252.9 44.2 26.6 12.6 4.6
7th Floor (East Wing), RoE (%) 33.8 114.5 58.8 55.1 68.2
Nariman Point, RoCE (%) 13.9 44.3 41.6 65.2 90.1
Mumbai 400 021.
Fax: 91-22-2204 0282
“For Private Circulation only” “Important disclosures appear at the back of this report”
 IDFC-SSKI INDIA

INVESTMENT ARGUMENT
Unitech has a premier position in the Indian real estate market on the back of
its pan-India, pan-segment presence and superior execution capabilities.
Unitech has recently added large projects (51% yoy addition) to its land bank
at low upfront investments and high IRRs. Unitech is also likely to consider
listing a REIT-like business trust on Singapore Exchange, as multiple benefits
can accrue to the company through this move. We have estimated the value of
Unitech’s economic interest in its various projects at Rs1130bn or Rs697 per
share. We believe Unitech should trade at 1.25x NAV, which implies a fair value
estimate of Rs871 per share. Initiatives in telecom and real estate AMC could
provide additional upsides to the stock.

Unitech – a pan-India, de-risked presence

Unitech aggressively Unitech has a pan-India footprint with presence across several cities. Of late, the
augmenting land bank; company has been aggressively augmenting its land bank in premium locations in
focus on geographic
diversification
new geographies as also in existing markets. Unitech’s land bank of 13,757 acres,
i.e. 689m sq. ft. of saleable area, is well-diversified with no region accounting for
more than 20% of its saleable area.

Exhibit 1: Unitech – a diversified land bank

Agra
NCR
Hyderabad 5.5%
14.9%
13.6%

Kolkata
17.0%

Chennai
16.4%

Vizag
Others
14.6%
18.1%

Source: Company, IDFC – SSKI Research

Projects in new While the pan-India rollout would drive volume growth for Unitech, it would
geographies to account importantly reduce its dependence on a single market. We expect rollout from
for 42% of Unitech’s
launches in FY09 newer geographies to account for 42% of its new launches in FY09.

Ability to add huge projects at low upfront investment, high IRR

Unitech has significantly ramped up its land bank to 689m sq. ft – a 51% yoy
increase. The additions are characterized by low upfront investment and high IRRs,
and underline the company's ability to source lucrative projects at attractive terms.
This ability is further highlighted by Unitech’s recent acquisitions at Mumbai and
Vizag. Besides Mumbai, Unitech has added land in Chennai, Hyderabad, Goa,
Kolkata, Noida and Greater Noida.

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 IDFC-SSKI INDIA

Entry into Mumbai SRS – a lucrative market…

SRS a lucrative Of the various additions, a prime land parcel near the Bandra Kurla Complex (SRS
opportunity as more than segment) in Mumbai is expected to be quite lucrative for the company. SRS
6.3m slum-dwellers still to
be rehabilitated remains a massive opportunity as ~6.3m slum-dwellers are still to be rehabilitated
(as of September 2006). Unitech is putting up two teams in Mumbai to cater to
the large opportunity, and we believe that this is the first of several projects of the
company in Mumbai.

…via a 97-acre SRS project in western suburbs (near BKC)

Unitech has secured the rights to develop a 97-acre SRS with a possibility that the
area may increase to 127 acres. The site (next to the Western Express highway
(between Santacruz and Khar railway stations) is close to the fast emerging CBD –
Bandra Kurla Complex. The project is estimated to generate ~12 msf of saleable
area. We expect construction to commence in FY09, and the project to be executed
over five years. We have estimated Unitech's share of the project at ~Rs114bn. We
believe Unitech is well placed to secure many more projects at attractive terms in
the near future.

A Singapore listing of REIT-like instrument offers multiple benefits

Besides providing access Unitech is likely to apply for listing of a REIT-type instrument on the Singapore
to cheap capital, listing to Exchange (on the lines of Ascendas India Trust). The listing will imply several
lead to higher realizations
for rental assets benefits for Unitech as it would open up new funding options, while strengthening
the existing funding vehicles. It will also enable Unitech to accelerate its cash
conversion cycle. Besides, the listing would lead to higher realizations (increase of
~40%) from its rental assets by reducing the lease capitalization rates from 10% to
~7%. A successful listing will also enable Unitech’s real estate asset management
business to earn significant carried interest and to rapidly attain scale in AUM.

Cumulative understated profits of ~Rs48bn

Delayed reveneue, and Unitech follows a very conservative revenue recognition policy, which relies on
thus profit, recognition percentage of completion method with a 30% threshold on the basis of
results in ~Rs48bn of
understated profits
construction cost, excluding land cost. This method differs from the other
for Unitech prevailing methods, which recognize revenues on the basis of total project cost
(including the cost of land).
In the latter cases, a developer can start booking revenues (and profits) as soon as
work is commenced. While this results into higher profits (and taxes) on the
income statement, it also leads to higher accounts receivable on the balance sheet.
In Unitech's case, while delayed revenue recognition leads to understatement of
income and profits, cash flows are stronger (due to deference of tax payments) and
customer advances (instead of sundry debtors) are reflected on the balance sheet.
Owing to Unitech's conservative accounting policy, profits (cumulatively) are
estimated to be understated by ~Rs48bn.

JANUARY 2008 3
 IDFC-SSKI INDIA

Potential upside from telecom license

We expect the telecom Unitech has stated its intention to enter the cellular/ mobile telephony business and
foray to create has applied for licences to provide Unified Access Services in 22 circles across India.
shareholder value with
minimal capital investment
We believe the business diversification will give Unitech access to the large, under-
penetrated telecom services market in India and allow it to capture the strong
growth opportunities in the sector. Moreover, considering the prospects of
releasing additional spectrum and the underpenetrated mid-tier cities and rural
areas, we believe new entrants like Unitech can capitalize on the potential offered
by the space. Further, the diversification would help boost the company's
transmission tower manufacturing business.
We believe Unitech's foray in the telecom business will generate shareholder value
in the medium term with minimal capital investment. Our telecom analyst has
assigned a value of Rs40bn for the license and an additional Rs40bn once spectrum
is allocated to the company.

Revenues and profits likely to jump 6x and 7x respectively by FY11

Unitech estimated to Unitech is expected to develop its land bank of 13,757 acres over the next 12 years
develop and sell ~204m as a mix of residential, commercial, retail, hotel and SRA projects. We expect
sq. ft of space over FY08- Unitech’s property realizations to increase at 10% per annum from FY10. We have
11; sharp jump in profits
also assumed a 5% yoy increase in Unitech’s construction costs from FY08.
With development of ~204m sq. ft planned over the next four years, Unitech’s
revenues are expected to increase from Rs37.5bn in FY08 to Rs210bn in FY11, a
CAGR of 79%. Over the same period, pre-exceptional profits are estimated to
witness a CAGR of 90% to Rs135bn in FY11 from Rs18.3n in FY08.

JANUARY 2008 4
 IDFC-SSKI INDIA

VALUATIONS AND VIEW

We believe NAV remains the most appropriate measure of valuation for a real
estate developer. Real estate developers with a good track record, strong
management, superior project acquisition skills and a robust business model
should trade at a premium to their NAV in a rapidly-growing market. We have
valued Unitech’s economic interest in its projects at Rs697 per share and have
assigned a premium of 1.25x to its NAV, which throws a fair value estimate of
Rs871 per share. We have valued the NAV by estimating future cash flows
from various business segments and discounting the same at appropriate rate.

Unitech – NAV of Rs697 per share

We have valued Unitech using the NAV approach by discounting free cash flows
from each of its development segment separately and then aggregating them to
arrive at the firm’s value.

Residential development – expect cash flows of Rs1,815bn over FY08-19

We have discounted cash We have assumed Unitech’s residential projects to be developed over a period of
flows from residential 24-36 months. Given that residential properties are generally pre-sold, we have
projects (768m sq. ft over
FY08-19) at 14% assumed that 60% of the total value of the property is received in the first year and
the remaining 40% over the next two years in the form of progress payments. As
progress payments are typically linked to the construction schedule, we expect
construction to commence and be completed largely in line with advances received.

