UNITY INFRAPROJECTS LIMITED

UNITY INFRAPROJECTS LIMITED

Initiating Coverage Unity Infraprojects Ltd.

Recommendation BUY Background Unity Infraprojects Ltd (UIL) is the flagship company of the Mumbai based KK Group of Companies. UIL is one of the leading engineering & construction companies in India with a significant experience of around 30 years and a strong track record. The company is focused in areas, such as civil construction, transportation engineering and irrigation & water supply projects.

Key Positives

UIL currently has an order book of Rs. 4040 crs which gives us an order book to sales ratio of 3.6x thereby providing earnings visibility for the company

UIL has EBITDA margins of 13.2% (Trailing Twelve Months basis) as compared to an industry average of 11.5%. Whereas net margins are 5.8% as compared to industry average of 4.6%.

Increased focus of government on developing infrastructure to drive growth going forward for construction industry

Pick up in real estate sector has revived the real estate projects of UIL at Nagpur, Pune, Kolkata and Bangalore

Valuation & Recommendation We believe going forward the revenues of the company will grow at a CAGR of 26.4% over a period of next 3 years and Net profit will grow at a CAGR of 24.1% during the same period.

At the current market price of Rs 486 per share, UIL is currently trading at a PE of 7.3x FY10E and 6.0x FY11E EPS estimates, which looks quite attractive. We arrive at a target price of Rs. 726 per share by assigning a P/E multiple of 9x in its FY 2011 EPS of Rs. 80.7 per share. We recommend a BUY rating on the stock with a long term view.

CMP (13/11/2009) Rs. 486

Sector Construction

Stock Details

BSE Code

NSE Code

Bloomberg Code

Market Cap (Rs. cr)

Free Float (%)

52‐ wk HI/Lo

Avg. volume BSE (2 weeks)

Face Value

Dividend

Shares o/s (Crs)

532746

UNITY

UIP IN

641.16

30.48

511/67

50878

Rs.10.00

45%

1.34

Relative Performance 1Mth 3Mth 1Yr

UIL 13.0% 40.3% 253.3%

Sensex ‐1.0% 8.6% 79.5%

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350

450

550

5000

10000

15000

20000

Nov‐08 Feb‐09 May‐09 Aug‐09 Nov‐09

SENSEX UIL

Shareholding Pattern as of 30/09/2009

Promoters Holding 69.52%

Institutional (Incl. FII) 12.37%

Corporate Bodies 7.96%

Public & others 10.15% Ashish Goenka – Research Analyst (+91 22 3027‐2289)[email protected] Vivek Nair – Research Associate (+91 22 3027‐2228) [email protected]

Year Net Sales Growth % EBITDA Margin % PAT EPS PE P/BV ROE %

FY 2008A 850.9 56.7% 103.3 12.1% 60.0 44.9 10.8 1.8 16.9%

FY 2009A 1,165.9 37.0% 142.5 12.2% 70.4 52.6 9.2 1.6 16.8%

FY 2010E 1,543.3 32.4% 194.5 12.6% 88.9 66.5 7.3 1.3 17.8%

FY 2011E 1,927.0 24.9% 244.7 12.7% 107.8 80.7 6.0 1.1 18.1%


Company Background UIL is the flagship company of the Mumbai based KK Group of Companies. UIL started as a Mumbai centric company but now it is executing projects across the nation. UIL scaled up its business from civil construction to irrigation & transportation. Now, UIL is one of the leading engineering and construction companies in India with a significant experience of around 30 years and a strong track record. The company is focused in areas of civil construction, transportation engineering and irrigation & water supply projects. The company provides integrated engineering, procurement and construction services for civil construction and infrastructure projects. The company has constructed a vast gamut of projects including buildings, mass housing projects, Information technology park, hotels, hospitals and educational complexes. Furthermore the company has also constructed roads, bridges, dams, tunnels, lift irrigation schemes and water & sewage projects. Few of the landmark projects completed of UIL are:

• Expansion & Modification of Terminal IB at Chhatrapati Shivaji International Airport, Mumbai • Port connectivity Project for the NHAI at JN Port, Mumbai • Strengthening of the Tansa Dam • Tunnel for the North Froentier Railway in Tripura

UIL has an excellent track record of timely completion of projects. Apart from this, project selection over a threshold size, working with reputed developers, focus on turnkey projects, inbuilt price escalation mechanism, minimum order size etc are some of the key business strategy which helps the company to generate higher margins. UIL has recently established a ready mix concrete plant and an interlocking paving unit in Mumbai for its captive requirements. Furthermore the company has a maintenance and repair facility at Taloja, Navi Mumbai.

UIL has employee strength of more than 1200 employees and in the last two years the company has witnessed a jump of 64% in employee base in its construction department. UIL has a well diversified pan‐India presence with a strong presence in the state of Maharashtra, especially in Mumbai. The company’s Public Sector clientele includes Central Public Works Department (CPWD), Maharashtra State Road Development Corporation Ltd (MSRDC), Airports Authority of India (AAI) whereas India Bulls, Siemens and High Street Phoenix are some of UIL’s key Private Sector clients.

