Stock Review: Unity Infraprojects

But Timely Execution Will Be a Key Determinant

 

THE stock of mid-sized infrastructure player Unity Infraprojects, has fallen by 18% in the past six months. However, the trend may reverse since the company's future revenue visibility has improved following new order wins. Its better performance in the September quarter un-derscores the expectation.

   Unity Infraprojects is engaged in the construction of commercial, residential and industrial complexes, besides transport and irrigation infrastructure. It started with civil engineering projects and expanded into other verticals such as irrigation and water supply that now account for majority of its revenues.

   A little over half of its order book consists of government projects. It pre-dominantly focuses on the western part of the country, which contributes nearly four out of every five rupees of revenue.

   Unity Infraprojects bagged new orders worth . 200 crore earlier this week. Its order book is now worth . 3,836 crore, three times its reve-nue during FY10. The orders will be executed within the next two years.

   Unity Infraprojects has reported robust growth over the past three years. Its revenue grew by 41% and net profit by 31% during the period at the compounded annual growth rate (CAGR). The growth in recent quarters, however, has tapered off due to sluggish construction activity. In the September 2010 quarter, its net profit rose by nearly 15% year-on-year. The company expects to maintain its current growth rate with higher focus on irrigation projects.

   A relatively higher debt-equity ratio at 1.2 may cause some concerns, since other comparable players have lesser proportion of debt in their capital structure. To reduce its debt, Unity recently raised funds through sale of fresh shares worth 73 crore to institutional investors.

   The scrip trades at seven times the trailing twelve-month earnings. This is at a discount compared with the stocks of its peers Ahluwalia Contract and BL Kashyap, which trade at P/Es of 10 and 13. While the company has been able to bag new contracts, timely execution will be a key determinant of future profitability.