STOCK UPDATE Unity Infraprojects Recommendation: Buy Price target: Rs57 Current market price: Rs29 Price target revised to Rs57 Result highlights Operating performance lower than our estimate: In Q4FY2013, the net sales of Unity Infraprojects (Unity) de-grew by 3.5% year on year (YoY) to Rs692 crore, which is marginally lower than our expectation. On the operational front, the operating profit margin (OPM) contracted by 192 basis points YoY and 333 basis points quarter on quarter (QoQ) to 10.6%, which is much lower than our expectation. The OPM is lower than the Q3FY2013 margin of 13.9%, mainly because of the higher raw material prices and construction expenses, which rose by 641 basis points QoQ. Thus, the operating profit de-grew by 4.5% QoQ. Contraction in margin leads to decline in PAT: The muted top line performance and the contraction in the OPM resulted in a 23.4% de-growth in the profit after tax (PAT) to Rs29.8 crore (which is lower than our expectation). However, healthy order book provides revenue visibility: As of May 2013, Unity has bagged fresh orders worth Rs1,289 crore in FY2013, which is lower than our expectation. This along with the orders worth Rs3,019 crore secured in FY2012 took the total order book to a respectable position of Rs3,838 crore as of May 2013, which is 1.9x its FY2013 revenues. Thus, there is a good revenue visibility for the company over the next two years. Of the present order book, 50% is from buildings, 21% is from the water segment and the remaining is from the transportation segment. Two of three road BOT projects start execution; while real estate portfolio still moving slow: Unity currently has three road build-operate-transfer (BOT) projects in its portfolio. Out of these, the construction work for the two-laning of the Chomuto-Mahla project in Rajasthan is 40% complete and the project is likely to get completed in 15-18 months. The work on Punjab-Jind project has commenced but the financial closure is expected in a month?s time. The company has signed the concession agreement for Suratgarh-Sriganganagar project while the land acquisition is under progress. The financial closure for the project is expected in a month. On the other hand, for the real estate project in Nagpur, the management had already signed an agreement with Hyatt and will start execution work in the near term. All the necessary approvals for the project are in place. However, a project in Bangalore maintains the status quo. Revenues and earnings revised downwards for FY2014 and FY2015: We have revised our revenue and earnings estimates downwards for FY2014 and FY2015 to factor in the slower project receivables which will hamper the execution of the order book. Maintain Buy with a revised price target of Rs57: We are witnessing a slower order inflow and a lower execution on account of the delay in receivables, which is reflected in the higher inventories and debtor levels in an adverse macro environment, though we like its diversification into the road BOT space with prudent caution. The successful mobilisation of funds from a private equity would remove some overhang on account of the real estate projects. We have not given any value to Unity?s road BOT and real estate projects, which would add to the valuation whenever they gain some momentum. We maintain our Buy recommendation on the stock with a revised price target of Rs57. At the current market price, the stock trades at a price earnings multiple of 2.3x FY2014E and 1.9x FY2015E earnings respectively.
Posted on: Thu, 06 Jun 2013 03:21:41 +0000
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