UIL came out with its Initial Public Offering in May 2006 at an issue price of Rs. 675 per share and raised approximately Rs. 225.6 crs.

Geographical Presence by State as of March 2009

32.2%

19.0%

1.0%

5.6%

3.1%

8.9%

7.1%

13.0%

10.2%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0%

Maharashtra

Mumbai

North‐east

Goa

Karnataka

Andhra Pradesh

Delhi

Rajasthan

Haryana

Source: Company, Nirmal Bang Research


Business Structure Unity Infraprojects Ltd. is primarily into construction with its business spread across three verticals, namely; Civil Construction, Transportation Engineering and Water Supply and Irrigation. Civil construction involves projects such as commercial and residential, Airports, Hospitals and Industrial Structures. The company is also present in the Irrigation & Water Supply segment wherein the company constructs Dams, tunnels, Lift Irrigation Schemes and Micro Tunneling. Furthermore under the Transportation Engineering segment the company constructs roads, bridges, flyovers, subways & tunnels. Civil Construction Civil construction enjoys approximately 39% share of the company’s order‐book and some of the major projects under execution include the Mandoli Prison Project in Delhi bagged in the previous year FY 09 with an estimated project cost of Rs. 154.3 cr to be completed in 30 months and the Tsunami Affected Rehabilitation Project at Andaman & Nicobar Island having a projects cost of Rs. 248.7 cr. Some of the key projects the company is currently executing in this segment are listed below.

UNITY INFRAPROJECTS LTD.

Irrigation and Water Supply

Civil Construction

• Commercial and residential

• Mass Housing projects and townships

• Industrial structures • Airports • Infotech Parks • Hotels • Hospitals • Universities/Education

al Complexes • Stadium and Sports

complexes • Railway Stations

• Dams • Tunnels • Lift Irrigation

Schemes • Water supply and

sewerage projects • Micro Tunneling

Transportation Engineering

• Roads • Bridges • Flyovers • Subways • Tunnels


Civil Construction Projects Under Execution

Project Contract Value

Tsunami Affected Rehabi l i tation Project,Andaman & Nicobar Is land 248.7

Prison Complex Mandol i ‐Delhi . 154.29

Dhyanchand Stadium New Delhi CPWD 147.82Source: Company,Bang Research

Water and Irrigation UIL bagged two contracts aggregating to Rs 945.8 cr. from MCGM. The first order awarded was of Rs. 670.7 cr. for the supply, installation and maintenance of AMR water meters for the Eastern and Western Suburbs of Mumbai. The Second order, valued at Rs. 325 cr was for replacement of existing riveted Tansa mains from Tansa to Tarali. On the Urban Infrastructure front the company has bagged more projects recently. The opportunity in terms of project volumes is also very high in this front and 49% of UIL’s order book is now from irrigation and water supply segment. Water and Irrigation projects yield 14 to 14.5% EBITDA margins for the company. Some of the key projects the company is currently executing in this segment are listed below. Water Supply and irrigation Projects Under Execution

Project Contract Value (Cr.)

Supply, Ins ta l lation and Maintenance of AMR water meters , Mumbai 620.76

Tansa Pipeline Project, Thane 325.0 Source: Company,Bang Research

Transportation Engineering UIL currently has two major road projects in the north amounting to more than Rs. 750 cr. One of these projects is worth Rs.375.2 cr. for upgrading and widening a highway from 4 lanes to 6 lanes in Rajasthan. The project is to be executed in 30 months. UIL has also bagged a project in Haryana for Widening, strengthening, and other miscellaneous works from Haryana State Roads Development Corporation (HSRDC). UIL bagged an order of Rs. 1145 cr. for the construction of an 8.3 km long tunnel using tunnel boring machine from Kapurbawdi to Bhandup Complex, Bombay, which would be in a JV with IVRCL .This project was awarded from the Municipal Corporation of Greater Mumbai (MCGM) and is to be completed in 60 months. Some of the key projects the company is currently executing in this segment are listed below.

Transportation Engineering Projects Under Execution

Project Contract Value (Cr.)

Construction of Highways for HSRDC at NCR Region 383

Widening of 4 lane to 6 lane Highway at Jaipur, Rajasthan 375.3 Source: Company,Bang Research


Corporate Structure Unity Realty and Developers Ltd (URDL) and Unity Infrastructure Assets Ltd (UIAL) are 100% subsidiaries of UIL. The company currently does not have any projects under UIAL. Currently the company has three real estate projects in Nagpur, Pune and Goa with a total investment of about Rs. 55 crores. The company also has real estate investments to the tune of more than Rs.81 crores in Bangalore and Kolkata on which developments are yet to take place.

NAGPUR ‐ UIL is currently developing retail and commercial complexes at Nagpur in a Joint Venture (JV) with BSEL INFRA with both companies having 50% stake each. The project is on Built Operate Transfer (BOT) basis, wherein the Nagpur Municipal Corporation (NMC) has leased out six project sites over a 30‐year concession period against development rights. Over this 30 year period the company is expected to pay Rs.584 cr. (for all the six projects).

