Buy Unity Infraprojects for target or Rs 680

ShareKhan in its February 02, 2010 research report has recommended a buy rating on the stock Unity Infraprojects with a price target of Rs. 680.

ShareKhan cites the following reasons for the recommendation:

Result highlights:
•Unity Infraprojects (Unity)?s performance in Q3FY2010 was in line with our estimates. The net profit of the company grew by 34.5% year on year (yoy) and by 30.1% quarter on quarter (qoq) to Rs24.4 crore. The strong earnings growth of the company was on the back of an impressive revenue growth and margin expansion during the quarter. The net sales of the company grew by 36.6% yoy to Rs401.5 crore on account of the strong execution of the order book during the quarter.
•On the margin front, the operating profit margin (OPM) improved by 46 basis points yoy to 12.6% in Q3FY2010 due to a fall in the commodity prices compared with the last year and better operating leverage. However, on a sequential basis the OPM contracted by 81 basis points on account of an increase in the construction cost to 38.1% as a percentage of sales compared with 36.7% in Q2FY2010.
•The interest cost increased by 61.1% to Rs15.5 crore whereas the depreciation charge increased by 12.2% to Rs4.3 crore. During the quarter the company raised Rs73 crore via the private placement of shares with qualified institutional buyers (QIBs), which resulted in equity dilution of 11%. Consequently, the earnings per share (EPS) for the quarter grew by 21.3% yoy as compared to the profit after tax (PAT) which grew by 34.5%.
•During the quarter, the company saw a strong order inflow. It bagged orders aggregating Rs830 crore. Consequently, the company?s order book grew by 18.2% sequentially to Rs3,770 crore?2.5x FY2010E revenues. Furthermore, the company is also the L-1 bidder for contracts aggregating Rs320 crore.
•The company has acquired 37 acres of land in Bangalore and Kolkata for its real estate projects. Work on the projects will kick off in Q1FY2011. The total cost of developing the projects would be around Rs500 crore, including Rs102 crore for the acquisition of land.
•We remain positive on the company due to its growing order book and OPM that is higher than the industry average. Since the Q3FY2010 performance of the company is in line with our expectation in terms of earnings as well as order book size, we maintain our earnings estimates for FY2010 and FY2011 with EPS estimates of Rs57 and Rs71.1 for FY2010 and FY2011 respectively. We are also introducing our EPS estimate for FY2012 at Rs81.7. At the current market price the stock is trading at 8.3x FY2011 earnings estimate and 1.3x FY2011E price/book value (P/BV). We maintain our Buy recommendation on the stock with a revised price target of Rs680 (8x average EPS of FY2011E and FY2012E and P/BV of 1x its investment in two of its real estate projects).