MUMBAI: Sharekhan has maintained 'buy' on Unity Infraprojects for a target price of Rs 871. On a standalone basis, Unity Infraprojects reported a strong financial performance in 2007-08. The company's top line and bottom line grew by 56.5 and 41.7 respectively in 2007-08. The lower growth in the bottom line was due to a decline in the operating profit margin.
The company's order book grew by 20.7 per cent year on year to Rs 2,410.5 crore. At the end of Apr-Mar 2008-09, the order book has further increased to over Rs 3,000 crore. On the back of this strong order book, the brokerage expects the companys' top line and bottom line to grow at a compounded annual growth rate of 29.3 per cent and 26.5 per cent respectively during the period FY2008-2010.
Unity's working capital requirement increased significantly on account of increase in loans and advances. The increase in loans and advances was due to rise in the advances to contractors and suppliers. Furthermore, the company loaned Rs 100 crore to its subsidiaries.
The company's debt to equity ratio remained comfortable at 0.8 in 2007-08 inspite of the long-term debt of Rs 189.2 crore raised by the company to fund its working capital requirement and capital expenditure. Sharekhan believes the company can fund its working capital requirement from its internal accruals and cash balance.
Unitys' return on capital employed declined to 21.7 per cent in 2007-08 from 26.3 per cent in 2006-07 on account of a decline in earnings before interest and tax margin and an increase in the working capital requirement.
To factor in the higher interest cost due to increased debt, higher capital expenditure leading to higher depreciation and decline in the margins, Sharekhan has revised their 2008-09 earnings estimate down by 2.3 per cent and 2009-10 earnings estimate by 0.2 per cent.
At the market price, the stock is trading at 8.4x FY2009 earnings estimate and 6.5x FY2010 earnings estimate.