The company has started the construction work on 2 out of 6 project sites whereas the remaining 4 project sites are still to be handed over to the company by the NMC. UIL has so far invested Rs. 28 to 30 cr. in the project. The total investment required for these 2 projects is to the tune of Rs. 200 cr. With Debt Equity ratio of 1:1, the equity contribution will be Rs. 100 crs and that UIL’s share will be Rs. 50 crs. Since UIL has already invested around Rs. 28‐30 crs. Further investment in these two sites will be around Rs. 20‐22 crs. The company expects average lease rentals of Rs. 35 to Rs. 40 per square feet for the 2 complexes and it expects a Net IRR of 18% from this project. The company plans to complete the 2 complexes by FY 2011 to coincide with the start of the concession period. The other four projects have already time barred in allotment as such UIL has right of refusal.

PUNE ‐ UIL has a 19% stake in Pune Hotel project, which is a 5 star Hotel of 411 rooms. The hotel is already operational under the Orchid Brand and the company is expecting revenues from this project in the form of dividends to its subsidiary. Since the project is in its nascent stages and given the status of the hospitality sector currently, revenue generation has not been in full flow. Also, there is a 5 lakh square feet developable area under the said property on which the JV can come up with further projects in the future.

UNITY INFRAPROJECTS LTD.

Unity Realty and Developers Ltd. (100 % Subsidiary)

Nagpur (50 % Equity Participation) Pune (19 % Equity Participation) Goa (50 % Equity Participation)

Unity Infrastructure Assets Ltd. (100 % Subsidiary)

BOT Projects


Kolkata ‐ UIL has made investments in Kolkata to the tune of Rs. 56 cr. having a land area of 25 acres. The acquisition will be fully completed by January 2010 after which the company plans a mix of commercial and residential project on this land parcel. The company expects revenue generation from this project to start in FY 2012.

Bangalore ‐ The Company has invested Rs. 25 cr. in Bangalore having a total land area of 12 acres and currently the company is planning to acquire more land in this area. This project will again be developed in joint venture with a second player.

Goa ‐ The Company has real estate investments in Dona Paulo, Goa where the company is planning to develop an IT Park. Although the approvals for the land acquisitions have been made construction activities are yet to take off due to local political issues and delay in Government approval. This project too is a 50% joint venture with BSEL Infra and the total investment made so far is Rs. 19 cr. out of which UIL has contributed around Rs. 10 Cr.


Industry Outlook The construction industry comprises of two segments, namely, the infrastructure segment and the industrial segment. The infrastructure segment includes projects such as Roads and Highways, Irrigation, Power, Water Supply & Sanitation, Civil Construction etc., whereas the industrial segment includes the construction of Oil & Gas, Metal, Automobile, and Textile plants. The size of construction industry stood at Rs. 1866 bn in FY09 thereby registering growth of 8.6% y‐o‐y. Out of this, the size of the infrastructure industry alone in FY 09 was Rs. 1385 bn. which grew by 14.04% CAGR from 2003‐04. According to Crisil estimates, construction investments are estimated to grow at 15% and 12% in 2009‐10 and 2010‐11, respectively.

We believe that sectors such as Irrigation, Urban infrastructure and Power will also contribute a sizeable amount to the infrastructure investments in India which would present a tremendous opportunity to well diversified construction company like UIL.

Size of Construction Industry

0

500

1000

1500

2000

2500

FY 2004

FY 2005

FY 2006

FY 2007

FY 2008

FY 2009

FY 2010

FY 2011

FY 2012

FY 2013

718 8141016

11641294 1385

16961906

21832378

121146 188 332

424 481 531 542 544 543

Infrastructure Industrial

Source : Crisil, Nirmal Bang Research

The Eleventh five‐year plan (2007‐2012) has envisaged an investment of approximately US$ 514 bn in infrastructure which would be shared between the Center, States and the Private sector. In the 11th five‐year plan investments worth Rs. 3141.5 bn are expected to be made in the Roads and Bridges segment a growth of 116.8% over the 10th five year plan outlay of 1448.9 bn. In the total investments, the share of private sector is expected to go up from 20% in the 10th 5 year plan to 30.1% in the 11th 5 year plan which would provide tremendous boost to the civil infrastructure segment. Investment in construction account for nearly 11% of India’s Gross Domestic Product (GDP) and has a positive domino effect on supplier industries, thereby contributing immensely to economic development. Roads, Irrigation and urban infrastructure constitute 70% on an average of infrastructure investments.


