JP Morgan on Unitech: initiate with Overweight, and price target of Rs 700:

We initiate coverage on Unitech with an Overweight rating and an NAV-based Mar-08 price target (PT) of Rs700, implying upside of 30% from the current price. Our PT is based on a 20% premium to our current NAV estimate. Unitech is one of India’s largest developers with a well diversified development pipeline of ~500msf. The company has primarily focused on residential development around the NCR region, but it is now venturing into other areas and asset classes.

Stake monetization in commercial assets to provide mediumterm stock trigger:

Unitech’s development strategy seeks to monetize its stake in commercial assets by offloading them to investors. We expect the company to explore REIT-like structures either through a sponsored AIM listed vehicle (UCP) or parent company, thereby unlocking capital for securing future growth.

High returns driven by focus on development in city suburbs:

Unitech’s development plans focus on city suburbs where it seeks to acquire land at a low cost and then seek residential growth in the area through mixed-use developments. This strategy should bring higher returns than do standalone developments; however, it exposes the company to significant off-take risks.

Key risks:

We believe the key risks to our PT are:

(1) a property price slowdown in the primary market;

(2) deterioration of macroeconomic fundamentals; and

(3) execution risks given aggressive scale-up.