1QFY2014 Result Update | Infrastructure

August 12, 2013

Unity Infraprojects
Performance Highlights
Quarterly Highlights Standalone
Y/E March (` cr) Net sales Operating profit Net profit 1QFY14 421 52 13 1QFY13 395 54 18 4QFY13 692 73 30 % chg (yoy) 6.6 (2.5) (26.5) % chg (qoq) (39.2) (28.4) (55.5)

NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Infrastructure 146 1,079 1.7 52/16 34,841 2 18,789 5,566 UTIL.BO UIP@IN

`20 -

Source: Company, Angel Research

For 1QFY2014, Unity Infraprojects (UIP) posted better-than-expected numbers on the revenue front; however high interest burden continues to impact earnings growth. The company secured orders worth `978cr FYTD, taking the order book to `3,910cr (1.9x trailing revenue) as on date. High interest burden continues to impact earnings growth: On the top-line front, UIP reported a growth of 6.6% yoy to `421cr, which was ahead of our estimate by 3.3%. On the margin front, the companys EBITDA margin stood at 12.4% (down 115bp on a yoy basis), which is below our estimate of 13.5%. At the bottom-line level, UIP reported a decline of 26.5% yoy to `13cr against our estimate of `15cr owing to high interest expense (up 33% yoy) and lower operating leverage. The high interest expense, which is 9.3% of revenues in 1QFY2014, continues to remain a concern. Outlook and valuation: On the back of 1QFY2014 performance and muted order inflows, we revise our EPS estimate for FY2014 and FY2015 to `9.3 (our earlier estimate was of `11.0) and `9.6 (our earlier estimate was of `11.5) respectively. The stock is currently trading at a P/E of 2.2x and 2.1x our FY2014 and FY2015 diluted earnings estimates. On the back of slower-than-anticipated order inflows, stretched working capital and increasing leverage on the balance sheet, we maintain our Neutral rating on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 62.7 6.2 2.6 28.5

Abs. (%) Sensex UIP

3m (6.0)

1yr 6.8

3yr 2.7 (82.8)

(36.6) (57.0)

Key financials (Standalone)

Y/E March (` cr) Net Sales % chg Adj.Net Profit % chg EBITDA (%) FDEPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x) OB/Sales (x) Order Inflows % chg FY2012 1,973 15.9 104 9.7 13.8 14.0 1.4 0.2 14.8 15.9 0.4 3.1 2.1 2,676 55.1 FY2013 2,040 3.4 93 (10.6) 13.4 12.5 1.6 0.2 11.7 13.7 0.6 4.5 1.6 1,193 (55.4) FY2014E 2,146 5.2 69 (25.3) 12.9 9.3 2.2 0.2 8.0 11.8 0.7 5.1 1.5 1,970 65.1 FY2015E 2,339 9.0 71 2.8 13.0 9.6 2.1 0.2 7.7 11.7 0.7 5.2 1.4 2,508 27.3

Viral Shah
022-39357800 Ext: 6842 viralk.shah@angelbroking.com

Source: Company, Angel Research; Note: CMP as of August 8,2013

Please refer to important disclosures at the end of this report

Unity Infraprojects | 1QFY2014 Result Update

Exhibit 1: Quarterly performance (Standalone)

Y/E March (` cr) Net Sales Total Expenditure Operating Profit OPM (%) Interest Depreciation Non Operating Income Nonrecurring items Profit Before tax Tax Net Profit before MI PAT (%) Minority Interest (MI) Net Profit after MI Adj. PAT (%) Adj. FDEPS
Source: Company, Angel Research

1QFY14 421 369 52 12.4 39 5 10 18 5 13 3.2 13 3.2 1.8

1QFY13 395 341 54 13.6 29 5 6 26 8 18 4.6 18 4.6 2.4

4QFY13 692 619 73 10.6 40 6 8 35 5 30 4.3 30 4.3 4.0

% chg (yoy) 6.6 8.0 (2.5) (115)bp 32.6 (1.2) 53.6 (29.2) (35.4) (26.5) (142)bp (26.5) (142)bp (26.5)

% chg (qoq) (39.2) (40.5) (28.4) 188bp (2.1) (19.5) 27.3 (47.8) (0.8) (55.5) (71)bp (55.5) (71)bp (55.5)

FY2013 2,040 1,766 274 13.4 153 22 24 123 30 93 4.5 93 4.5 12.5

FY2012 1,973 1,701 272 13.8 121 20 20 150 47 104 5.2 104 5.2 14.0

% chg 3.4 3.8 0.7 36bp 25.9 9.3 17.5 0.8 (36.2) (10.6) (71)bp (10.6) (71)bp (10.6)

Exhibit 2: 1QFY2014 Actual vs Estimates

(` cr) Net Sales EBITDA EBITDAM (%) Interest and Financial Charges Adj. PAT
Source: Company, Angel Research

