Strong order flows brighten Unity Infra's revenue visibility

At a time when infrastructure companies are finding it difficult to obtain new orders, Unity Infraprojects has managed to grow its order book at a healthy rate over the past six months. The company’s current order book stands at Rs 3,800 crore. Of which, close to 40% has come in this fiscal itself. This indicates to a strong revenue visibility for the company for the next two years.

In the coming quarters, there are two chief concerns, which could affect the company’s earnings. These are over dependence on various governments for payments and unyielding real estate investment. Around 76% of the order book comes from various governments such state, central, municipal. Any delay in payments from the government side would stretch its working capital needs. Though the company has reduced its working capital this quarter; it is still high.

In the past six months, the company’s working capital days stood at 199 compared to 230 at the end of FY11. Working capital days are the number of days the company takes to receive cash after investment in working capital. Besides, the company’s investment in the real estate sector has yet to contribute meaningfully to its overall revenues. It is yet to make any sales at an investment of Rs 120 crore.

What bodes well for the company is that close to 95% of its projects have escalation clauses. Any increase in cost of raw materials could be directly passed onto the client.

Also, despite having a high interest expense (around 48% of its operating income in the September 2011 quarter), the company has been able to maintain net profit margin of over 5% in the past one year. This is better than the industry’s average of net profit margin for a construction player, especially in the present situation.

At present, though the company’s debt to equity ratio is 1:1. In the September 2011 quarter, Unity Infraprojects’ revenues rose by 13 % on a yearon-year basis to Rs 390 crore. Also, its operating profit margin has improved by 150 basis points in comparison with last year’s September quarter. This improvement came due to reduction in sub-contracting work. Also, strong cash holding of Rs 330 crore as of September 2011 on its books serves well for the company in the present situation of high interest rates.