Sectorwise Investments under Eleventh Plan

2007‐08 2008‐09 2009‐10 2010‐11 2011‐12 Total 11th FYP

Roads and Bridges 518.2 547.9 592 683.7 799.7 3141.5

Centre 183.2 194.5 206.7 226.2 263 1073.6

States 175.3 181.5 188.9 206.1 248.2 1000

Private 159.7 171.9 196.4 251.4 288.5 1067.9

Irrigation 275 359.2 471.9 622.7 804.3 2533

Centre 33.7 40.1 47.8 57.3 68.8 247.6

States 241.3 319.1 424.1 565.4 735.5 2285.4

WSS 193 227.8 273.2 332.8 410.7 1437.3

Centre 51.5 64.1 79.9 99.8 124.7 420

State 135 155.6 183.1 220 269.5 963.1

Private 6.5 8.1 10.2 13 16.5 54.2Source: Crisil, Nirmal Bang Research

Irrigation Sector Water and irrigation investments have been in the forefront of state budgets due to socio‐political benefits associated with the segment. The Eleventh Five‐Year Plan has a target of developing 16 mn hectares through major, medium and minor irrigation works. Of the total irrigation potential of 140 mn hectares (mn ha) in India, it is estimated that only 103 mn has been created at the end of the 10th Five Year Plan and only 87 mn ha is utilized with only 43% of net sown area being irrigated. This shows that there is a considerable potential for development in this area which could be exploited by the construction companies. According to Crisil estimates, investment in the irrigation sector is expected to reach Rs. 728 bn by FY 2013 as compared to Rs. 306 bn in FY 2009 witnessing a CAGR of 24.2% over the period. The graph below shows the trend and projection for the investments made in the irrigation sector.

Investment in Irrigation Sector

212 281 290 285 293 306370

459

612

728

0

100

200

300

400

500

600

700

800

FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013

Rs. Billion)

Source, Crisil, Nirmal Bang Research


Urban Infrastructure Water Supply and Sanitation (WSS) has been allotted a huge investment outlay of Rs 1437.3 bn. which is 122% higher than the investment outlay for the 10th five‐year plan of Rs. 648.1 bn. Major thrust in the WSS segment is on improving rural infrastructure, an area that is expecting investments of Rs. 907 bn. in the 11th five year Plan. The private investment for the WSS segment is estimated to increase by more than 5 times to Rs 54.2 bn in the 11th five‐year plan from Rs. 10.2 bn in the 10th five‐year plan

10th Plan 11th Plan

Centre 42,320.0 42,000.0

State 21,470.0 96,310.0

Private 1,020.0 5,420.0

Total 64,810.0 143,730.0 Source: Industry, Nirmal Bang Research

Investment in WSS in 10th & 11th Five Year Plan (Rs. Crs)

A major portion of these investments is coming from Jawaharlal Nehru National Urban Renewal Mission (JNNURM). JNNURM is expected to be implemented over a seven‐year period starting from 2005 to 2012, and entails a budget of Rs. 1200 bn. The Centre has committed Rs. 500 bn. as Additional Central Assistance (ACA) under JNNURM for its two sub‐missions and two omnibus schemes. The focus on WSS sector is evident in the fact that, of the 343 projects sanctioned before October 2008 costing Rs. 328 bn., almost 75% funds relate to the WSS sector. We expect the government’s focus to translate into continued awards for construction companies like UIL who has a major presence in the WSS segment.

Transportation and Engineering Investment in roads has been a major contributor to the overall infrastructure segment in the previous years and will continue to do so in future. In the states of Maharashtra, Rajasthan, Madhya Pradesh and Gujarat the Centre is planning to auction 6 mega road projects with a investment of around Rs. 30000 cr. which augurs well for all the major infrastructure companies including UIL.

The plan outlay for roads and bridges in the 11th Five Year Plan amounts to Rs. 2533 bn. which has increased by 74.8% over the 10th five‐year plan outlay which stood at Rs. 1448.9 bn. In the Eleventh Five Year Plan the total projected investment in the private sector for road and bridges stands at Rs. 1067.90 bn. which has an enormous growth rate of 1425.6% over the 10th five‐year plan outlay of Rs. 70 bn.

Revised Estimates Budget EstimatesParticulars 2006‐07 2007‐08 2008‐09 2009‐10

Accelerated Rural Water Supply Program 1,395.9 2,023.9 2,324.0 5,774.8

Accelerated Irrigation Benefit Program 1,650.0 5,580.0 7,850.0 8,700.0

Accelerated Power Develoment Program 3,595.9 5,488.0 10,448.0 10,713.8

jawaharlal Nehru National Urban Renewal Mission

3,342.9 6,500.0 7,225.2 10,933.0

Pradhan Mantri Gram Sadak Yojna 650.0 400.0 203.0 ‐ Source: Crisil Nirmal Bang Research

Plan outlay under various infrastructure schemes (Rs. Crs)

Actuals


Investment Rationale • Strong order book position provides revenue visibility

UIL has an order book of Rs. 4040 crs which gives an order book to sales ratio of 3.6x based on its FY2009 sales thereby providing strong revenue visibility. Furthermore the company currently has L1 Status for orders worth Rs. 150 crs and it has active bids for orders worth Rs. 1200 crs. The company witnessed new order intake of Rs. 1300 crs, Rs. 1260 crs and Rs. 1414 crs in the year FY 2007, FY 2008 and FY 2009 respectively. Furthermore, In first seven months of FY2010, the company has bagged new orders worth Rs. 1900 crs thereby showing strong growth in the overall order book position of the company. Going forward we believe the company will continue to witness strong order intake primarily due to increased thrust on infrastructure by the government. We expect the order book of the company to reach approximately Rs. 4423 crs by FY 2010 and Rs. 5509 crs by FY 2011.