Considering the relatively low risk in residential development in view of the fact
that bulk of the property is pre-sold for the purpose of valuation, we have assumed
a rate of 14% for discounting cash flows from residential projects. Over FY08-19,
we estimate Unitech to develop 768m sq. ft of residential projects and generate free
cash flows to the tune of Rs1,815bn. Discounting these cash flows at 14%, we
assign total value of Rs517bn to Unitech’s residential projects.

Commercial and retail development – cash flows discounted at16%

Expect free cash flows of Commercial and retail projects are assumed to take between 30-36 months for
Rs1,286bn from development and sale. We assume the property to be leased only on completion of
commercial and retail
projects over FY08-19 construction. We have computed the sale value of a commercial/ retail project by
applying a cap rate of 7% to the annual rentals expected on the property.

We expect Unitech to develop and sell 98m sq. ft of commercial property and
37.5m sq. ft of retail projects over FY08-19. Consequently, Unitech is expected to
generate free cash flows of Rs706bn and Rs580bn from its commercial and retail
projects respectively over FY08-19. For the commercial and retail segment, we have
assumed a discount rate 200bp higher than for residential projects, considering the
risk of vacancy entailed by such projects. Thus, we arrive at a value of Rs148bn and
Rs155bn for Unitech’s commercial and retail projects respectively.

JANUARY 2008 5
 IDFC-SSKI INDIA

Hotels – projects valued by capitalizing operating profits

Unitech’s 4.8m sq. ft of We have valued Unitech’s hotel projects on an operating basis by capitalizing the
hotel projects valued operating profit per room for each hotel at a cap rate of 7%. We have assumed a
at Rs44bn
discounting rate of 16% for cash flows from hotel projects, in line with the
discount rate for commercial and retail projects. Consequently, for Unitech’s 4.8m
sq. ft of hotel projects, we arrive at a value of Rs44bn.

De-risked business model

The NAV is widely distributed across cities with NCR having the highest share of
NAV at 24%, followed by Mumbai, Chennai, Hyderabad and Kolkata at ~12%
each. The extensive footprint and well-diversified NAV helps Unitech diversify and
de-risk its business model. It also enables Unitech to serve as a proxy to the fast
growing Indian real estate sector.

Exhibit 2: Distribution of NAV across regions segments (Rs m)

Region Residential Office Retail Hotel Total % Resi % Office % Retail % Hotel % Total
Gurgaon 82,748 33,136 32,926 6,595 155,405 7.5 3.0 3.0 0.6 14.0
Noida 54,694 7,846 4,842 9,210 76,592 4.9 0.7 0.4 0.8 6.9
Greater Noida 25,242 4,292 1,139 - 30,673 2.3 0.4 0.1 0.0 2.8
Delhi - 1,823 1,051 - 2,874 0.0 0.2 0.1 0.0 0.3
Faridabad 867 - - - 867 0.1 0.0 0.0 0.0 0.1
Hyderabad 70,018 43,125 30,083 - 143,226 6.3 3.9 2.7 0.0 12.9
Kolkata 79,312 27,394 8,972 19,584 135,262 7.2 2.5 0.8 1.8 12.2
Chennai 94,186 21,784 16,937 - 132,906 8.5 2.0 1.5 0.0 12.0
Mumbai SRA - 120,906 11,309 - 132,214 0.0 10.9 1.0 0.0 11.9
Vizag 75,838 11,466 10,532 - 97,836 6.8 1.0 0.9 0.0 8.8
Kochi 31,114 9,452 13,552 2,802 56,919 2.8 0.9 1.2 0.3 5.1
Varanasi 11,257 3,458 29,450 - 44,166 1.0 0.3 2.7 0.0 4.0
Agra 10,472 6,890 14,711 - 32,074 0.9 0.6 1.3 0.0 2.9
Mohali 15,277 - 9,077 - 24,353 1.4 0.0 0.8 0.0 2.2
Bangalore 12,400 1,321 2,359 3,437 19,516 1.1 0.1 0.2 0.3 1.8
Siliguri 9,696 - - - 9,696 0.9 0.0 0.0 0.0 0.9
Goa - - - 9,365 9,365 0.0 0.0 0.0 0.8 0.8
Bhubhaneshwar - - 2,238 - 2,238 0.0 0.0 0.2 0.0 0.2
Chandigarh - - 2,869 - 2,869 0.0 0.0 0.3 0.0 0.3
Total 573,121 292,891 192,047 50,994 1,109,053 51.7 26.4 17.3 4.6 100.0
Source: IDFC – SSKI Research

Fair value of stock works out to Rs871 per share

We believe Unitech should Aggregating the value from each development segment, we arrive at a total
trade at 1.25x its NAV company NPV of Rs978.5bn. To this, we have added the value of SEZ
developments, and then deduct the enterprise level debt of Rs170bn and Rs150bn
of certain land payments not included in project NPVs. Thus, we have arrived at a
net firm value of Rs1130bn, which works out to Rs697 per share.
Given Unitech’s ability to acquire projects at attractive terms, its pan-India
footprint and excellent management credentials, we believe the stock should trade
at 1.25x its NAV. This gives a fair value estimate of Rs871 per share.
Strong traction in the AMC business and potential gains from the telecom
operations may offer additional upside to our valuations. Our telecom analyst has
assigned a value of Rs40bn for the license and an additional Rs40bn once spectrum
is allocated to the company.
JANUARY 2008 6
 IDFC-SSKI INDIA

Exhibit 3: Valuation Summary

Segment (msf) Area (mn sq ft) Segment NAV (Rs bn) NAV/ sh
Project area Unitech’s sh. Project NAV Unitech’s sh. (Rs)
Residential 747 570 743 573 353
Office space 98 73.5 249 172 106
Retail 37 34.6 205 181 111
Hotel 5 4.8 52 51 31
SRA & Redevelopment 12 5.8 264 132 81
Total 900 688.8 1514 1109 683
Add: SEZ 53 33
Less: Land pmts o/s excl. specified and projects 17
Debt o/s excl. project specific 15
Grand total 1130 697
Valuation premium 25%
Fair value estimate 1413 871
Source: IDFC – SSKI Research

JANUARY 2008 7
 IDFC-SSKI INDIA

UNITECH: FROM STRENGTH TO STRENGTH

Unitech is a pan-India real estate play with a relatively small exposure to
specific pockets. The company has demonstrated its superior capability to
acquire large projects with low upfront investments and high IRRs. We also
believe that Unitech is poised to apply for listing a REIT-like structure on
Singapore Exchange as a successful listing would offer various benefits to the
company. Unitech follows a conservative accounting policy for revenue
recognition, which has resulted in profits being understated to the extent of
~Rs50bn. Further, Unitech has applied for a unified access service license for
all 22 circles. We believe that a successful application and allocation of
spectrum will create shareholder value over the medium term.

Pan-India, de-risked presence

Total land bank of 689m Unitech has a pan-India footprint with presence across several cities. Of late, the
sq. ft of saleable area is company has been aggressively adding to its land bank in premium locations in
well-diversified across new geographies. Unitech has also augmented its land bank in existing markets.
cities and segments
These initiatives have taken up the total land bank to 689m sq. ft. of saleable area.
The land bank is well-diversified with no region accounting for more than more
than 20% of its saleable area.

