ENAM DIRECT
EQUITY RESEARCH
Pratibha Industries Ltd For private circulation only
Pratibha Industries Ltd (Pratibha), the flagship company of the Pratibha Group is engaged in the design, engineering, construction of complex water transmission & distribution projects, mass housing projects, commercial complexes and road construction. Over past one decade Pratibha has executed projects worth ~Rs 6,100 cr. BUY
The Company operates through three segments: ¾ Water Projects (40.1%): Water treatment plants, Water T&D Projects, elevated and CMP (Rs) 48 underground reservoirs etc. ¾ Building Projects (34.4%): Residential/Comm., Hospitals, Car parks etc. Target price (Rs) 65 ¾ Urban Infra (25.5%): Airports, Metros & Railways, Tunnelling, Roads/Bridges etc. Potential upside 35% Investment Rationale • One of the leading players in the infrastructure segment: Pratibha has emerged as Stock data one of the leading players in the infrastructure segment with 3 decades of experience & focus towards a wide range of projects in water supply, surface No. of shares (cr) 10.10 transport, urban infra as well as BOT projects. FV (Rs) 2 • Strong & well diversified order book (4x FY12 sales) provides revenue visibility Market cap (Rs cr) 485 for 30-36 months: Pratibha has an order book of Rs 6,611 cr as on June 12’ (Rs 5,102 order backlog + Rs 1,509 new orders) diversified across water projects (40.1%), 52 Wk Hi/low (Rs) 54.45/27.80 building projects (34.4%) and urban infrastructure (25.5%). There are 66 running projects (Public/Govt: Private – 77:23); largest being the tunnel project for Delhi Avg. daily vol.* (Shrs) 1,00,339 Metro Rail Corp. (4 projects) which constitutes 24% of order book. Top 10 projects BSE Code 532178 contribute ~66% towards the total order book. NSE Code PRATIBHA • Pan India presence: Pratibha initially started as a focused player in Maharashtra but has now diversified across different states in past few years. Out of the total Bloomberg code PRIL IN order book Maharashtra contributes only 27%, Delhi 48%, Bihar 7%, Dubai 2% and Reuters Code PRTI.BO remaining 16% is distributed in rest of India. We expect Pratibha to expand across India and maintain its order book growth. * 6 monthly average
EPORT • Execution of projects through Joint Venture: Pratibha has been executing projects Shareholding (%) in Joint Venture (JV) with international and domestic players to target specific high R potential orders across the EPC segment. This model not only enables the company June-12 QoQ Chg to execute large size projects but also facilitates to have Pan India presence and Promoter 51.83 (0.61)* enhances its technical & financial qualification, thus, de-risking its business model. • Managing working capital efficiently: Pratibha has been able to maintain a FIIs 15.73 (0.28) healthy operating profitability due to its efficient working capital management. As MFs / UTI 5.06 (0.15) of March 2012, company's working capital stood at 112 days. Others 27.38 1.04 • Operating margins expected to sustain at current levels: Company has not only
OMPANY * On account of conversion of Preference shares secured reasonable margin orders but also has effectively managed its operating allotted to Van Dyck. (Subsidiary of Chrys Capital).
C cost which has helped it to improve on operating levels over the last 3 years - Operating margin has gone up from 10.8% in FY10 to 13.3% in FY12 and we expect Price performance
the margins to sustain between 13.25%-14.00% levels owing to 1) Company’s focus 19000 100 towards high margin water engineering & tunnelling projects 2) Order book is well protected through escalation clause. 18000 17000 50 Initiate with a BUY rating 16000 Pratibha Industries would benefit from its strong order book position. Company has 15000 0 constantly demonstrated its capabilities by performing exceedingly well over a period Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 of time wherein revenue grew at 41%, operating profit grew at 44% & net profit at 32% BSE_SENSEX Pratibha Industries Ltd CAGR from FY2007-2012. We expect Pratibha’s revenue to grow at 27%, operating profit at 26% & profits at 21% CAGR (FY12-FY14). Looking at the strong & quality Source: Cap. line, ENAM Direct Research order book from eminent clientele we believe Pratibha is available at an attractive valuation. At CMP of Rs 48, the stock is trading at 4.1x its FY14E EPS (over 40% Vinay Bhandari [email protected] discount to its 2yr fwd PE multiple of 7x). We initiate a ‘BUY’ on Pratibha Industries with target price of Rs 65 (valued at 5.5x FY14E EPS ~ 20% discount to its 2 yr fwd PEx) – a potential upside of 35% over 15-18 months period. Financials (Consolidated) Sales PAT EPS Change P/E RoE RoCE EV/EBITDA DPS Y/E Mar (Rs cr) (Rs cr) (Rs.) (YoY %) (x) (%) (%) (x) (Rs) 2011 1,268 71 7.1 5 6.8 18.8 20.7 4.5 0.6 2012 1,666 82 8.3 17 5.8 15.8 16.6 5.7 0.6 2013E 2,199 94 9.3 13 5.2 15.7 16.0 5.0 0.8 2014E 2,705 120 11.8 27 4.1 17.2 17.1 4.4 1.0 Source: Company, ENAM Direct Research
ENAM Securities Direct 30th August 2012
Pratibha Industries Ltd
COMPANY OVERVIEW