Order Book Movement

1996

24102694

3556

4274

4699

1000

1500

2000

2500

3000

3500

4000

4500

5000

FY 07 FY 08 FY 09 FY 10E FY 11E FY 12E

Source: Nirmal Bang Research

• Higher margins as compared to other industry players UIL primarily is into construction in the high margin Irrigation & WSS, transportation and Civil construction segment. Out of the total order book of Rs. 4040 crs, currently 49.0% of the orders are from the irrigation & WSS segment which has an EBITDA margin of approximately 14.5%. Furthermore Civil construction and transportation contribute 39.0% and 12.0% of the order book respectively. Civil construction & transportation have EBITDA margins of 13.7% and 12.5% respectively. The company follows a strategy of partnering with financial institutions (FI’s) for bidding for projects. The company leverages on its strong execution track record which helps the company in attaining better margins. The FI’s prefer to bid along with UIL as they are assured of the speedy completion of the project and quality of construction.


Segment‐wise Order Book Break‐up

0%

20%

40%

60%

80%

100%

FY 2008 FY 2009 1H FY10

71.3%55.0%

39.0%

25.9%

19.9% 49.0%

2.8%25.0%

12.0%

Civil Irrigation & WSS Transportation


Furthermore UIL has price escalation clause in approximately 94.5% of the contracts. We believe the price escalation clause in majority of its contracts helps the company from mitigating the impact on margins due to fluctuation in key raw material prices. Going forward the company intends to maintain its margins through tight cost control measures and continuing with the strategy of bidding along with FI’s.

EBIDTA Margins comparison

5.0%

10.0%

15.0%

20.0%

FY 2007 FY 2008 FY 2009 1H 2010

Nagarjuna Construction Simplex Infrastructure JMC Projects Era InfraHCC Patel Engineering IVRCL Infrastructure Unity Infraprojects


• Increase focus on infrastructure to drive long term growth In order to give a boost to economic growth government has laid special emphasis on infrastructure spending. In order to boost private sector participation in infrastructure development the government has under its stimulus packages provided refinancing options through India Infrastructure Finance Company Ltd (IIFCL). According to Crisil, construction investments are expected to grow at 15% and 12% in 2009‐10 and 2010‐11 respectively as compared to 13% growth in 2008‐09. Sectors like irrigation, urban infrastructure and ports sector are expected to be the primary growth driver for the construction industry going forward.


Expected Infrastructure Investments (Rs billions)

0

200

400

600

800

1000

Roads Irrigation Urban Infra

Power Railways Ports & Airports

Telecom

2008‐09 2009‐10E 2010‐11E

Source: Crisil, Nirmal Bang Research

• Revival in the Real Estate market to lead to value Unlocking UIL has presence in the real estate development through its 100% subsidiary Unity Realty & Developers Ltd. The company is currently present in Nagpur, Pune, Goa, Kolkata & Bengaluru regions. Under the Nagpur project the company expects to generate lease rentals from the current 2 projects from April 2011. Whereas Kolkata project is expected to contribute to the top line of the company from FY 2012. In Bengaluru the company expects to complete the land acquisition process by January 2011 and is considering entering into a JV for development activities for the project. Furthermore the company is looking to acquire additional land in the Bengaluru region. From our interaction with the company, the Management remains positive about prospects of the real estate business of the company. We believe with the expected revival in the real estate market the investments made by the company will start contributing to the revenues of the company going forward.


Risks & Concerns

• Any slowdown in infrastructure spending could impact UIL’s growth plan Investment in infrastructure is expected to increase sharply thereby improving outlook for companies like UIL. However the government runs a high fiscal deficit which limits the government’s spending capacity. UIL is primarily into construction and a considerable portion of their order book comes from civil infrastructure and therefore we believe any slowdown in infrastructure spending could adversely affect the business prospects of the company going forward.

• Revival of the Real Estate Market

The Real estate market has not yet revived in the commercial segment and therefore could dampen the progress of its real estate investments. UIL has invested in real estate in Nagpur, Pune, Kolkata, Goa and Bangalore. The demand for these projects depends on the improvement of the real estate industry. Therefore a continued downturn can impact the operational and financial performance of the company going forward. Result Analysis

• UIL witnessed strong top line growth of 32 % y‐o‐y to Rs. 303.3 cr. in Q2 FY10 as compared to Rs. 229.7 cr in. In Q2 of FY09 on account of increased order inflows. Whereas on a q‐o‐q basis topline witnessed growth of 8.5 %. Revenues for 1H FY10 registered a growth of 28.5 % to Rs. 582.9 cr. as compared to Rs. 453.6 cr.

