Pratibha Industries- Strong orderbook; pick up in 2HFY11; Buy: Anand Rathi

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Pratibha Industries
Strong orderbook; execution to pick up in 2HFY11; Buy
 2QFY11. Pratibha’s revenue, EBITDA and profit grew 24%, 37%
and 28% yoy respectively. The strong orderbook, execution pick-up
(in 2HFY11) and better-than-industry OPM augurs well. Buy.


 Order book at 3.9x FY10 revenue. The `36bn order book is 3.9x
FY10 revenue. The company is also L1 for projects worth `9bn. An
average execution period of two and a half years offers strong
revenue visibility over FY11-12. The construction division revenue
grew 27% yoy. The pipes division revenue declined 33% yoy due to
less demand from outside projects.

 Operating performance. Pratibha’s high-margin water and urban
infra segments gave it a good 15.1% OPM (up 140bp yoy and 200bp
qoq). For FY11-12, the company targets OPM of 15%; our estimate
is based on 14%. The EPC division’s PBIT margin was 14.3% (up
140bp yoy); that of the pipes division was 10.3% (down 560bp yoy).

 Equity issue; change in estimates. We have revised our estimates
to factor in the 1HFY11 performance and lower interest (recent
equity issue; `1.5bn at `85/share). We have raised FY11/12 profit
estimates 5%/7% and, post-dilution, cut EPS estimates 13%/12%.

 Valuation. Our new target of `108 (earlier `110) is based on 9x
(earlier 8x) FY12e earnings, a 25% discount to the target multiple of
mid-cap construction companies. We believe a lower discount is
justified, given the de-leveraged balance sheet post-QIP, industryleading
return ratios (even after dilution) and ability to bag big ticket
orders with the increased net worth.