Exhibit 4: Distribution of saleable area across regions and segments

(m sq. ft) Resi. Office Retail Hotel Total % Total
Gurgaon 35.5 4.2 2.4 0.6 42.6 6.2
Noida 29.5 3.0 0.6 0.8 33.9 4.9
Greater Noida 22.4 2.5 0.2 0.0 25.1 3.6
Delhi 0.0 0.1 0.1 0.0 0.3 0.0
Faridabad 0.7 0.0 0.0 0.0 0.7 0.1
Agra 26.1 7.8 3.9 0.0 37.9 5.5
Bangalore 8.9 0.3 0.4 0.3 9.8 1.4
Bhubhaneshwar 0.0 0.0 0.8 0.0 0.8 0.1
Chandigarh 0.0 0.0 0.6 0.0 0.6 0.1
Chennai 100.8 8.7 3.1 0.0 112.7 16.4
Goa 0.0 0.0 0.0 0.9 0.9 0.1
Hyderabad 68.5 19.7 5.4 0.0 93.6 13.6
Kochi 31.0 3.5 3.0 0.4 38.0 5.5
Kolkata 102.2 11.1 1.6 1.9 116.8 17.0
Mumbai SRA 0.0 5.3 0.5 0.0 5.8 0.8
Mohali 11.5 0.0 1.4 0.0 12.9 1.9
Siliguri 15.2 0.0 0.0 0.0 15.2 2.2
Varanasi 28.9 3.9 7.8 0.0 40.6 5.9
Vizag 89.0 8.5 3.2 0.0 100.7 14.6
Total 570.0 78.8 35.1 4.8 688.8 100.0
Source: Company, IDFC – SSKI Research

Unitech plans to launch several projects in new locations over the next 3-4 years,
which would drive volume growth and importantly reduce its dependence on a
single market. We expect rollout from new geographies to account for 42% of
Unitech’s new launches in FY09.

The wide footprint and well-diversified NAV helps Unitech diversify and de-risk
its business model. It also enables Unitech to serve as a proxy to the fast growing
Indian real estate sector.
JANUARY 2008 8
 IDFC-SSKI INDIA

Ability to add big projects at low upfront investment and high IRR
Prime projects being Unitech has recently added ~235m sq. ft of saleable area to its existing base of
added at attractive terms ~454m sq. ft or a 51% increase over the year. These additions are characterized by
low upfront investment and high IRRs, and underline the company's ability to
source lucrative projects at very attractive terms. For instance, Unitech had won a
bid for developing an 'Integrated Knowledge City' at Vizag in the previous quarter.
The bid entailed development of a 1750-acre land parcel in Vizag with a down
payment of Rs2m an acre with the remaining payments spread over a 10-year
period (most of the payments due in the last 3-4 years).

Unitech has added prime projects to its portfolio on similar lines, where the
upfront investment is low and the IRRs high. In the near future too, we expect
Unitech to acquire several such projects.

Unitech enters the very lucrative Mumbai SRS market

High incomes and acute The real estate market of Mumbai is arguably the largest and the most lucrative
shortage of houses make among all the real estate micro-markets in India. High incomes and an acute
Mumbai an attractive real
shortage of housing are the key features of the Mumbai real estate landscape, which
estate market
makes it an attractive market for real estate developers. The market is also defined
by lack of large contiguous land parcels, presence of slums and their rehabilitation
schemes, and the old buildings redevelopment scheme.

Slum Rehabilitation Schemes – a huge opportunity

The opportunity: According to World Bank (September 2006), Mumbai's slums are home to 6.3m residents of the
city, or 54% of its total population. These inhabitants dwell in 2,000 slums across the city, and occupy 8% of the
land area (or ~8,650 acres).

Exhibit 5: Mumbai’s slum population – on the rise

Year Slum Slum Total Proportion of
settlements population population slum population
(no.) (m) (m) (%)
1976 1680 2.8 5.9 47
1983 1930 5.0 10.0 50
2001 1959 6.2 11.5 54
Source: World Bank 2006

Slum Rehabilitation Scheme: In early 1990s, the Afzalpurkar Committee recommended that additional FSI be
allocated for construction of tenements, profits from which would be used to cross-subsidize free tenements to be
given to slum-dwellers. Accordingly, the modified Development Control Regulations were sanctioned in 1997 and
the Slum Rehabilitation Authority (SRA) was formed as an autonomous body. The SRA is responsible for
implementing the SRS.

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 IDFC-SSKI INDIA

Every tenement to get a 225 sq ft apartment: Under SRS, every slum structure existing prior to 1 January 1995 is
treated as a protected structure, and every slum dweller whose name appears in the electoral rolls on this date and
who continues to stay in the slum is eligible for rehabilitation. Residential Units measuring 225 sq. ft carpet area are
to be provided per tenement, which translates into a built-up area per unit of 330 sq. ft for calculation of incentive
(saleable area) given to developer, in case where the FSI granted is 1:1. Structures used for commercial purposes are
also eligible for rehabilitation on the basis of actual size of the tenement, subject to a maximum carpet area of 225
sq. ft. Additionally, three per 100 dwelling units are to be provided for social infrastructure and society office use.

Annexure II and LoI key approvals: The legal processes involved in an SRS scheme entails procuring Annexure II,
which conveys the assent of tenants of the rehabilitation scheme and clearance from the land owning authority.
After Annexure II, SRA grants a Letter of Intent (LoI), Layout, Intimation of Approval (IoA) and the
Commencement Certificate to the developer. Of the four, Annexure II and the LoI are the most critical and
definitive to the SRA process. After obtaining the approvals, lots are drawn for allotment of tenements. These
tenements are shifted to a transit accommodation or compensated for 18 months rent – the time usually taken for
the rehab structures to be completed. After eviction of the tenants, the slums are demolished and work up to the
plinth level is completed. The plinth dimensions are inspected and then permission is granted for construction
beyond the plinth level. As construction activity progresses on the rehab structures, permission is given to the
developer to build the free sale component. The developer books revenues and calls for installments based on the
completion of different stages, making the entire process a low-investment and self-financing process.

SRS an extremely profitable opportunity: SRS is a win-win proposition for slum-dwellers as well as developers. It
offers the slum-dweller a hygienic unit with acceptable construction quality. For the developer, the scheme means
access to land at a very low cost in a prime location – the key costs being the construction of rehabilitation
tenements, transit accommodation and payments to the original land owner. The key success factor for obtaining
the consent is developer’s credibility.

Exhibit 6: Distribution of slums by land ownership

Land ownership Percentage to total slums (%)
Private 48.0
State government 21.0
Municipal 17.6
Central government 4.7
Indian Railways 0.7
Municipal and private 2.5
State government and private 2.2
Other mixed ownership 3.0
Total 100
Source: World Bank, 2006

The tip of the iceberg: According to the World Bank, from the mid 1990s (when SRA was started) till April 2005,
128,000 slum-dwellers were rehabilitated under the SRS. With ~33,000 tenements (>100,000 slum-dwellers) in
advanced stages of completion, the SRS opportunity remains massive.

Barring a couple of players, the SRS segment is characterized by presence of smaller unorganized developers that
undertake SRS activity in smaller pockets and phases, leading to slower execution of the rehab process. The process
for obtaining consent of 70% slum-dwellers is also slow and cumbersome as they need to be convinced of the
developer’s willingness and ability to deliver.

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 IDFC-SSKI INDIA

The SRS project in a prime Unitech has made significant inroads into the Mumbai real estate market following
location; to be executed acquisition of an SRS project in a prime location. Unitech has formed a 50:50 JV
under a 50:50 JV…
for its Mumbai foray, wherein it will assume responsibilities for marketing,
developing and funding the projects and the JV partner will be responsible for land
acquisition and act as a liaison partner. Given the large opportunity, Unitech is
putting up two teams in Mumbai that will be in-charge of the PMC activities at
the various sites.

The JV partners enjoy strong goodwill among the slum dwellers. Backed by
credibility of Unitech, we believe this is the first of the many projects that will
accrue to Unitech in the near future. Also, Unitech brings to the table the expertise
and experience of developing and marketing large world-class projects.

Developing a 97-acre SRS near Bandra Kurla Complex

…the site is close to the The slum, also known as Golibar, is a large colony along the busy Western Express
fast emerging CBD – highway between the Santacruz and Khar railway stations. This site is in close
Bandra Kurla Complex vicinity to the fast emerging CBD – Bandra Kurla Complex. The complex has been
witnessing strong demand for commercial space with rentals being as high as
Rs350-400psf. The high-end user demand in Bandra Kurla Complex resulted in
historic bids at a recent MMRDA auction.