• EBITDA increased by 36.5% y‐o‐y to Rs. 40.5 cr. from Rs.29.7 cr. in Q2 FY09 and stayed flat on a q‐o‐q basis with an increase of 4% as compared to Rs. 39 cr. in Q1 FY10. EBITDA was reported at Rs. 79.5 cr. for 1H FY10 as compared to Rs. 58.1 cr. in 1H FY09. EBITDA margins were reported at 13.4% which showed an increased to 43 bps y‐o‐y and a decline by 63 bps on a q‐o‐q basis.

Particulars (Rs. Cr.) Q2 FY10 Q2 FY09 y‐o‐y Q1 FY10 q‐o‐q 1H FY10 1H FY09 h‐o‐h

Income from Operations 303.3 229.7 32.0% 279.6 8.5% 582.9 453.6 28.5%

Total expenditure 262.7 200.0 31.3% 240.6 9.2% 503.4 395.5 27.3%

EBITDA 40.5 29.7 36.5% 39.0 4.0% 79.5 58.1 36.9%

EBITDA Margins 13.4% 12.9% 43 bps 14.0% (62 bps) 13.6% 12.8% 84 bps

Depreciation 4.4 2.7 59.2% 4.2 4.1% 8.5 6.9 23.4%

EBIT 36.2 27.0 34.2% 34.8 4.0% 71.0 52.9 34.3%

EBIT Margins 11.9% 11.8% 18 bps 12.5% (55 bps) 12.2% 11.7% 52 bps

Other income 4.4 2.2 101.8% 1.3 247.1% 5.7 5.0 14.7%

Interest 13.3 6.9 93.0% 13.6 ‐2.0% 26.8 12.8 109.1%

PBT 27.4 22.3 22.7% 22.5 21.5% 49.9 45.0 10.8%

Total Tax 8.6 6.9 25.3% 6.8 27.5% 15.4 14.0 9.9%

PAT 18.8 15.4 21.6% 15.8 18.9% 34.5 31.0 11.2%

PAT Margins 6.2% 6.7% (54 bps) 5.7% 52 bps 5.9% 6.8% (92 bps)

EPS 14.0 11.5 21.6% 11.8 18.9% 25.8 23.2 11.2%Source: Nirmal Bang Research


• Depreciation remained flat on a q‐o‐q basis at Rs. 4.4 cr. as compared to Rs. 4.2 cr. in Q1

FY 10. However, on a y‐o‐y basis depreciation jumped by 59.2% as against Rs. 2.7 cr. in Q2 FY09.

• The interest burden for the company leaped to Rs. 13.3 cr. from Rs. 6.9 cr. in Q1 FY10, an increase of 93% on account of higher debts and on a half yearly basis the interest costs more than doubled up by 109.1% as compared to Rs. 12.8 cr. in 1H FY09.

• PAT reported a healthy increase y‐o‐y at Rs.18.8 cr. as compared to Rs. 15.4 cr. in Q2 FY09 and on a q‐o‐q basis it climbed by 18.9% as compared to Rs. 15.8 in Q1 FY10. PAT for 1H FY 10 was reported at Rs. 34.5 Cr. which saw an increase of 11.2% over 1H FY09. PAT margins remained stable at 6.2% for Q2 FY10 as compared to 6.7% in Q2 FY09.

Peer Comparison UIL has a current Order Book of Rs. 4040 cr. which has been boosted by the new contracts bagged this year to the tune of Rs 1900 cr. On a TTM basis the Order Book to Sales ratio for UIL stands at 3.2 as compared to the industry average of 2.8 showing good project visibility for the company in the coming future. UIL has EBITDA margins of 13.2% compared to the peer group average of 13.0%. UIL has PAT margin of 5.8% as compared to peer group average of 5.3%.

On the valuation front UIL is trading at 10.3x P/E as compared to peer group average of 12.1x. UIL is trading at 1.6x P/BV as compared to the peer group average of 2.2x. EV/EBITDA multiple for UIL is 6.1x (TTM) as compared to 7.0x peer group. EV/Sales for UIL stands at 0.80x on a TTM basis which is same as the peer group average of 0.9.

UIL has a Debt‐Equity ratio of 1.2 as compared to the peer group average of 1.0. Whereas the interest coverage ratio for UIL is 2.6 as compared to the peer group average of 4.6.

ParticularsRevenues

EBITDA Margin

PAT Margin

Order Book

Order Book to sales P/E

EV/ EBITDA

EV/ Sales P/ BV D/E

Int Coverage Ratio

JMC Projects 1284.0 8.3% 2.6% 1,809 1.4 8.4 4.6 0.4 1.5 1.1 3.2

KNR Constructions 604.3 15.9% 7.0% 1,000 1.7 8.4 5.3 0.8 1.5 0.8 7.5

Patel Engineering 2710.4 17.1% 8.1% 10,000 2.3 15.3 7.5 1.3 2.7 1.5 5.7

Sadbhav Engineering 1160.0 10.4% 5.1% 4,592 4.0 18.3 11.3 1.2 3.4 0.4 4.2

Unity Infraprojects 1259.5 13.2% 5.8% 4,040 3.2 10.3 6.1 0.8 1.6 1.2 2.6

Average 13.0% 5.7% 2.5 12.1 7.0 0.9 2.2 1.0 4.6

Peer Comparision



Valuation & Recommendation UIL currently has an order book position of Rs. 4040 crs and has an order book to sales ratio of 3.6x based on its FY 2009 revenues. We believe going forward the revenues of the company will witness a CAGR of 26.4% over a period of next 3 years and Net profit will grow at a CAGR of 24.1% during the same period.

