Pratibha Industries -Going strong in tough environment; we reiterate a Buy:: Anand Rathi

Pratibha Industries
Going strong in tough environment; we reiterate a Buy
We met the management of Pratibha Industries recently. Its order book
is `56bn, up 55% yoy, with a strong L1 position. Management has
guided to an order inflow of `40bn during FY13 and is confident of
maintaining the OPM at the current level. We retain our estimates and
iterate our Buy, with a price target of `73.

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 Robust order book. Pratibha’s order book is a sound `56bn (3.9x FY12
revenue). Water (52%), Buildings (36%) and Urban Infra (12%) continue
to dominate the order book. L1-stage projects and those being negotiated
with private parties amount to `29bn. For future orders, the focus is on
the metro-rail, water and real-estate sub-segments in India and overseas
(mainly the Middle East and Sri Lanka). The company secured orders
worth `34bn during FY12 and aims to bag orders of ~`40bn in FY13.
 Revenue growth intact, margin to be stable. We expect to see good
execution in major projects (that of the Delhi Jal Board, DMRC and
some in real-estate and water) during FY13. Work on the Bhopal-Sanchi
road BOT project has begun. Pratibha is one of the few construction
companies to have met FY12 revenue guidance. Given its strong order
book, it is bidding for new orders at higher margins. We expect a 22%
revenue CAGR over FY13-14 (management is confident of surpassing
that) and a 32% PAT CAGR, with a stable EBITDA margin of 14-15%.
 PPSL merger and rights issue. On 5 Jun’12, shareholders approved
the amalgamation of the pipe division with Pratibha Pipes & Structurals,
likely to be completed by Sep’12. The Board has passed an enabling
resolution to a rights issue, though it will tap the market only if required.
 Valuation. Our price target of `73 is based on 7x FY13e earnings, at a
20% discount to other midcap construction companies’ target multiples
(`69) and 1x book value for equity invested in BOT projects (`4/share).
Risks: slowdown in order inflows, margin squeezPratibha Industries
Going strong in tough environment; we reiterate a Buy
We met the management of Pratibha Industries recently. Its order book
is `56bn, up 55% yoy, with a strong L1 position. Management has
guided to an order inflow of `40bn during FY13 and is confident of
maintaining the OPM at the current level. We retain our estimates and
iterate our Buy, with a price target of `73.
 Robust order book. Pratibha’s order book is a sound `56bn (3.9x FY12
revenue). Water (52%), Buildings (36%) and Urban Infra (12%) continue
to dominate the order book. L1-stage projects and those being negotiated
with private parties amount to `29bn. For future orders, the focus is on
the metro-rail, water and real-estate sub-segments in India and overseas
(mainly the Middle East and Sri Lanka). The company secured orders
worth `34bn during FY12 and aims to bag orders of ~`40bn in FY13.
 Revenue growth intact, margin to be stable. We expect to see good
execution in major projects (that of the Delhi Jal Board, DMRC and
some in real-estate and water) during FY13. Work on the Bhopal-Sanchi
road BOT project has begun. Pratibha is one of the few construction
companies to have met FY12 revenue guidance. Given its strong order
book, it is bidding for new orders at higher margins. We expect a 22%
revenue CAGR over FY13-14 (management is confident of surpassing
that) and a 32% PAT CAGR, with a stable EBITDA margin of 14-15%.
 PPSL merger and rights issue. On 5 Jun’12, shareholders approved
the amalgamation of the pipe division with Pratibha Pipes & Structurals,
likely to be completed by Sep’12. The Board has passed an enabling
resolution to a rights issue, though it will tap the market only if required.
 Valuation. Our price target of `73 is based on 7x FY13e earnings, at a
20% discount to other midcap construction companies’ target multiples
(`69) and 1x book value for equity invested in BOT projects (`4/share).
Risks: slowdown in order inflows, margin squeez