Stock Idea - Unity Infraprojects

Recommendation: Buy

CMP = Rs 692

Price target: Rs 970

Key points:

• Unity Infraprojects (Unity) is a leading construction company with well-diversified expertise across the projects. 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.
• Unity has strong order book of approximately Rs 2,450 crore, which is 4.8x its FY2007 revenues. 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.
• 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 Rs 100 crore in Kolkata. To fund these projects, the company plans to dilute its stake in URDL, which will unlock value for Unity's shareholders.
• I initiate Buy recommendation on Unity with a price target of Rs 970 over next 6 months.