Unity Infrastructure Projects – Religare

Unity Infa has a strong track record spanning two decades with quality certifications in civil design and construction enable the company to pre-qualify and also garner repeat orders from large clients like the Maharashtra Municipality, Indiabulls, MIAL, Delhi Development Authority, and several state governments. The company has a healthy order book of Rs 25.6bn (3.3x FY08E sales) which is to be executed within 28-30 months, signifying strong revenue visibility. Orders largely comprise civil construction, irrigation, water supply and transportation projects, and are diversified across 12 states. Robust trend in order accretion to continue with company being the lowest (L1) bidder for civil engineering projects worth Rs 2bn.

Foray into realty development through 100% owned subsidiary, Unity Realty Developers (URDL), which is likely to unlock value for shareholders in the long run. URDL currently has projects across 4mn sq ft in Nagpur, Goa and Pune, and is eying different locations to expand in this segment. Increasing capex on equipment will raise operating efficiency by reducing sub-contracting expenses and equipment hire charges. This efficiency will enable the company to sustain its operating margin above 13% in spite of increased raw material costs.

SOTP Valuation:
Rs 759 for the core construction business based on 9x FY10E EPS
Rs 128 for the three realty projects in Nagpur, Goa and Pune
Rs 10 for the Ulhasnagar BOT project

Religare recommends a BUY with a Target Price of Rs 890.

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