Estimates 408 55 13.5 32 15

Actual 421 52 12.4 39 13

Variation (%) 3.3 (4.9) (107)bp 21.4 (11.2)

Top-line aided by better execution

On the top-line front, UIP reported a growth of 6.6% yoy to `421cr, which was ahead of our estimate by 3.3%. Considering the companys 1QFY2014 performance and an order book of `3,910cr, we estimate UIP to report a revenue of `2,146cr and `2,339cr for FY2014 and FY2015 respectively. Exhibit 3: Muted top-line growth
800 700 600 500 400 300 200 490 717 100 0 Sales (` cr, LHS) 5.1 395 2.9 401 551 692 (3.5) 421 9.9 12.6 6.6 25.8 30.0 25.0 20.0 15.0 10.0 5.0 0.0 (5.0)
Civil Transportation Irrigation & WS 23 17 60

Exhibit 4: Composition of revenue (1QFY2014; %)

3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 Growth (yoy %, RHS)

Source: Company, Angel Research

Source: Company, Angel Research

August 12, 2013

Unity Infraprojects | 1QFY2014 Result Update

High interest burden continues to impact earnings growth

UIP reported an EBITDA of `52cr for 1QFY2014, declining by 2.5% yoy. The EBITDA margin came in at 12.4% against our estimate of 13.5%, owing to higher input cost pressure during the quarter. On the bottom line level, UIP reported a decline of 26.5% yoy to `13cr against our estimate of `15cr owing to high interest expense (up 33% yoy) and lower operating leverage. The high interest expense, which is 9.3% of revenues in 1QFY2014, continues to remain a concern.

Exhibit 5: Lowest EBIDTAM

100 90 80 70 60 50 40 30 20 71 89 54 70 76 73 52 10 0 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 EBITDA (`cr, LHS) EBITDAM (%, RHS) 14.5 12.5 13.6 17.6 13.9 10.6 20.0 18.0 16.0 12.4 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0

Exhibit 6: High interest cost dents PATM

45 40 35 30 25 20 15 10 25 39 18 17 28 30 13 5 0 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 PAT (` cr, LHS) PATM (%, RHS) 5.0 5.4 4.6 4.1 5.1 4.3 3.2 6.0 5.0 4.0 3.0 2.0 1.0 0.0

Source: Company, Angel Research

Source: Company, Angel Research

Order book analysis

UIPs order book stands at `3,910cr as on date, indicating a decline of 7.0% yoy. The company has secured orders worth ~`978cr FYTD and is also the lowest bidder in projects worth `533cr. The order book-to-sales ratio of 1.9x trailing revenues provides comfortable revenue visibility over the next two years. The order book mix comprises of civil (56%), irrigation & WS (18%) and transport (26%) segments.

Exhibit 7: Order backlog Segment wise (%)

18

Exhibit 8: Order backlog Region wise (%)

57 56 37 63 4 1.96

26

Civil

Transportation

Irrigation & Water supply

West

East

South

North

Overseas

Source: Company, Angel Research

Source: Company, Angel Research

August 12, 2013

Unity Infraprojects | 1QFY2014 Result Update

Outlook and valuation

On the back of 1QFY2014 performance and muted order inflows, we have revised our EPS estimate for FY2014 and FY2015 to `9.3 (our earlier estimate was of `11.0) and `9.6 (our earlier estimate was of `11.5). The stock is currently trading at a P/E of 2.2x and 2.1x our FY2014 and FY2015 diluted earnings estimates. On the back of slower-than-anticipated order inflows, stretched working capital and increasing leverage on the balance sheet, we maintain our Neutral rating on the stock.

Exhibit 9: Key assumptions

FY2010 Order Inflow Revenues Order Backlog (Y/E) OB to Sales ratio (x)
Source: Company, Angel Research

FY2011 1,725 1,702 3,501 2.1

FY2012 2,672 1,973 4,200 2.1

FY2013 1,193 2,040 3,353 1.6

FY2014E 1,970 2,146 3,176 1.5

FY2015E 2,508 2,339 3,345 1.4

2,260 1,477 3,477 2.4

Exhibit 10: Angel EPS forecast vs consensus

Angel forecast FY2014E FY2015E
Source: Company, Angel Research

Bloomberg consensus 10.9 12.4

Variation (%) (14.4) (22.7)

9.3 9.6

Investment argument
Comfortable order book-to-sales provides revenue visibility: The companys order book stands at `3,910cr (excluding L1 orders worth `533cr) as on date, thereby translating into a book-to-bill ratio of 1.9x trailing revenues. Well diversified order book with pan - India presence: UIP initially started off with a presence in Maharashtra and historically remained skewed towards projects in and around Maharashtra. It has come a long way in the last decade, making its presence felt across India by diversifying into new verticals and bidding for new projects across the country. As on date, 63% of UIPs order book constitutes orders from the North, South and East regions of the country. Foray into asset ownership model: From being a mere EPC player, UIP has forayed into asset ownership model through its wholly owned subsidiary Unity Infrastructure Assets Ltd and has bagged 3 BOT projects under its portfolio. The company has started construction activity in one of its road BOT project the Chomu-Mahla project and is in an advanced stage of achieving financial closure for the other two projects.

