| Summary of Content | STOCK UPDATE Unity Infraprojects
Cluster: Vulture's Pick
Recommendation: Buy
Price target: Rs103
Current market price: Rs52 Order inflow picked up in Q1, momentum to continue -
Financial performance during the quarter: Unity posted a revenue growth of 10.7% year on year (YoY) to Rs376 crore and maintained its operating profit margin (OPM) at 13% (in line with our estimate). The management expects to maintain the present level of OPM in FY2012. The net profit for the quarter exceeded our estimate and stood at Rs19.6 crore (up 0.4% YoY) on a lower than expected interest cost (due to an improvement in the receivables). -
Pick-up in order inflow and healthy L1 status provide revenue visibility: Unity bagged fresh orders worth Rs750 crore in Q1FY2012 as compared to an order intake of Rs412 crore in the corresponding quarter of the previous year. Further, the company is the lowest bidder (L1) for projects worth Rs1,500 crore (which are expected to convert in a month). Hence, we expect the momentum in the order inflow to continue in the coming quarters. Currently, the order book stands at Rs3,478 crore, which is 2x its FY2011 revenues, with an execution period of around two years. The order book of the company is spread across buildings and the water segment. For FY2012 we expect an order inflow of Rs2,671 crore (an increase of 55% compared to that in FY2011) as against the management's guidance of around Rs4,000 crore. Hence, an higher than expected order inflow could lead to a better than expected revenue growth. -
Road BOT project to achieve financial closure in a month: The financial closure for two-laning of the Chomu to Mahla via Renewal, Jobner, Rajasthan is expected to take place in a month; the construction work would begin after that. The company is increasing its focus on the build-operate-transfer (BOT) space which could increase its scale of operation. -
Maintained revenue growth guidance at 25% for FY2012: Looking at its robust order inflow, healthy L1 status (which shall ensure the momentum in the order inflow is maintained) and improved execution of the ongoing projects the company has maintained its revenue growth guidance at 25% and net profit growth guidance at 10-12%. However, as a conservative view we have factored an 18.4% revenue growth and a 7.9% net profit growth in FY2012. -
Real estate projects delayed, stake sale could unlock value: The progress on its real estate projects across geography (Nagpur, Goa, Kolkata) has been delayed due to various clearance issues. The company is also looking to sell stake in a few of its real estate projects which could unlock their value. The Bangalore project is expected to be launched in H2FY2012 and the Kolkata project is expected to come on stream in FY2013. The clearance for the land parcel in case of the Nagpur malls is expected by the end of FY2012. In case of the Goa information technology (IT) Park, the management has maintained a status quo. -
Outlook and valuation: An increase in the working capital during FY2010 and FY2011 was a major concern for the company and the management had taken appropriate steps to bring down the same. As a result, the working capital cycle has improved from Q4FY2011 which we believe is a positive for the company. We expect Unity's revenue and net profit to grow at a compounded annual growth rate of 16.7% and 16% respectively over FY2011-13. Further, looking at the current valuation the stock provides a healthy upside to our price target of Rs103 (exclude valuation of the real estate division due to lack of visibility). Hence, we maintain our Buy recommendation on the stock. At the current market price the stock is trading at price-earnings (PE) multiples of 3.8x FY2012 and 3x FY2013 estimated earnings.
VIEWPOINT Deepak Nitrite Q1 performance meets expectations Results highlights -
Q1 results in line with expectation: Deepak Nitrite Ltd (DNL)'s top line was in line with our expectation in Q1FY2012. Its net sales grew by 6.8% year on year (YoY) to Rs167.8 crore and operating profit margin (OPM) declined by 50 basis points to 7.9% during the quarter. Despite a marginal decline in the operating margin, the profit after tax (PAT) grew by 3.6% to Rs6.1 crore due to lower both interest outgo and effective tax rate. -
Revenue growth driven by a mix of volume and realisation growth: The revenue growth was driven by a mix of volume growth (2%) and a higher average realisation due to a change in the product mix. DNL exports the majority of its products to the European markets but is also slowly increasing its market share in the USA and China. In terms of products, the key growth driver for the top line and the organic business segment was the fuel additive business, which grew by 47% to Rs24 crore in Q1FY2012. -
Input cost pressure: During the quarter DNL saw an increasing trend in the prices of its raw materials especially in the inorganic business segment. The company uses a mix of crude-based, natural gas-based, caustic soda-based and chlorine-based raw materials whose prices have seen a continuous rising trend. Going ahead, the management believes that the price of caustic soda and the other chemicals whose supply was badly affected due to the tsunami in Japan will return to normal and from Q2FY2012 their supply will be resumed from Japan which will balance the demand-supply gap. So ultimately it will help DNL to maintain the margin of the inorganic business segment, which consumes caustic soda as its main raw material. The anti-dumping duty levied by India on caustic soda from Thailand, Korea and Vietnam is not expected to have any material impact on DNL as the company procures caustic soda from only the local suppliers. -
Valuation and outlook: Given the aggressive expansion of its manufacturing capacities in the fine and specialty, and inorganic segments, and the introduction of new products using its research and development (R&D) capabilities and state-of-the-art technology, DNL has the potential to grow at a compounded annual growth rate (CAGR) of around 20.7% over the next two years. In terms of valuations, we have revised our valuation after the announcement of the Q1FY2012 results. The stock trades at around 6.3x FY2013 rough estimate, which is below its historic average multiple. The stock is not under our active coverage and we do not have a rating on it.
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