We have valued UIL on a PE basis assigning it a multiple of 9x FY11E earnings. Historically the company has traded at a discount to its peers. However we believe with the revival in the real estate business coupled with strong topline and earnings growth should lead to rerating of the stock going forward. At the current market price of Rs 486 per share, UIL is currently trading at a PE of 7.3x FY10E and 6.0x FY11E EPS estimates, which looks quite attractive. We arrive at a target price of Rs. 726 per share by assigning a P/E multiple of 9x in its FY 2011 EPS of Rs. 80.7 per share. We recommend a BUY rating on the stock with a long term view.

P/E Band

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Nov‐06 Mar‐07 Jul‐07 Nov‐07 Mar‐08 Jul‐08 Nov‐08 Mar‐09 Jul‐09 Nov‐09

UIL PER ‐5 PER ‐10 PER ‐ 15 PER ‐20 PER ‐25



Income Statement

Particulars (Rs. Cr.) FY 2008 FY 2009 FY 2010E FY 2011E FY 2012E

Income from Operations 850.9 1,165.9 1,543.3 1,927.0 2,353.8

Total expenditure 747.5 1,023.4 1,348.9 1,682.3 2,052.5

EBITDA 103.3 142.5 194.5 244.7 301.3

EBITDA Margins 12.1% 12.2% 12.6% 12.7% 12.8%

Depreciation 7.6 16.3 21.1 29.2 34.6

EBIT 95.7 126.2 173.3 215.5 266.7

EBIT Margins 11.2% 10.8% 11.2% 11.2% 11.3%

Other income 12.3 15.6 17.1 18.9 20.8

Interest 16.9 36.8 55.8 71.0 83.7

PBT 91.1 105.0 134.7 163.4 203.8

Total Tax 31.1 34.6 45.8 55.6 69.3

PAT before Minority Interest 60.0 70.4 88.9 107.8 134.5

Minority Interest ‐ ‐ ‐ ‐ ‐

PAT after Minority Interest 60.1 70.3 88.9 107.8 134.5

PAT Margins 7.0% 6.0% 5.8% 5.6% 5.7%

EPS 44.92 52.61 66.48 80.67 100.60Source: Nirmal Bang Research

Quarterly Results Particulars (Rs. Cr.) Q2 FY09 Q3 FY09 Q4 FY09 Q1 FY10 Q2 FY10

Income from Operations 229.7 294.2 384.6 279.6 303.3

Total expenditure 200.0 258.4 334.2 240.6 262.7

EBITDA 29.7 35.8 50.4 39.0 40.5

EBITDA Margins 12.9% 12.2% 13.1% 14.0% 13.4%

Depreciation 2.7 3.8 6.8 4.2 4.4

EBIT 27.0 32.0 43.6 34.8 36.2

EBIT Margins 11.8% 10.9% 11.4% 12.5% 11.9%

Other income 2.2 3.5 7.1 1.3 4.4

Interest 6.9 9.6 17.6 13.6 13.3

PBT 22.3 25.8 33.1 22.5 27.4

Total Tax 6.9 8.2 12.1 6.8 8.6

PAT before Minority Interest 15.4 17.6 21.0 15.8 18.8

Minority Interest 0.0 0.0 0.0 0.0 0.0

PAT after Minority Interest 15.4 17.6 21.0 15.8 18.8

PAT Margins 6.7% 6.0% 5.5% 5.7% 6.2%

EPS 11.5 13.2 15.7 11.8 14.0Source: Nirmal Bang Research


Balance Sheet


Share capital 13.4 13.4 13.4 13.4 13.4

Reserves & surplus 342.3 405.4 485.1 581.6 701.9

Networth 355.5 418.8 498.5 595.0 715.3

Minority interests 0.2 0.0 0.0 0.0 0.0

Secured Loan 250.8 442.3 592.3 742.3 842.3

Other Unsecured Loans 33.4 39.8 41.8 43.8 45.8

Total Debt 282.8 482.1 634.1 786.1 888.1

Deferred tax Liability (Net) 1.1 1.6 1.6 1.6 1.6

TOTAL 639.3 902.4 1,134.2 1,382.6 1,605.0

Application of funds

Gross block 83.8 146.6 196.6 271.6 321.6

less:accumulated Depn 21.1 36.8 57.9 87.1 121.7

Net book value 62.7 109.9 138.7 184.5 200.0

Capital WIP 0.0 1.5 1.5 1.5 1.5

Investments 48.4 25.0 35.0 35.0 35.0

Current assets, loans & advances

Inventories 52.1 184.1 243.7 304.3 371.8

Sundry debtors 337.1 379.3 507.4 633.5 773.8

Cash & bank balance 108.6 116.8 175.8 225.0 248.0

Loans & advances 383.0 635.1 656.3 766.5 890.3

Total C.Assets 880.7 1,315.4 1,583.2 1,929.4 2,283.8

Less: Current Liab & provisions

Current l iabil ities 279.7 442.9 569.2 700.9 831.9

Provisions 71.5 106.5 55.1 66.9 83.4

Net current assets 529.5 766.0 958.9 1,161.6 1,368.5

