Friday, June 1, 2012

>UNITY INFRA PROJECTS: 3 road BOT projects in its kitty

Witnesses robust revenue growth and healthy margins: The net sales of Unity Infraprojects (Unity) during Q4FY2012 grew by 26% year on year (YoY) and 47% quarter on quarter (QoQ) to Rs718 crore owing to scheduled execution of the company’s ongoing projects. On the operational front as well the company posted good results with margins contracting by just 129bps YoY to 12.5% which is still healthy. This contraction is on account of a hike in cement and steel prices during the quarter. The operating profit is thus up by 14% YoY.

Strong PAT growth led by lower tax outgo: Despite a 14% growth at the earnings before interest, tax, depreciation and amortization (EBITDA) level, the profit after tax (PAT) was up by 27% YoY due to flat depreciation and lower tax outgo. The interest cost was up 14% YoY as debt was at similar levels.

Healthy order book on back of good order inflow: Unity has bagged fresh orders worth Rs2,850 crore in FY2012 as compared to an order intake of Rs1,725 crore in the previous year. With this the order book for FY2012 stands at Rs4,380 crore which is 2.2x its FY2012 revenues. Further the company is the lowest bidder (L1) in orders worth nearly Rs1,000 crore. Thus, there is good revenue visibility for the company over the next two to three years.

3 road BOT projects in its kitty: Unity currently has three road build-operate-transfer (BOT) projects with itself with two projects won recently towards the end of Q4FY2012 and one won in early part of FY2012. The financial closure for two laning of the Chomu to Mahla project in Rajasthan has got delayed and is expected to take place in a month or two. The concession agreement for the two recently won projects will be signed next month, after which, it will take another four to six months for financial closure. The total equity required to be invested for these projects is approximately Rs250 crore which will be invested over the next two to three years.

PE fund raising in real estate projects depending upon their progress: Unity is looking at raising upto Rs175 crore from private equity (PE) in two of its real estate projects viz in Nagpur and in Bangalore. It has identified a few funds. However the deal closure in Nagpur would happen once Unity ties up with a hotel operator out there. The company is in the final stage of such a tie up with Hyatt. In Bangalore, the deal closure would happen post the project’s launch. However, due to political upheaval in Bangalore, the last few clearances are still left.

Maintain Buy with a price target of Rs107: We continue to like the company given its strong order inflow momentum and healthy L1 position considering the adverse macro environment picture. Further we like its diversification in the road BOT space with prudent caution. Even its working capital days have improved by 12 days while debt is maintained at the same levels. We keep our estimates unchanged and expect a 20% revenue compounded annual growth rate (CAGR) over the next two years with 14% EBITDA margins. Further, successful PE fund raising would remove some overhang on account of real estate projects. We have not given any value to its road BOT projects as well as real estate projects which would further add to the valuation. We maintain our Buy recommendation on the stock with a price target of
Rs107. At the current market price the stock is trading at a price earning (PE) multiple of 2.3x FY2013E and 1.8x FY2014E earnings respectively.