Exhibit 7: Bids at MMRDA auction

Bidder Plot size Developable FSI Saleable Bid amount Bid amt
(sq mt) area (sq mt) area (sq. ft) (Rs bn) (Rs psf)
Wadhwa group 7,107 16,500 2.32 213,125 8.31 38,991
TCG - Hiranandani combine 8,076 28,300 3.50 365,542 10.41 28,478
Reliance 10,183 218,895 sq ft of multi-storeyed car park and 9.41 NA
a 394,604sq ft of commercial complex
Source: Economic Times, Business Line, IDFC - SSKI research

The project estimated to Unitech has secured the rights to develop 97 acres with a possibility that the area
genenrate ~12 msf of may increase to 127 acres. The project is expected to generate ~12 msf of saleable
saleable area area based on land area of 127 acres. We expect construction on the project to
commence in FY09, and to be executed over five years. We have estimated
Unitech's share of the project at ~Rs132bn for FY09.

Attractive land acquisitions at Chennai, Goa, Hyderabad, etc

Chennai emerging as a
70-acre land parcel acquired in Chennai: Chennai, the capital of Tamil Nadu,
future IT hub; also houses has been attracting several real estate developers owing to its potential as a future IT
automotive and hardware hub and the presence of automotive and the hardware industries. Unitech has
industries acquired rights to develop 7m sq. ft on a prime 70-acre land parcel in Chennai.
This locality, largely populated by wealthy business families, is 7 kms from the
railway station with prevailing rates of Rs4,000-4,500 psf for a residential
apartment.

Hyderabad a leading IT 350-acre project won in Hyderabad: Hyderabad is the capital of Andhra Pradesh
services centre in India; and has a population of >5m. It is one of the leading centres in IT services in India
gems and jewellery and a centre for the gems and jewellery industry in India. Unitech had been
companies add to demand
selected as a winning bidder in a bid floated by the Andhra Pradesh Industrial
Infrastructure Corporation Ltd (APIIC) to develop a 350-acre Airport City. This
will be an integrated township project close to the upcoming international airport

JANUARY 2008 11
 IDFC-SSKI INDIA

Hotel site in Goa is a 103-acre hotel site in Goa: Goa is a favoured tourist destination in India and is
beach front property in immensely popular with both domestic and international tourists. Unitech has
proximity to Hotel Leela added a project in Goa to its portfolio of projects. This is a 103-acre hotel site
located close to Hotel Leela and is a beach front property. Unitech intends to build
luxury resorts at the site.

390 acre project in Kolkata: Unitech has added a 390-acre township in Kolkata,
close to National Highway 2 in the Howrah area. This project is a joint venture
with Unitech owning 40% of the project.

Augmenting land bank in existing market: Unitech has added 150 acres in
Greater Noida. In addition to the above, Unitech has also added 124 acres in
Noida. Both these projects are 100% owned by Unitech.

A Singapore listing offers multiple value drivers

The REIT-type instrument Unitech is likely to list a REIT-type instrument on the Singapore Exchange, on the
expected to be on the lines lines of Ascendas India Trust. If the company decides to exercise this option, we see
of Ascendas India Trust
it well-placed (given its size and solid reputation) to obtain necessary approvals
within a short period of time.

A REIT is a pass-through entity that invests in rental assets and distributes most (at
least 90%) of its income as dividend. The dividend may or may not be taxable in
the hands of an investor, depending on the investor's tax status. REIT offers a
relatively stable cash flow stream to the investor, making it a quasi-debt product
with low return expectations. Additionally, escalation clauses are usually built into
the lease agreement between the landlord (REIT in this case) and tenant. This
ensures real returns to the investor as against nominal returns from regular fixed
income products. Thus, return expectations of an investor get tempered.

Exhibit 8: Ascendas Lease – capitalization rates

(%)
5

2
Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07

Source: Bloomberg, IDFC - SSKI Research

Besides providing access The listing will offer several benefits for Unitech. It will help create new funding
to cheap capital, listing to options, while strengthening the existing funding vehicles. It will also enable
improve realizations for
Unitech’s rental assets Unitech to accelerate its cash conversion cycle. Besides, the listing would increase
realizations from its rental assets by reducing the lease capitalization rates. A
successful listing will also enable the asset management business of Unitech to earn
significant carried interest and to rapidly attain scale in its AUM.

JANUARY 2008 12
 IDFC-SSKI INDIA

Creation and strengthening of offshore funding vehicles

Creation of funding vehicle
Listing of REIT to create The listing of the business trust will enable creation of an offshore funding vehicle,
additional funding vehicle which in turn would allow Unitech to raise cheap resources. Conservatively, we
and lower lease
expect that Unitech will be able to list its rental assets at a cap rate of 7%, as against
capitalization rates
Ascendas’ cap rate of ~4.5% and the prevailing rate of 2.66-2.86% on 10-year
government paper. Besides creating an additional funding vehicle, it will lower the
lease capitalization rates to 7% from ~10% currently, potentially increasing the
effective realization from rental assets by 40%.

Additionally, Unitech can optionally own up to 35-40% of the units issued by the
Singapore listed entity without incurring any cash outflow, if it chooses to swap its
holding in the SPVs for listed units of the trust. Unitech can then use these units as
collateral, creating an additional source of funding for itself while retaining 40% of
the listed business trust.

Exhibit 9: A possible cash flow based on takeout structures

Sale of balance ownership in SPVs
Ownership of Assets

Sale of part Sale of Full

Unitech ownership UCP ownership Singapore Trust

Sale proceeds

Cash Cash
Unitech UCP Singapore Trust Investor

Reinvestments Carried
Interest

New projects Nectrus

Issue of tradable units in lieu of Unitech’s stake in projects

Source: IDFC-SSKI Research

Strengthening of Unitech Corporate Parks

UCP seeking shareholder Unitech sponsored a £360m realty fund – Unitech Corporate Park (UCP) – in
approval for selling three December 2006 on the Alternative Investments Market (AIM) in London by
of the six seed assets to divesting a partial stake in the six projects and issuing fresh capital. Known as
the Singapore REIT
Unitech Corporate Parks (UCP), UCP invested in six SPVs of Unitech developing
IT SEZ/ IT Parks. These projects added to 21.5m sq. ft of saleable area.

JANUARY 2008 13
 IDFC-SSKI INDIA

Exhibit 10: Projects in Unitech Corporate Parks

SPV Project Leasable Expected
area (msf) completion
Unitech Realty Projects InfoSpace, Gurgaon 3.26 Nov-11
Unitech Developers & Projects InfoSpace, Dundahera, Gurgaon 3.65 Jul-10
Shantiniketan Properties InfoSpace, Sector 62, Noida 2.06 Oct-09
Seaview Developers InfoSpace, Sector 135, Noida 3.17 Feb-11
Unitech Infra-Con InfoSpace, Greater Noida 4.95 Mar-12
Unitech Hi-Tech Structures InfoSpace, Kolkata 4.35 Oct-10
Source: Unitech Corporate Parks

UCP is now seeking shareholders’ approval to exit three of the six seed assets by
selling them to a Singapore-listed REIT type structure (Singapore REIT).

Exhibit 11: UCP - market value of portfolio

GBP (m)

1000

750

500

250

0
Dec 06 Mar 07 Sep 07

Source: Unitech Corporate Parks

Listing to also enable A successful listing of the business trust in Singapore will infuse funds into UCP
Unitech to infuse funds that can be used to acquire further projects from Unitech.
into UCP
Additionally, a successful exit with a high IRR within a short period of time will
reinforce Unitech's credibility and enable it to raise further resources from AIMs/
European markets.

Unlocking value from rental assets to accelerate cash flow cycle

The funding vehicles would enable Unitech to make an early exit from rental assets
and monetize the same. The process of early monetization significantly shortens the
payback period and results in higher IRR for the project. Further, the cash released
from the project can be reinvested into developing newer projects, where the IRRs
can be potentially higher.

Nectrus – AMC of Unitech to gain from carried interest

Nectrus earns a 2% UCP is managed by Nectrus – a 100% subsidiary of Unitech based in Cyprus.
investment fee plus Besides the investment management fee of 2% on the average invested capital,
performance fee Nectrus also receives a performance fee by way of a carried interest calculated on
the basis of IRR of the project.

JANUARY 2008 14
 IDFC-SSKI INDIA

For the first 10%, Nectrus does not earn any carry. For the next 10%, it earns a
carry of 20%. And finally, for the remaining part, it earns a carry of 30%.

