SHARETIPSINFO >>Research Reports >>PRATIBHA IND> >> (06-10-2013)

Theme – Attractive valuation and Contrarian bet.

COMPANY OVERVIEW:
Pratibha Industries Ltd (PIL), the flagship company of the Pratibha Group. Pratibha Industries was established in 1982, by a dynamic young entrepreneur Mr. Ajit B. Kulkarni. The firm started its foray with manufacturing of SFRC manhole covers & frames, which were designed & introduced as a replacement to the conventional cast iron manholes cover & frames.

In 2009, the company has set up its PPP Division (Public Private Partnership). The Public-Private Partnership (PPP) Project would be a project based on contract or concession agreement between a Government or statutory entity on the one side and a private sector company on the other side, for delivering an infrastructure service on payment of user charges.

Total Order Book:

The order book stands at over `8000 crore. The order is 4.8 times the TTM revenue thus giving revenue visibility for next 4.8 years. Major orders came in from Rajasthan and Noida. Construction on the Bhopal-Sanchi road BOT project is progressing well.

Q2 FY14 remained strong as it got orders worth Rs 1000 crore.

Orders in Q1FY14:

Business area of the company
   

Infrastructure:
Infrastructure division is doing well. Order remains robust.   

1. Water supply and Environment engineering.
2. Surface Transport
3. Special Projects
4. Building
5. Airport
6. Railway station
7. Retail Infra
8. Hydro Carbon

Pipe Division:
The manufacturing division posted an EBIT loss of `17m. The pipes division disappointed for the fourth consecutive quarter, owing to oversupply in the industry. The management is looking to exit this business.

Peer Comparison

INDUSTRY OUTLOOK:
India’s infrastructure sector will approximately entail an investment of US$ 1 trillion under the 12th Five Year Plan (2012-17), according to a report ‘Real Estate and Construction Professionals in India by 2020´ by realty consultant Jones Lang LaSalle. The report, prepared for Royal Institution of Chartered Surveyors (RICS), estimates that about 97 million jobs would be created over 2012-22 across different sectors in the country due to which, India would potentially need to build an average of 8.7 billion square feet (sq ft) of real estate space every year. This would be a great attraction for investors looking for opportunities in the infrastructure segment.

Infrastructure:
Infrastructural development mirrors the overall health of a nation’s economy. Infrastructure can be defined as major components, such as basic buildings, institutions and facilities or other essential elements, that are necessary to sustain and enable economic growth. Physical infrastructure is directly proportionate to the growth and development of a country. The Government of India has always been quite forthcoming when it comes to the upgrade of infrastructure. There has been a strong focus on assuring effective implementation of associated projects though budgetary allocations, tariff policies, fiscal incentives, private sector participation and public-private partnerships (PPPs).

Road:
Indian road network is the second largest in the world with a total length of 4.1 million kilometers (km). As per present estimate given by the highways regulator, National Highways Authority of India (NHAI), Indian roads carry about 65 per cent of freight and 80 per cent of passenger traffic. National Highways (NH) constitute 1.7 per cent of the entire network but carry 40 per cent of the traffic on Indian roads. To augment it, the Government plans to build 7, 300 km of roads every year.

Railways:
The Government has envisaged ‘The Indian Railways Vision 2020’ which aims to tackle infrastructure obstacles and deliver best services while building capacity.

Port:
Government focus on development of port and upgrading the older one with PPP models is one of the potential areas of growth.

INVESTMENT RATIONAL:

1. Management is confident of a strong revenue growth in 2HFY14.
2. Strong order book and revenue visibility.
3. Construction on the Bhopal-Sanchi road BOT project is progressing well.
4. Trading much below the book value.
5. Valuation very attractive.

Risk:

1. Drop in operating margins.
2. Slowdown in order inflows.

TREND OF SHAREHOLDING PATTERN IN LAST 3 QUARTER:

Promoters stake remained intact in the last 4 Qty.

FINANCIAL:

Key Highlights:

1.  Total Income Grew at CAGR of 20% to Rs 1661 crore in last 4 years.
2. PBIDTA moved at CAGR of 26% to Rs 276 crore over the last 4 years.
3. PAT increased at CAGR of 18.7% to Rs 95.2 crore in the last 4 years.

RATIOS:

 
Key Highlights:

1. EPS grew at CAGR of 18.7% over the last 4 years.
2. PBIDTA margins improve by 200 bps to 16.61% in last 4 years.
3. NPM showed bit of decline by 30 bps to 5.72% in last 4 years. Higher interest cost is major reason for the down side.
4. Interest cover increased from 9.3 to 17.6 over the last 4 years. Interest cover remains high.

COMPARISION OF Q4FY2013 WITH Q4FY2013:

Key Highlights:

1. Total Revenue in Q1 FY14 declined by 20.6% to Rs 357 crore (YoY).
2. PBIDTA in Q1FY14 declined by 18.2% to Rs 63.2 crore (YoY).
3.  PAT in Q1FY14 declined by 80% to Rs 4.85 crore (YoY).

VALUATION &OUTLOOK:
We expect things to improve for the company. Stock prices have corrected by 65% in last 1 year. All the negatives are discounted in the stock prices. There could be potential upside from these levels. Order books remained very strong for the company.
We expect FY14 EPS to be Rs 11; stock is trading at P/E of 1.9. We value the stock at 3, the fair value comes at Rs 33.  

CONCLUSION:
Investors with 6-8 months time horizon could take position. Downside in the stock remains limited. Patient investors could be able to get 60-65% return. Even for traders 20% return could be seen in coming month or two.

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