Misc Expenditure 0.1 0.0 0.0 0.0 0.0

TOTAL 639.3 902.4 1,134.1 1,382.6 1,604.9Source: Nirmal Bang Research


Cash Flow Statement


Cash flows from operating activities

Profit / (loss) before tax 91.1 105.2 134.7 163.4 203.8

Adjusted for:

Depriciation 7.3 16.3 21.1 29.2 34.6

Others 15.7 34.5 38.7 52.1 63.0

Operating profit before changes in working capital 106.8 149.6 194.5 244.7 301.3

Adjusted for (increase) / decrease

Trade & Other recievables (137.1) (42.3) (128.1) (126.1) (140.3)

Loans & advances (163.2) (217.4) (21.2) (110.2) (123.7)

Inventories (20.8) (130.3) (59.6) (60.6) (67.4)

Trade Payables, Liabil ities & Provisions 103.9 163.2 75.0 143.5 147.5

Cash generated from operations (110.4) (77.2) 60.6 91.3 117.4

Direct taxes paid , net refund (35.8) (36.2) (45.8) (55.6) (69.3)

Net cash flow from operating activities (146.2) (113.3) 14.8 35.7 48.1

Cash flows from Investing activities

Purchase of fixed asset and capital work in progress (30.5) (66.8) (50.0) (75.0) (50.0)

Proceeds from sale of fixed asset 0.0 1.6 0.0 0.0 0.0

Others 12.3 39.0 7.1 18.9 20.8

Net cash used in investing activities (18.2) (27.7) (42.9) (56.1) (29.2)

Cash flows from financing activities

Issue of shares 0.0 0.0 0.0 0.0 0.0

Proceeds from borrowing 191.6 199.3 152.0 152.0 102.0

Interest paid (20.7) (43.6) (55.8) (71.0) (83.7)

Dividend paid (4.7) (6.3) (9.4) (11.4) (14.2)

Net cash from financing activities 166.2 149.4 86.8 69.6 4.1

Net increase / (decrease) in cash and cash equivalents 1.9 8.4 58.8 49.2 23.0

Cash and bank balances, beginning of the period 106.7 108.6 117.0 175.8 225.0

Cash and bank balances, end of the period 108.6 117.0 175.8 225.0 248.0Source: Nirmal Bang Research


Ratio Analysis


Per Share Data

EPS (Rs) (Basic) 44.9 52.6 66.5 80.7 100.6

CEPS (Rs) 50.6 64.8 82.3 102.5 126.5

Book Value (Rs) 265.9 313.3 372.9 445.1 535.1

Profitability Ratios (%)

EBITDA Margin 12.1% 12.2% 12.6% 12.7% 12.8%

Net profit Margin 7.1% 6.0% 5.8% 5.6% 5.7%

ROE 16.9% 16.8% 17.8% 18.1% 18.8%

Valuation Matrix

PE (x) 10.8 9.2 7.3 6.0 4.8

P/BV 1.8 1.6 1.3 1.1 0.9

EV/EBIDTA (x) 8.0 7.1 5.7 4.9 4.3

EV/Sales (x) 1.0 0.9 0.7 0.6 0.5

Mcap/Sales (x) 0.8 0.6 0.4 0.3 0.3

Leverage Ratio

Debt/Equity Ratio 0.8 1.2 1.3 1.3 1.2

Interest Coverage Ratio 5.7 3.4 3.1 3.0 3.2Source: Nirmal Bang Research


Note

DisclaimerThis Document has been prepared by Nirmal Bang Research (Nirmal Bang Securities PVT LTD).The information, analysis and estimates contained herein are based on Nirmal Bang Research assessment and have been obtained from sources believed to be reliable. This document is meant for the use of the intended recipient only. This document, at best, represents Nirmal Bang Research opinion and is meant for general information only. Nirmal Bang Research, its directors, officers or employees shall not in anyway be responsible for the contents stated herein. Nirmal Bang Research expressly disclaims any and all liabilities that may arise from information, errors or omissions in this connection. This document is not to be considered as an offer to sell or a solicitation to buy any securities. Nirmal Bang Research, its affiliates and their employees may from time to time hold positions in securities referred to herein. Nirmal Bang Research or its affiliates may from time to time solicit from or perform investment banking or other services for any company mentioned in this document.

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