Exhibit 12: Performance fee paid to Nectrus linked to IRRs

Project IRR achieved (%) Performance fees (%)
< 10 0
10 - 20 20
20 > 30
Source: Unitech Corporate Parks

Indicated valuation implies performance fees calculated at 30%

UCP to earn 38.9% IRR on UCP had purchased the three IT SEZs which UCP proposes to transfer to the
sale at floor price, much Singapore listed entity at an estimated GBP150m; and on the floor price of
lower than our estimate
GBP234m for the assets, it will earn an IRR of 38.9%. However, we believe that
the value of the three SEZs will be much higher than the average implied
realization of ~Rs1,800m sq. ft at the set floor price.

Our estimates indicate higher values and carried interest

We have estimated the value of these assets at ~Rs63bn and UCP's share comes to
~GBP500m. Conservatively, assuming the transfer to the Singapore trust effected
at a 10% discount to the estimated value, or at GBP450m, the carried interest can
be estimated at Rs2.8bn.

Exhibit 13: Details of SEZs being transferred

Project Leasable Expected Avg lease Asset value at 7% cap Present value at
area (msf) completion rates (Rs70 psf) rate on completion (Rs m) discount rate of 16%
InfoSpace, Dundahera, Gurgaon 3.65 Jul-10 70 42000 31213
InfoSpace, Sector 62, Noida 2.06 Feb-11 45 15891 10181
InfoSpace, Kolkata 4.35 Oct-10 40 29486 21913
Source: Unitech Corporate Parks, IDFC SSKI Research

A successful listing will also enable Unitech to accelerate the process and transfer
the remaining three SEZs in UCP to UOT and earn a further carry of Rs2bn-3bn
for Nectrus.

Traction on asset management business

With listing of Unitech's Unitech already has a fund under its management – the UCP, which is a
own REIT, the AUM for GBP360m AIM-listed fund. With the listing of Unitech's own REIT, the AUM
Unitech will increase for Unitech will increase. The transfer of the second tranche of SEZs will further
augment assets under management for Unitech’s AMC. Each successful transfer
from Unitech to UCP to Unitech's trust will add to the AUM, and result in
increases in asset management fees, and possibly carried interest.

Conservative accounting policy – ~Rs48bn of understated profits

Unitech follows a Unitech follows a very conservative revenue recognition policy, wherein the
conservative accounting
policy which leads to
company relies on percentage of completion method with a 30% threshold for
delayed revenue revenue recognition on the basis of construction cost, exclusive of the land cost.
recognition… This method differs from the other prevailing methods, which recognize revenues
on the basis of total project cost, which includes the land cost.

JANUARY 2008 15
 IDFC-SSKI INDIA

… and in turn delayed

In the latter cases, a developer can start booking revenues (and profits) as soon as
profit recognition work is commenced. While this results into higher profits (and taxes) on the
income statement, it also leads to higher accounts receivable on the balance sheet.
In Unitech's case, while delayed revenue recognition leads to understatement of
income and profits, cash flows are stronger (due to deference of tax payments) and
customer advances (instead of sundry debtors) are reflected on the balance sheet.
Owing to Unitech's conservative accounting policy, profits are estimated to be
understated by ~Rs48bn.

Potential upside from telecom license

Unitech further Unitech has applied for licences to provide Unified Access Services in 22 circles
diversifying into the across India. We believe the business diversification will give Unitech access to the
underpenetrated telecom
large under-penetrated telecom services market in India and allow it to capture the
services market
strong growth opportunities in the sector. Moreover, considering the prospects of
releasing additional spectrum and the underpenetrated mid-tier cities and rural
areas, we believe new entrants like Unitech can capitalize on the potential offered
by the space. Further, the diversification would help boost the company's
transmission tower manufacturing business.

The foray has the potential Considering the clutter in the Indian mobile telephony market present and that
to generate incremental Unitech is a late entrant, it would be a challenge for the company. In our opinion,
shareholder value
Unitech is likely to tie up with an experienced global mobile phone operator for
technology and operating the business. In addition to this, we expect Unitech to
also tie up with a financial/ strategic investor for bringing in a large share of capital
requirements for the business. Consequently, we expect Unitech to commit limited
capital to the business (to the extent necessary for procuring the licenses), but have
a significant equity stake in the telecom business. As a result, we believe Unitech's
foray in the telecom business will generate shareholder value in the medium term
with minimal capital investment.

Our telecom analyst has assigned a value of Rs40bn for the license and an
additional Rs40bn once spectrum is allocated to the company.

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 IDFC-SSKI INDIA

FINANCIAL ANALYSIS
Unitech is expected to develop its land bank of 13,757 acres over the next 12
years in a mix of residential, commercial, retail, hotel and SRA projects. We
expect Unitech’s property realizations to increase at 10% yoy from FY10. We
have also assumed a 5% yoy increase in Unitech’s construction costs from
FY08. Over FY08-11, Unitech is estimated to develop and sell ~204m sq. ft of
space. Consequently, Unitech’s revenues are expected to grow ~6x over FY08-
11 to Rs210bn and profits 7x to Rs135bn.

Land bank to be developed over the next 12 years

We have assumed the Unitech plans to develop its land bank of 13,757 acres over the next 12 years (up
13,757 acres land bank to
to FY19), involving construction of 689m sq. ft of saleable area across real estate
be developed over the
next 12 years segments. The company has announced estimated start and end dates of specific
projects and we have assumed the projects to be developed equally over the stated
period. In case of certain larger projects, we have assumed absorption to increase
with passage of time and then attaining a steady state with back-ended peak
deliveries.

Residential developments – a diversified mix

In residential segment, Residential and housing development are the key focus areas for Unitech. The
Unitech plans to develop company develops and sells a diversified mix of residential products including
768 msf in the next integrated townships, apartment complexes, villas, golf courses and developed
12 years
plots. Within the residential segment, Unitech caters largely to the middle class and
upper-middle class buyers. Increasing urbanisation and rising income levels have
progressively reduced first time homebuyers’ average age while increasing their
aspiration levels. The focus on providing quality housing for this section of the
population would significantly strengthen Unitech’s market position in the longer
term. Unitech has planned residential projects of about 768m sq. ft over the next
12 years, which would be 85% of its total development.

Exhibit 14: Unitech – development in residential segment

City FY07 FY08E FY09E FY10E FY11E FY12E FY13E FY14E FY15E FY16E FY17E FY18E FY19E
Gurgaon 3.8 5.9 5.3 5.4 6.2 6.4 4.0 4.0 4.0 4.0 - - -
Noida - 0.7 1.0 1.0 5.0 7.3 7.5 9.8 4.4 - - - -
Greater Noida 1.3 1.5 1.5 2.2 4.3 2.6 3.0 3.0 3.0 1.3 - - -
Faridabad - - 0.4 0.4 - - - - - - - - -
Chennai - - 4.6 7.2 13.3 13.3 8.9 8.1 7.7 11.3 11.3 11.3 11.3
Kolkata 1.8 2.3 4.5 5.4 5.9 8.0 17.0 26.5 29.0 33.1 33.9 97.0 5.0
Hyderabad - - 2.5 2.7 10.0 10.2 6.0 11.0 11.0 11.0 8.8 - -
Bangalore 0.1 0.1 1.9 2.2 2.7 2.0 - - - - - - -
Vizag - - - - 7.1 7.1 7.1 17.8 17.8 17.8 14.2 - -
Agra - - 1.3 1.6 1.9 2.5 3.4 4.4 5.2 2.1 1.3 1.3 1.3
Varanasi - - 0.4 0.9 1.3 2.6 4.4 5.4 3.9 3.0 3.0 2.0 2.0
Kochi - - 1.1 3.1 5.6 6.8 7.8 3.7 5.1 1.5 - - -
Mohali - - - 0.9 0.9 0.9 1.3 1.3 2.8 3.4 - - -
Siliguri - - - - - 0.5 0.5 0.8 1.5 2.3 2.3 7.4 -
Total 7.0 10.5 24.5 33.2 64.2 70.3 70.7 95.6 95.3 90.7 74.7 119.0 19.6
Source: Company, IDFC – SSKI Research

JANUARY 2008 17
 IDFC-SSKI INDIA

Commercial development – mainly on lease model

Unitech developing
The IT and ITeS sectors are expected to remain the key demand drivers for
commerical space mainly commercial real estate. In line with the industry trend, Unitech’s business strategy
for IT and ITeS sectors in the commercial real estate segment is centred on these two sectors. Unitech –
having developed and delivered office space to global majors such as Fidelity,
McKinsey, Gillette, HP, Master Card, etc – has established a strong position in
commercial and office development in the NCR. To meet the stringent global
standards insisted on by MNC tenants/ buyers, Unitech has entered into tie-ups
with leading international architects in designing office buildings. The company
also offers services such as maintenance, disaster management, etc in order to add
value to the property and attract large buyers.

