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UNITY INFRAPROJECTS LTD
PRICE: RS.86
RECOMMENDATION: BUY
TARGET PRICE: RS.135
FY12E P/E: 6.0X
q Order inflow still subdued; though management believed that it will
improve in the coming quarter
q Margin scenario will continue to remain strong
q Based on lower than expected order inflow till date in FY11, we reduce
our order inflow estimates going forward and arrive at a revised price
target of Rs.135 on FY12 estimates (Rs 153 earlier)
q We continue to maintain BUY recommendation on the stock.
We recently met with the management of Unity Infraprojects and present
below the key highlights about the company -
Order book and order inflow scenario
Current order book of Unity Infra stands at Rs.36.36 bn which is diversified across
water and irrigation (50%), civil (43%) and remaining in transportation segment.
Order book of company has grown at a CAGR of 20% between FY08-FY10 but in
the current fiscal till date, we believe that order inflow has been subdued at just Rs
4.12 bn and below our expectations. Unity is currently L1 in Rs 5 bn worth of
projects in the buildings segments and it expects significant ramp up in the order
book during Q4FY11. Company also plans to enhance its presence in water treatment
or water desalination related projects, water metering and pumping station
related projects. Unity is also there in micro tunneling segment and plans to consolidate
its presence in micro tunneling going forward. As far as road segment is concerned,
company is currently looking at this sector conservatively and would target
projects where IRR is more than 17-18%.
We believe that full year order inflow would still be lower than our estimates. We
thus reduce our order inflow estimates for the company and expect the closing order
book to be Rs 36 bn and Rs 41 bn for FY11 and FY12 respectively.
Margins likely to remain strong
Company expects operating margins to remain strong due to its high exposure towards
higher margin segments such as water supply and irrigation as well as buildings.
Road segment currently forms a very small proportion of the order book and
nearly 90% of the order book also contains escalation clauses.
Status of real estate venture
Unity has invested Rs 1.95 bn so far in accumulating land at five places through its
subsidiary Unity Realty and Developers Ltd (URDL). It has acquired 15 acres of land
in Bangalore at a total cost of Rs.390 mn and 25 acres in Calcutta at a total cost of
Rs.750 mn. Company plans to launch a residential project in Bangalore during
Q4FY11 and in Kolkata by end of Q1FY12. While for the other projects such as
Nagpur and Goa, status quo is maintained with negotiations still on with Nagpur
Municipal Corporation about future viability of remaining four projects and Goa
project has still not commenced. We have currently ascribed value to the Nagpur,
Goa and Pune project based on the book value of investments and arrive at a valuation
of Rs 12 per share for Unity.
Working capital cycle to reduce going forward
Working capital cycle of the company had witnessed an increase in past few years
due to increased exposure in the real estate division through loans and advances
from the company. Company expects that with the launch of residential project in
Bangalore and Calcutta, it would be able to reduce loans and advances by nearly Rs
900 mn and balance would be reduced over a period of time. Thus we expect working
capital cycle to improve next year in comparison with last year.
Financial outlook
n Based on lower than expected order inflow, we reduce our order inflow as well
as execution estimates and hence our revenue estimates stands revised downwards.
We now expect revenues to be Rs 17.4 bn and Rs 20.1 bn for FY11 and
FY12 respectively as against Rs 18.5 bn and Rs 21.2 bn expected earlier for FY11
and FY12 respectively.
n We maintain our estimates for operating margins and expect margins to be
12.5% for FY11. Due to expected increase in the order book in transportation
segment going forward, we expect margins to go down marginally to 12% from
FY12 onwards.
n With revision in our order booking and execution estimates, we now expect net
profits to grow at a CAGR of 12.2% between FY10-FY12.
Valuation and recommendation
n At current price of Rs.86, stock is trading at 6.5x and 6.0x P/E multiples for FY11
and FY12 respectively.
n We roll forward our estimates on FY12 and value core business at 9x FY12 estimates
and add valuation of investments done in real estate.
n Unity has so far invested Rs 1.96 bn in the real estate venture and we thus assign
P/BV of 1x for projects in Nagpur, Pune and Goa and arrive at a value per share
of Rs 12 for Unity.
n We thus arrive at a revised price target of Rs 135 on FY12 estimates (Rs 153
earlier). We maintain BUY on the stock.
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