Buy La Opala RG; target of Rs 68: SKP Research

La Opala RG’s net sales were up by 17.93% at Rs 13.81 crores in Q4FY07 over Q4FY06. Out of the total sales, Opalware contributed 74.65%, Crystalware contributed 20.44% and the rest of the sales came from some trading activities and sale of energy generated from windmill.

Operating Margins (OPM) of the company stood at 16.15% for Q4FY07 in comparision to 14.52% in the same period last year. The improvement came mainly due to higher realisations as the company increased their prices by 10-12% at the start of this fiscal, optimum utilisation of resources by lowering the weight per piece for some of their products and better product mix.

Profit After Tax (PAT) was down by 9.45% due to higher interest and depriciation costs. However, PAT for the whole year was up by 6.51% compared to last year.

Exports as a percentage of total sales increased to 24.38% in Q4FY07 in comparision to 17.86% in the same period last year. Contribution of Opalware & Crystalware to total exports was 37.92% and 62.08% respectively.

Owing to the established brand name and high quality products, the demand for La Opala's products is increasing. To meet the growing demand, the company is scaling up its capacity by 80% from the present levels with a capex of Rs. 37 crores, which is expected to be operational by September, 2007.

They will have a locational advantage as they will avail an exemption of excise duty for 10 years and income tax for 5 years for manufacturing in Uttaranchal. With the abundance of cheap electricity, Uttaranchal is considered to be the ideal location for the expansion. These will help in improving margins of the company.

Recently, the company tied-up with some retail chains like Reliance, Pantaloon, Metro, Shopper's Stop and Pyramid for supplying its products.

Outlook & Recommendation

We are reducing our FY08 sales and profit estimates by 23.00% and 37.89% respectively, due to the delay in expansion. It was scheduled to be operational by April ‘07, which will now be operational by September '07. Our revised estimates for sales and profit after tax in FY08 are Rs. 63.91 crores and Rs. 5.41 crores respectively. We have also incorporated the estimates for FY09. The company is expected to make net sales of Rs. 90.35 crores and profit after tax of Rs. 10.22 crores in FY09.

At current market price, the stock is currently trading at 6.02 x FY08E and 3.38 x FY09E EPS of Rs. 5.41 and Rs 9.64 respectively. We maintain our BUY recommendation on the stock with a price target of Rs 68 at 7 x FY09E EPS of Rs. 9.64.


Buy Unity Infra; target Rs 609: Emkay

Unity Infrastructure projects (UIPL) is a small size engineering & construction company providing integrated engineering, procurement & construction services for civil construction & infrastructure projects. The company is carrying out its projects in 11 states across India and also in Nepal. The company has two 100% subsidiaries: (a) Unity Reality Developers Ltd. — for real estate development (b) Unity Infrastructure Assets — for undertaking BOT projects Having consolidated its position in infrastructure space, especially in the areas of transportation engineering, Irrigation & water supply, industrial structures and airports the company is now focusing on real estate & BOT projects in a big way. Driven by strong growth in construction business coupled with good potential seen in real estate business we expect revenues and net profit for the company to grow by 54% & 37% respectively over the period FY06- FY09E.

Investment Positives:

Strong Order Book in the construction segment

Unity Infrastructure Projects Ltd.’s construction business comprises of 2 segments viz: Civil Construction (comprising of commercial & residential buildings, Airports, Railway Stations) and Infrastructure segment comprising of Transport & Irrigation & Water Supply.The current order book of UIPL is Rs 21.7 billion (as on Dec’06) with civil projects accounting for about 75.6%, irrigation & water supply accounting for 17.2% while transportation segment accounting for 7.3%. The company is also looking for entry into BOT & BOOT projects through its wholly owned subsidiary Unity Infrastructure Assets which would further increase company’s profitability. Ability of the company to undertake projects on a Turnkey & design-build basis by providing a range of specialized construction & operational services enables the company to command higher margins at the EBITDA levels. With increased order book size & company’s venture into higher value added business the EBITDA margins are expected to increase.

Good growth seen in infrastructure segment

Infrastructure segment is expected to be on the exponential growth in the next few years. Government plans to infuse about USD 320 billion for building & upgrading India’s infrastructure. Private participation is being seeked by the Government through BOT & BOOT projects across sectors. Investments are increasing in civil construction segments like Airports, malls etc. UIPL’s vast experience in infrastructure & civil construction projects would help the company to bid for & secure more complex & profitable infrastructure projects. The company also plans to expand its activities in other areas like hydropower & port projects. Hence, we see a good growth for the company with the growing economy of India in the coming years.

Focusing on BOT projects

With increasing opportunities in the BOT segment, UIPL has forayed into this segment by floating a 100% subsidiary Unity Infrastructure Assets. The Government has planned a number of projects across sectors, such as roads, water supply, power & real estate on BOT & annuity basis. UIPL plans to bid aggressively for the BOT projects going forward. BOT or annuity projects generally provide better operating margins because of the added overall control of projects costs that can be exerted by the contractor. Up till now the company has successfully procured Rs 940 million water supply project from Ulhasnagar Municipal Corporation in 50:50 JV with Pratibha Industries Ltd. We believe UIPL is well positioned in the construction & infrastructure space and would be able to bag major orders in the BOT & BOOT segment.

Strong focus on Real Estate Development to drive business growth

With the exponential growth in the economy opportunities in the real estate segment are growing rapidly. The promoters through their group company have had previous experience in the real estate sector having built prominent residential apartments in the city of Mumbai. Looking at the opportunity, UIPL has recently forayed into real estate development. The company has formed a 100% subsidiary, Unity Reality Developers Ltd. for its real estate development projects. For real estate projects, the company is focusing more on projects on contract basis where the margins are good rather than building on its land bank. UIPL has recently bagged Rs 430 million commercial complex projects from India Bulls where the land belongs to India Bulls and further the raw material viz. cement, steel would be provided to Unity by India Bulls. This would result in increased margins for UIPL. Unity Infra Projects has bagged real estate projects on BOT basis in Joint Venture with BSEL Infra in Nagpur & Pune where the land cost has to be paid during the lease period. Such business models for real estate projects on contract basis insulates UIPL from blocking its money in land bank.

Risks & Concerns:

* The projects of the company are heavily concentrated in & around Mumbai with Mumbai contributing about 21% of the current order book.
* Increasing interest rates are detrimental as debt comprises a significant portion of BOT projects.
* Entire construction industry is expected to experience pressure on margins with increasing raw material cost & wages.

Valuations:

With an EPS CAGR growth of 37% estimated over FY06-FY09E, on the back of a 54% CAGR growth in net sales and a ROE & ROCE levels of 34.3% & 35.8% on FY09. We feel, at the current price of Rs 513, the stock trades at an EV/EBITDA of 5.1x FY09E and the current valuations look attractive. UIPL is a compelling BUY and we initiate a coverage on the stock with a BUY reccommendation. We arrive at a target price of Rs 609 for the stock based on SOTP approach. At our target price the stock will be valued at 6x EV/EBITDA for FY09E.