We expect Unitech’s experience in developing quality office buildings in the NCR

to yield significant advantages as it develops office space in emerging IT and ITeS
destinations such as Kolkata, Greater Noida and Kochi.

Unitech proposes to Unitech aims to develop 98m sq. ft of commercial and office space over the next 12
develop 98 msf of years, of which about half is expected to be for the IT and ITeS sectors.
commercial space over the
next 12 years
Commercial real estate development is likely to be ~10% of the company’s total
development over the next 12 years.

Unitech has adopted a strategy of early monetization of its rental assets by selling
partial stakes in these projects to funds managed by its affiliates. Unitech could
further extend this strategy by listing a Singapore REIT-type structure and
command better realizations on its rental assets. Going forward, we believe Unitech
will adopt this strategy more aggressively as it enables it to retain control over the
assets as well as faster conversion of its capital.

Exhibit 15: Unitech – commercial development plans

City FY07 FY08E FY09E FY10E FY11E FY12E FY13E FY14E FY15E FY16E FY17E FY18E FY19E
Gurgaon 1.70 2.29 1.85 1.53 1.72 0.63 0.71 - - - - - -
Noida 0.58 1.08 1.66 1.66 1.80 0.39 0.39 - - - - - -
Greater Noida - 0.87 0.87 1.11 1.11 1.44 - - - - - - -
Delhi 0.07 0.07 0.07 - - - - - - - - - -
Hyderabad - - 3.02 3.02 3.02 3.02 3.02 2.29 2.29 - - - -
Kolkata 0.60 1.62 2.37 2.75 3.00 3.85 1.61 1.61 1.50 2.00 2.00 2.00 -
Vizag - - 0.85 2.55 2.98 2.13 - - - - - - -
Kochi - - - 1.18 1.18 1.18 0.27 - - - - - -
Agra - - 0.78 0.78 0.78 0.78 0.78 0.78 3.14 - - - -
Mumbai SRA 2.12 2.12 2.12 2.12 2.12
Chennai - - 1.25 1.25 1.25 1.25 1.25 1.25 1.25 - - - -
Varanasi - - 0.39 0.39 0.39 0.39 0.39 0.39 1.57 - - - -
Bangalore - - 0.16 0.16 - - - - - - - - -
Total 2.9 5.9 13.3 18.5 19.3 17.2 10.5 8.4 9.7 2.0 2.0 2.0 -
Source: Company, IDFC – SSKI Research

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 IDFC-SSKI INDIA

Retail development – Unitech developing ‘destinations’

Unitech developing Retail development is a relatively smaller portion of Unitech’s business with
‘destinations’ – a mix of ~37.5m sq. ft expected to be developed over the next 10-12 years. Unitech aims to
retail, entertainment and
commercial space, and not
develop retail real estate as an extension of its other mixed development projects.
just standalone projects The company focuses on developing a ‘destination’ – involving a mix of retail,
entertainment and commercial space, rather than just standalone projects.

This is a sound strategy as malls, in themselves, are an easily replicable model. Also,
a competing mall in the same locality can drive down vacancy levels in existing
properties. By combining retail space with commercial projects or hotels, the
chances of the composite project being successful are high. For example, Unitech
has conceptualised ‘The Great India Place’, a 1.5m sq. ft mall, as part of an
amusement park being developed at Noida. The amusement park, the first of its
kind in India with an integrated water park and separate zones for families,
children and young adults, is expected to attract a high number of footfalls. This,
in turn, can be expected to have a positive impact on the prospects of the mall.

Further, by leveraging its strong relationships with major Indian retailers, Unitech
has managed to secure India’s leading department stores and discount retailers as
tenants, including Shopper’s Stop, Pantaloon, Big Bazaar, Lifestyle and Globus.
This is the first time that all these retailers are coming under one roof. The feat is
expected to significantly improve the mall’s popularity and also speaks volumes
about Unitech’s retail development capabilities.

Exhibit 16: Unitech – retail development plans

City FY07 FY08E FY09E FY10E FY11E FY12E FY13E FY14E FY15E FY16E FY17E FY18E FY19E
Gurgaon 0.32 0.41 0.44 0.36 0.41 0.45 0.54 0.28 - -
Noida 0.24 0.24 0.24 - - - - - - -
Greater Noida 0.00 0.04 0.04 0.03 0.03 0.03 - - - -
Delhi 0.06 0.01 0.01 - - - - - - -
Hyderabad - - 0.35 0.60 1.09 1.82 1.58 - 0.08 -
Kolkata 0.12 0.26 0.26 0.33 0.35 0.45 0.21 0.26 - -
Chennai - - 0.31 0.31 0.38 0.38 0.50 0.56 0.69 -
Kochi - - - 0.75 0.75 0.75 0.75 - - -
Vizag - - 0.16 0.32 0.64 1.12 0.96 - - -
Varanasi - - 0.24 0.39 0.63 0.86 0.86 1.18 3.61 -
Agra - - 0.12 0.20 0.31 0.43 0.43 0.59 1.80 -
Bhubhaneshwar - - - - 0.33 0.33 0.33 - - -
Chandigarh - - - - 0.20 0.20 0.20 - - -
Mumbai SRA - - 0.20 0.20 0.20 0.20 0.20 - -
Bangalore - - 0.18 0.18 - - - - - -
Mohali - - - 0.36 0.36 0.36 0.36 - - 0.20
Total 0.74 0.96 2.34 4.02 5.69 7.39 6.92 3.06 6.18 0.20
Source: Company, IDFC – SSKI Research

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 IDFC-SSKI INDIA

Hotels – management to be outsourced

In hotels, business Unitech seeks to build a diversified portfolio of hotels, spanning all categories
segment likely to be including luxury business hotels, service apartments, resorts and budget hotels. The
Unitech’s mainstay over business hotels segment is likely to be Unitech’s mainstay over the next 4-5 years.
the next 4-5 years
Unitech proposes to build most of its hotel properties as an integrated part of the
commercial real estate portfolio. Being in close proximity to a business hotel, this
strategy is expected to enhance the value of the developed commercial real estate
within the project area. Unitech has already tied up with Marriott for development
of about 800 rooms and is in talks for more projects. The company is also talking
to other global hotel majors for developing budget hotels.

In all its hotel projects, the development and construction will be undertaken by
Unitech while the hotel will be managed by the partner.

Exhibit 17: Unitech – hotels development plan

City Area in m sq. ft Construction commencement
Gurgaon 0.58 FY07
Noida 0.81 FY07
Kolkata 1.88 FY07
Kochi 0.44 FY08
Bangalore 0.25 FY08
Goa 1.00 FY11 (0.5msf) FY12 (0.5msf)
Source: Company, IDFC SSKI Research

SEZs – large projects on the anvil

Unitech is considering Unitech sees development of SEZs as a natural extension of its business on the back
multi-product and of its experience in developing large integrated townships. Unitech is planning to
sector-specific SEZs develop SEZs in Haryana and Kolkata. While the main focus is on developing
multi-product SEZs, the company is also looking at sector-specific SEZs in the IT
and auto industries.

Unitech has received an in-principle approval for development of a multi-product

SEZ at Kundli (Haryana) over 9,884 acres, which is expandable to 20,000 acres.
The company has also received an in-principle approval for development of an auto
component SEZ in Gurgaon spread over 250 acres.