August 12, 2013

Unity Infraprojects | 1QFY2014 Result Update

Exhibit 11: Recommendation summary

Company ABL CCCL IRB Infra ITNL IVRCL JP Assoc. L&T NCC Punj Lloyd Sadbhav Simplex In. Unity Infra CMP 46 7 71 120 11 31 19 24 71 50 20 TP 60 106 156 41 27 100 Rating FY13 Buy Buy Buy Buy Buy Buy Buy 1,853 1,931 3,687 6,645 3,759 - Neutral Top-line (` cr) FY14E 1,912 2,281 3,805 7,423 5,673 2,131 2,492 4,248 7,970 5,892 7.2 13.6 7.3 9.5 8.4 5.4 10.6 6.8 11.7 22.8 9.2 7.1 5.3 (3.3) 16.7 26.8 (3.3) 2.5 44.8 2.4 (0.2) 0.9 10.8 12.5 EPS (`) FY13 8.6 (2.0) 4.2 4.5 12.6 17.4 7.6 82.1 4.7 1.6 5.0 0.7 15.0 30.3 1.4 1.2 46.9 2.4 0.9 5.9 11.9 9.3 5.5 2.0 15.8 31.9 1.8 2.7 52.2 2.6 1.0 6.7 18.7 9.6 1.3 (3.0) 9.2 4.1 8.0 2.4 177.2 31.9 (12.4) P/E (x) 9.1 9.6 4.7 4.0 7.8 25.4 16.6 7.7 28.4 12.1 4.2 2.1 8.4 3.3 4.5 3.8 6.1 11.6 14.9 7.2 23.8 10.7 2.7 2.0 OB/ 2.2 2.2 2.1 2.2 4.8 2.5 3.2 1.8 5.6 2.7 1.9 FY15E CAGR (%) FY13 FY14E FY15E CAGR (%) FY14E FY15E Sales (x)

- Neutral

13,415 12,946 14,897 60,873 66,532 74,520 5,725 1,811 5,897 2,040 6,044 2,462 6,308 2,146 6,533 2,731 7,033 2,339

780 1,002

- Neutral 11,408 12,726 14,226 - Neutral - Neutral

Source: Company, Angel Research

Exhibit 12: SOTP breakup

Company Core Const. ` ABL CCCL IRB Infra ITNL IVRCL JP Assoc. L&T NCC Punj Lloyd Sadbhav Simplex In. Unity Infra 18 16 30 58 9 15 731 13 44 47 75 27 % to TP 30 100 28 37 31 37 73 48 100 33 100 100 ` 15 Real Estate % to TP 37 ` 42 76 98 7 93 Road BOT % to TP 70 72 63 26 67 Invst. In Subsidiaries ` 20 271 % to TP 69 27 ` 11 7 Others % to TP 27 26 Total ` 60 16 106 156 29 41 1,002 27 44 139 75 27

Source: Company, Angel Research

Company background
Unity Infraprojects Ltd (UIP) is a mid-sized engineering and construction company with focus on civil construction and infrastructure development in India. The company is the flagship unit of the Mumbai based KK Group of Companies. The company is focused in areas, such as civil construction and infrastructure development projects. The company has three subsidiaries, namely Unity Realty and Developers Ltd, Unity Infrastructure Assets Ltd and Unity Telecom Ltd. UIP was incorporated as Unity Builders Ltd on April 9, 1997. The company changed its name to Unity Infraprojects Ltd on January 14, 2000. The company has gained credibility owing to its quick turnaround time, in-time and within-cost deliveries, organizational strength and financial stability and above all, due to it following international standards.

August 12, 2013

Unity Infraprojects | 1QFY2014 Result Update

Profit & loss statement (Standalone)

