| Summary of Contents STOCK IDEA Unity Infraprojects
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs970
Current market price: Rs692 Riding on realty and infrastructure boom Key points - Real estate sector growth supports strong order inflows: Unity Infraprojects (Unity) is a leading construction company with well-diversified expertise across the projects. We believe the strong growth in real estate sector will trickle down to construction companies, which would lead to strong order inflows for these companies. The growth in real estate sector coupled with government thrust on infrastructure spending would lead to over 20% compounded annual growth rate (CAGR) growth in Unity's order inflows during the period FY2007-2010.
- Strong order book provides growth visibility: Unity has strong order book of approximately Rs2,450 crore, which is 4.8x its FY2007 revenues. We believe the robust order book coupled with growth in order inflows would lead to a strong financial performance. Consequently, we expect Unity's revenues and earnings to grow at a CAGR of 37.1% and 31.8% respectively during the period FY2007-2010.
- Real estate subsidiary to unlock value: Unity has forayed into real estate sector through a wholly owned subsidiary, Unity Realty and Developers Limited (URDL). The real estate projects include those at Nagpur, Pune, and Goa, which are on the build-operate-transfer (BOT) basis. Beside this, the company plans to develop 15 million square feet (mn sq ft) in Kolkata. In line with this, the company has acquired 150 acre of land for Rs100 crore in Kolkata. To fund these projects, the company plans to dilute its stake in URDL, which will unlock value for Unity's shareholders.
- Attractive valuation: We value the stock using sum-of-parts-valuation (SOTP) method. We value Unity’s core construction business at Rs757 per share ie 10x at its FY2010 estimated earnings. To value Nagpur and Goa projects in the real estate sector and Ulhasnagar water supply project, we have used net present value (NPV) method. These projects contribute Rs192 per share to our valuation. We value the company's Pune project at Rs21 per share based on the recent stake sale to Clear Hotel Capital. We have not factored in Kolkata project since there are no development plans as of date. We initiate Buy recommendation on Unity with a price target of Rs970.
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