Unitech is part of the consortium, New Kolkata International Development Pvt

Ltd, which has signed an agreement with the Government of West Bengal for
developing two SEZs at Haldia, West Bengal – a petrochemical SEZ on >10,000
acres and a multi-product SEZ on >12,500 acres.

Unitech to be master Unitech has decided to assume the role of a ‘master developer’ for all its SEZ
developer for SEZs; sub- ventures. Given the mega size of the SEZs, Unitech will break down the projects
projects to be contracted into smaller sub-projects and contract development of the sub-projects to other
to other companies
companies. We believe Unitech will retain the larger roles of planning, designing,
marketing, etc, while capital intensive and complex infrastructure and services
(electricity generation and distribution, telecom, etc) will be contracted out to
specialized companies.

JANUARY 2008 20
 IDFC-SSKI INDIA

In our opinion, this is a step in the right direction in view of the size of the SEZ
projects – a single SEZ of 20,000 acres is almost equivalent to a big city like
Chandigarh.

Realizations assumed to increase at 10% p.a. from FY10

Unitech claims to be We have assumed realizations for Unitech’s properties across different cities based
selling its properties at a
premium to next
on indicative current market prices in case of announced projects, and on the basis
door prices of likely realizations for future projects.

Unitech, with its strong track record, focussed quality orientation and key
relationships with retail and corporate occupiers, claims to command a higher than
next door prices for its properties. We have adjusted our realization assumptions to
account for the same.

Exhibit 18: Unitech – assumed base realizations

City Realisations (Rs / sq. ft). Lease rentals ( Rs / sq ft. / month)
Residential Plots Commercial Retail
Gurgaon 5000-15,500 - 75-80 175
Delhi - - 100 150
Faridabad 3,200 - - -
Noida 8,000 - 40- 120
Gr. Noida 3,500-4,500 - 30 80
Kolkata 3,000-3,700 2,500 35-40 75
Chennai 3,000-4,200 2,500 40 80
Kochi 2,200 - 3,200 1,800 45 70
Bangalore 3,500 55 85
Hyderabad 3,000-3,750 2,800 40 80
Mohali 3,500-4,200 3,200 - 85
Agra 2,000-2,200 1,000 20 60
Varanasi 2,000-2,200 1,000 20 60
Siliguri - 2,900
Mumbai Rentals 340 340
Bhubhaneshwar 55
Vizag 2800-3300 29 55
Source: Company, IDFC - SSKI Research

We have assumed property prices to remain flat till FY10 and increase at a rate of
10% p.a. thereafter.

Construction costs – a 5% p.a. increase assumed from FY08

Commercial properties We have assumed construction costs in accordance with the type of development
more expensive to and the geographical location of the project. Construction costs are the least for
construct than residential; plotted development as it involves just land levelling and plotting. On the other
retail and mall properties
the most expensive hand, residential apartments cost Rs1,200-1,800 / sq. ft to construct, depending on
building height, amenities, etc. Construction costs for row houses and villas are
usually lower than those for apartments as the former do not require activities such
as digging deep for constructing foundations, erecting elevators, etc. However, we
have taken construction costs for villas on par with apartments as several of these
projects would have higher finishing costs.

Commercial properties are more expensive to construct than residential

apartments, as the former entail the necessity to provide centralised air-
conditioning, car parking, etc. Retail and mall construction is generally the most
JANUARY 2008 21
 IDFC-SSKI INDIA

expensive as compared to all other segments due to the added cost of constructing
escalators and a general higher use of glass.

Exhibit 19: Unitech – assumed base construction costs (Rs / sq. ft)
City Villas / Row houses Apartments Plots Commercial Retail
Gurgaon 1,500-1,800 1,400-1500 100 1,500 2,500
Delhi - - - 1,300 2,500
Faridabad 1,250 - - -
Noida 1,800 - 1500-1550 2,500
Gr. Noida 1,300 - 1,450-1500 1,600
Kolkata 1,200-1,300 100 1,400-1600 1,500-1650
Chennai 1,300 1,300 100 1,400 1,800
Kochi 1,200-1,300 1,200-1250 100 1,500 1,550
Bangalore 1,300 - 1,500 1,700
Hyderabad 1,300 1,300 100 1,500 1,700
Mohali 1,500 1,200 100 - 1,400
Agra 1,200 1,200 100 1,250 1,400
Varanasi 1,200 1,200 100 1,250 1,400
Add Siliguri 1,400
Mumbai 3,500 3,500
Bhubhaneshwar 1,400
Vizag 1,300 1,300 2,750 2,350
Source: Company, IDFC - SSKI Research

We have assumed We have also assumed a total of ~Rs115/sq. ft as marketing costs, employee costs
~Rs115/sq. ft as marketing and other overheads. We have factored in a 5% annual increase in construction
costs, employee costs and
other overheads costs as also in employee costs, marketing costs and overheads from FY08.

Cash flow schedule and revenue accounting assumptions

We have assumed a 24-36 months end-to-end time frame for construction and
development of properties across all real estate segments.

Cash flows expected to remain strong

Differing cash flow cycles Given that residential properties are generally pre-sold, we have assumed 60% of
for different project types the total value of the property to accrue in the first year from booking (~25%
upfront payment and 35% in progress payments over the next 12 months). The
remaining 40% is received over a period of two years with 30% being received in
year two and 10% in year three.

Plots are assumed to be sold upfront; consequently, the full value of the property is
received in the first year itself.

In case of commercial and retail development, the property is assumed to be leased

on completion of construction (i.e. in the third year), while a nominal rental
deposit may be secured by way of pre-leasing.

Exhibit 20: Schedule of cash flows as percent of property value

Year (%) 1 2 3
Residential 60 30 10%
Plots 100 - -
Office / Retail (deposits) 5 5 90%
Source: IDFC SSKI Research

JANUARY 2008 22
 IDFC-SSKI INDIA

Construction assumed in line with advances received

We have assumed ~90% of In case of residential properties, progress payments are typically linked to the
construction in first two construction schedule. Therefore, we have assumed that construction on any given
years of commencement
of project; remaining 10%
project is taken up in accordance with the advances received from buyers.
in the third year Accordingly, construction work equivalent to 60% of the total development is
taken up in year one, 30% in year two and the remaining 10% in year three. Plots
involve only development costs and are taken as expended fully in the year of sale.

For commercial and retail properties, development is not directly bound by pre-sale
agreements like in the case of residential properties. Accordingly, we have assumed
that ~90% of the construction is taken up in the first two years of commencement
of a project and the remaining 10% in the third year.

Exhibit 21: Commencement of construction - % of total construction costs

Year 1 2 3
Residential 60 30 10%
Plots 100 0 0%
Commercial 40 50 10%
Source :IDFC SSKI Research

The quantum of construction assumed to be completed in a given year is as under:

Exhibit 22: Completion of construction - % of total construction costs

Year 1 2 3
Residential 60 30 10%
Plots 100 0 0%
Commercial 0 0 100%
Source: IDFC SSKI Research

Costs incurred on The costs incurred on construction completed in any given year are booked in the
construction completed in profit and loss account in the year of expenditure. The land cost is charged to the
a given year are booked in
income statement in proportion to the construction expenditure in the year to the
profit and loss account in
the year of expenditure estimated overall construction cost (over the life of the project). The revenues are
booked in proportion to the construction completed.

In case of commercial assets, the asset on completion is transferred to the balance

sheet at cost. It is assumed that the completed rental asset will be capitalized in the
year following completion, when it is sold. The post depreciation book value of
assets sold is transferred to income statement as a cost, and the capitalized value is
treated as revenue.

The difference between construction commenced but not completed is treated as

WIP.

Revenues to grow 6x and profits 7x by 2011E

Development of an With development of ~204m sq. ft planned over the next 3-4 years, Unitech’s
estimated 204 msf in 3-4
years to drive steep
revenues are expected to increase from Rs37.5bn in FY08 to Rs210bn in FY11, a
revenue and profit growth CAGR of 79%. Over the same period, pre-exceptional profits are estimated to
witness a CAGR of 90% to Rs135bn in FY11 from Rs18.3n in FY08E.