Y/E March (` cr) Net Sales Other operating income Total operating income % chg Total Expenditure R.M. consumed Construction expenses Employee expenses SG&A EBITDA % chg (% of Net Sales) Depreciation & Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Asso. Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of asso. Less: Minority interest (MI) Prior period items PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E 1,477 1,477 30.6 1,285 581 613 53 38 191 34.0 13.0 17 174 37.0 11.8 84 40 30.8 130 25.0 130 44.7 34.4 85 85 85 22.2 5.8 11.5 11.5 22.2 1,702 1,702 15.2 1,474 825 505 59 85 227 18.8 13.4 18 209 20.3 12.3 83 17 12.1 143 10.3 143 48.9 34.1 94 94 94 10.8 5.5 12.7 12.7 10.8 1,973 1,973 15.9 1,701 964 575 61 101 272 19.7 13.8 20 252 20.4 12.8 121 20 13.3 150 5.0 150 46.9 31.2 104 104 104 9.7 5.2 14.0 14.0 9.7 2,040 2,040 3.4 1,766 967 645 67 87 274 0.7 13.4 22 252 (0.0) 12.3 153 24 19.2 123 (18.6) 123 30.0 24.4 93 93 93 (10.6) 4.5 12.5 12.5 (10.6) 2,146 2,146 5.2 1,870 1,024 687 73 86 277 1.1 12.9 24 252 0.1 11.7 171 24 22.5 105 (14.5) 105 35.6 34.0 69 69 69 (25.3) 3.2 9.3 9.3 (25.3) 2,339 2,339 9.0 2,036 1,116 746 81 94 303 9.5 13.0 30 273 8.3 11.7 191 26 23.9 108 2.8 108 36.6 34.0 71 71 71 2.8 3.0 9.6 9.6 2.8

August 12, 2013

Unity Infraprojects | 1QFY2014 Result Update

Balance sheet (Standalone)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Share App Money - warrants Reserves & Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Inventories Sundry Debtors Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 154 53 100 1 34 1,465 133 562 161 609 347 1,118 1,253 186 70 116 11 68 1,762 78 807 189 680 7 444 1,318 1,513 222 90 132 54 1,956 200 890 218 642 7 493 1,463 1,650 245 112 133 64 2,299 540 997 112 649 469 1,830 2,028 305 137 169 139 2,449 574 1,029 92 754 521 1,929 2,236 365 166 199 214 2,602 625 1,121 75 781 568 2,034 2,447 15 550 565 686 1 1,253 15 636 651 861 1 1,513 15 731 746 905 (2) 1,650 15 822 837 1,191 (0) 2,028 15 881 895 1,341 (0) 2,236 15 941 956 1,491 (0) 2,447 FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E

August 12, 2013

Unity Infraprojects | 1QFY2014 Result Update

Cash flow statement (Standalone)

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2010 FY2011 FY2012 130 17 (317) (40) (45) (255) (11) (0) 40 29 1 214 (9) 69 276 50 111 161 143 17 (172) (17) (49) (78) (43) (34) 17 (59) 174 (9) (0) 165 28 161 189 150 20 (117) (20) (47) (13) (25) 14 20 9 45 (9) (3) 33 29 189 218 FY2013 FY2014E FY2015E 123 22 (473) (24) (30) (382) (23) (10) 24 (10) 286 (2) 2 286 (106) 218 112 105 24 (118) (24) (36) (48) (60) (75) 24 (111) 150 (10) 0 140 (20) 112 92 108 30 (123) (26) (37) (48) (60) (75) 26 (109) 150 (10) (0) 140 (17) 92 75

August 12, 2013

Unity Infraprojects | 1QFY2014 Result Update

Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) Wcap cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage 0.9 2.7 2.1 1.0 3.0 2.5 0.9 2.5 2.1 1.3 3.9 1.6 1.4 4.5 1.5 1.5 4.7 1.4 9.9 30 120 120 197 10.0 23 147 98 224 9.7 26 157 100 220 8.7 66 169 99 265 7.8 95 172 97 302 7.0 94 168 98 296 16.2 18.6 17.3 15.1 17.4 15.5 15.9 18.4 14.8 13.7 15.0 11.7 11.8 12.4 8.0 11.7 12.1 7.7 11.8 65.6 1.6 12.2 9.5 0.9 14.6 12.3 65.9 1.4 11.4 7.1 1.0 15.6 12.8 68.8 1.4 12.6 9.5 1.0 15.6 12.3 75.6 1.2 11.4 11.0 1.1 11.8 11.7 66.0 1.1 8.2 8.9 1.3 7.2 11.7 66.0 1.0 8.0 8.9 1.4 6.6 11.5 11.5 13.8 1.0 76.3 12.7 12.7 15.2 1.0 87.9 14.0 14.0 16.7 1.0 100.7 12.5 12.5 15.4 0.2 112.9 9.3 9.3 12.6 1.2 120.9 9.6 9.6 13.6 1.2 129.1 1.8 1.5 0.3 5.0 0.5 3.5 0.5 1.6 1.3 0.2 5.0 0.5 3.6 0.5 1.4 1.2 0.2 5.0 0.4 3.1 0.5 1.6 1.3 0.2 1.0 0.6 4.5 0.6 2.2 1.6 0.2 6.0 0.7 5.1 0.6 2.1 1.5 0.2 6.0 0.7 5.2 0.6 FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E

August 12, 2013

Unity Infraprojects | 1QFY2014 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Unity Infraprojects No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

August 12, 2013

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