JANUARY 2008 23
 IDFC-SSKI INDIA

Income statement Key ratios

Year to 31 Mar (Rs m) FY06 FY07 FY08E FY09E FY10E Year to 31 Mar FY06 FY07 FY08E FY09E FY10E
Net sales 12,275 32,883 48,320 99,014 234,960 EBITDA margin (%) 13.7 60.9 66.9 68.0 73.9
% growth 90.7 167.9 46.9 104.9 137.3 EBIT margin (%) 12.8 60.6 66.8 67.9 73.8
Operating expenses 10,589 12,865 15,970 31,697 61,364 PAT margin (%) 6.9 39.7 40.7 39.9 47.5
EBITDA 1,686 20,018 32,350 67,317 173,596 RoE (%) 33.8 114.5 58.8 55.1 68.2
% growth 120.8 1,087.3 61.6 108.1 157.9 RoCE (%) 13.9 44.3 41.6 65.2 90.1
Other income 281 1,003 1,053 1,106 1,161 Gearing (x) 3.7 2.8 0.7 0.3 0.1
Net interest (465) (3,020) (2,576) (4,914) (5,463)
Depreciation 112 80 84 88 93
Pre-tax profit 1,390 17,921 30,743 63,421 169,201 Valuations
Current Tax 513 4,864 5,942 12,392 33,562 Year to 31 Mar FY06 FY07 FY08E FY09E FY10E
Profit after tax 877 13,058 24,802 51,029 135,640 Reported EPS (Rs) 1.0 8.0 12.1 24.4 68.7
Minorities (31) (11) (5,122) (11,483) (24,088) Adj. EPS (Rs) 1.0 8.0 12.1 24.4 68.7
Preference dividend 0 0 0 0 0 PER (x) 495.9 64.3 42.6 21.2 7.5
Non-recurring items (5) 0 0 0 0 Price/Book (x) 148.0 42.0 17.9 8.7 3.6
Net profit after EV/Net sales (x) 34.7 26.9 17.8 8.6 3.4
non-recurring items 841 13,047 19,680 39,546 111,551
EV/EBITDA (x) 252.9 44.2 26.6 12.6 4.6
% growth 151.9 1,451.2 50.8 100.9 182.1
EV/CE (x) 29.4 11.7 10.8 6.7 3.1

Balance sheet
Distribution of land bank across cities
As on 31 Mar (Rs m) FY06 FY07 FY08E FY09E FY10E
Agra
Paid-up capital 125 1,623 1,623 1,623 1,623 NCR
Hyderabad 5.5%
Preference share capital 0 0 0 0 0 14.9%
13.6%
Reserves & surplus 2,472 18,320 36,964 75,049 185,208
Total shareholders' equity 2,834 19,957 46,925 96,493 230,740
Kolkata
Total current liabilities 30,031 55,331 6,456 7,228 10,364
17.0%
Total Debt 10,449 55,593 32,711 30,211 27,711
Deferred tax liabilities 0 0 0 0 0
Other non-current liabilities 1,208 19 19 19 19 Chennai
Total liabilities 41,688 110,942 39,187 37,459 38,094 16.4%
Total equity & liabilities 44,522 130,899 86,112 133,952 268,834
Net fixed assets 4,887 8,148 8,556 8,983 9,433 Vizag
Others
Investments 974 5,673 5,673 5,673 5,673 14.6%
18.1%
Total current assets 38,661 117,077 71,883 119,295 253,727
Source: Company
Other non-current assets 0 0 0 0 0
Working capital 8,630 61,746 65,427 112,067 243,364
Total assets 44,522 130,899 86,112 133,952 268,834 Shareholding pattern
Foreign
Cash flow statement Public & Others 7.4% Institutions
7.9% 1.9%
Year to 31 Mar (Rs m) FY06 FY07 FY08E FY09E FY10E
Pre-tax profit 1,390 17,921 30,743 63,421 169,201
Depreciation 112 80 84 88 93 Non Promoter
chg in Working capital (3,142) (47,977) 7,263 (25,845) (61,903) Corporate Holding
Total tax paid (513) (4,864) (5,942) (12,392) (33,562)
8.2%
Ext ord. Items (5) - - - -
Operating cash Inflow (2,158) (34,839) 32,149 25,272 73,829
Capital expenditure (3,406) (3,261) (407) (428) (449)
Free cash flow (a+b) (5,564) (38,100) 31,742 24,844 73,380
Chg in investments 376 (4,700) - - -
Debt raised/(repaid) 6,686 45,143 (22,881) (2,500) (2,500)
Capital raised/(repaid) - 1,498 - - - Promoters
Dividend (incl. tax) (231) (429) (559) (671) (805) 74.6%
Misc (85) 2,915 2,643 (878) (680) As of September 2007
Net chg in cash 1,182 6,328 10,943 20,795 69,395

JANUARY 2008 24
 IDFC-SSKI INDIA
Analyst Sector/Industry/Coverage E-mail Tel. +91-22-6638 3300
Pathik Gandotra Head of Research; Banking, Strategy [email protected] 91-22-6638 3304
Shirish Rane Cement, Construction, Power, Real Estate [email protected] 91-22-6638 3313
Nikhil Vora FMCG, Media, Retailing, Mid Caps [email protected] 91-22-6638 3308
Ramnath S Automobiles, Auto ancillaries [email protected] 91-22-6638 3380
Nitin Agarwal Pharmaceuticals [email protected] 91-22-6638 3395
Ganesh Duvvuri IT Services, Telecom [email protected] 91-22-6638 3358
Varatharajan S Oil & Gas [email protected] 91-22-6638 3240
Chirag Shah Textiles, Metals [email protected] 91-22-6638 3306
Bhoomika Nair Construction, Power, Logistics, Engineering [email protected] 91-22-6638 3337
Avishek Datta Oil & Gas, Engineering [email protected] 91-22-6638 3217
Bhushan Gajaria FMCG, Retailing, Media, Mid Caps [email protected] 91-22-6638 3367
Shreyash Devalkar IT Services, Telecom [email protected] 91-22-6638 3311
Nilesh Parikh, CFA Banking [email protected] 91-22-6638 3325
Ashish Shah Automobiles, Auto Ancillaries [email protected] 91-22-6638 3371
Salil Desai Cement, Infrastructure [email protected] 91-22-6638 3373
Rahul Narayan FMCG, Retailing, Media, Mid Caps [email protected] 91-22-6638 3238
Ritesh Shah Textiles, Metals [email protected] 91-22-6638 3376
Aashiesh Agarwaal, CFA Real Estate [email protected] 91-22-6638 3231
Neha Agrawal Banking [email protected] 91-22-6638 3237
Swati Nangalia Mid Caps [email protected] 91-22-6638 3260
Dharmendra Sahu Database Manager [email protected] 91-22-6638 3382
Dharmesh Bhatt Technical Analyst [email protected] 91-22-6638 3392
Equity Sales/Dealing Designation E-mail Tel. +91-22-6638 3300
Naishadh Paleja CEO [email protected] 91-22-6638 3211
Paresh Shah Head of Dealing [email protected] 91-22-6638 3341
Vishal Purohit VP - Sales [email protected] 91-22-6638 3212
Nikhil Gholani VP - Sales [email protected] 91-22-6638 3363
Sanjay Panicker VP - Sales [email protected] 91-22-6638 3368
V Navin Roy AVP - Sales [email protected] 91-22-6638 3370
Rohan Soares AVP - Sales [email protected] 91-22-6638 3310
Suchit Sehgal AVP - Sales [email protected] 91-22-6638 3247
Pawan Sharma Director - Derivatives [email protected] 91-22-6638 3213
Dipesh Shah SVP- Derivatives [email protected] 91-22-6638 3245
Manohar Wadhwa VP - Derivatives [email protected] 91-22-6638 3232

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Explanation of Ratings:
1. Outperformer: More than 10% to Index
2. Neutral: Within 0-10% to Index
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Disclosure of interest:
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JANUARY
2. 2008
Affiliates of IDFC - SSKI may have mandate from the subject company. 25
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