Pratibha Industries Ltd., promoted by Mr. Ajit B. Kulkarni in 1982, has a very vast experience in the construction industry. Pratibha Ind. is one of the fastest and consistently growing construction companies in India with consolidated revenue growth of 41% and PAT growth of 32% CAGR during FY07-FY12 respectively. This was primarily supported by strong execution track record backed by robust growth in the order book which grew at 6x over past 5 years to Rs 6,611 cr. The order book contains quality orders from water and urban infra space with average operating margin of 13.25%-14.00%. Company Overview
Pratibha Group
Pratibha Industries Ltd
Construction Division Saw Pipes (In-house)
Water Supply and Environmental Engineering Commenced Production in Mid 2007. ¾ Water Transmission Manufactures high Quality Spiral (HSAW) line pipes for water, oil & gas application ¾ Water / Waste Water Treatment ¾ Integrated Water Supply Projects Range 16” to 100” (400 mm to 2500 mm) Dia. Urban Infrastructure and Underground Works Capacity – 90000 MT per annum ¾ Airports In house capacity to provide – ¾ Metros & Railways ¾ External pipe coating by 3 layer ¾ Roads / Bridges polyethylene ¾ Tunneling ¾ Internal lining by Liquid Epoxy OR ¾ Micro Tunneling centrifugally applied Cement Buildings Mortar lining ¾ High Rise Buildings / Iconic Structures ¾ Plant located in close proximity to ¾ Retail / Commercial / Residential Projects National Highway and Seaports like ¾ Hospitals and Schools JNPT & Mumbai ¾ Car Parks Provides pipes to construction division for water management projects, giving Concessions a competitive edge Oil and Gas Accredited with ISO 9001, EMS ISO:14000, ¾ Onshore Projects OHSAS 18001 besides IS:3589, IS:5504, ¾ Offshore Projects API-5L license
Source: Company, ENAM Direct Research
Pratibha also owns a HSAW Pipe division (Pratibha Pipes and Structural Limited - PPSL) in Maharashtra with a total capacity of 90,000 M.T.P.A. This primarily provides backward integration for water and oil & gas pipeline projects and to meet the external demand. This division though profit making, has now become unviable given the excess capacity in the domestic market. Management decided to merge it in the share swap ratio of 6:1 (Pratibha: PPSL).
30th August 2012 ENAM Securities Direct 2
Pratibha Industries Ltd
GROWTH PATH
Company Overview
2000 Net Revenue grew 41%; EBITDA at 44% & Profits at 32% CAGR 1,666 1600 1,268 1200 1,007 746 800 476 Amount (Rs Cr) 295 400 225 139 176 36 20 61 35 83 42 57 70 82 0 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12
Net Revenue Operating Profit Net Profit
Source: Company, ENAM Direct Research
Order book Break up
Region-wise Public/Govt. : Private
4.6% 0.9% 0.4% 0.9% 0.2% 0.5% 23% 2.1% 26.9% 7.1% 2.4% 2.2%
2.1% 1.1% 48.4% 77% MP Rajasthan UP Haryana Dubai Goa Gujarat Karnataka J&K Tamil nadu Private Public/Govt Bangladesh Maharashtra Bihar Delhi
Source: Company, ENAM Direct Research
30th August 2012 ENAM Securities Direct 3
Pratibha Industries Ltd
Top 10 Orders
Sr. Size Project Description Client Segment City No (Rs Cr)
Design and Construction of Tunnel by Shield TBM, Tunnels, Stations and Ramp by Cut & Cover method Delhi Metro Rail Urban 1 Delhi 1,090 between Motibagh and Lajpat Nagar Stations for Corporation Ltd. Infra underground works
2 Interceptor Sewer Engineers India Ltd Water Delhi 681
3 Interceptor Sewer Engineers India Ltd Water Delhi 553
Design and Construction of Tunnel by Shield TBM - Delhi Metro Rail Urban 4 Janpath & Mandi House Stations by Cut and Cover Delhi 401 Corporation Ltd. Infra Method for Underground Works
Construction of ESIC Medical College comprising of National Buildings 5 Hospital Building, Medical College, Hostels, Construction Building Patna 375 Residential Complex including allied services at Bihta Corporation Ltd.
Construction of Group Housing Project "Skyon"at 6 Sector 60 Gurgaon - Civil, Structural & Internal Ireo Pvt Ltd. Building Gurgaon 345 Finishing Works
Construction of Residential Building called as Runwal Developers 7 Building Mumbai 298 "Runwal Green" Pvt Ltd, Mumbai
Contract For Bulk Water Transmission Pipeline From Dhanki To Maliya Rising Main From Chainage 0 To Gujarat Water 8 Water Dhanki 290 63 Kms With Intake Arrangement, P.H. & Pumping Infrastructure Ltd. Machinery Contract No. Nc-30
Replacement of two Nos. of 1800 mm dia. Existing riveted Tansa mains from Tansa to Tarali by One No. Municipal 9 2750 mm dia. MS all welded pipeline in the H.E.'s Corporation of Water Mumbai 165 outside city division. Section I- From Tansa Dam to Brihan Mumbai Jamboli
Construction of Office Complex for ONGC on plot C- Oil And Natural Gas 10 Building Mumbai 156 69 at Bandra Kurla Complex, Mumbai - 51 Corporation Ltd.
Total Top 10 Orders 4,355
Total Order Book 6,611
Percentage of Total Order Book 66%
Source: Company, ENAM Direct Research
30th August 2012 ENAM Securities Direct 4
Pratibha Industries Ltd
INVESTMENT RATIONALE
• Robust & well diversified order book – Concrete visibility for 30-36 months: Despite an economic slowdown, Pratibha has been able to secure new orders during FY12. Pratibha has an order book of Rs 6,611 cr as on June 12’ (Rs 5,102 order backlog + Rs 1,509 new orders) diversified across water projects (40.1%), building projects (34.4%) and urban infrastructure (25.5%). There are 66 running projects (Public/Govt: Private – 77:23); largest being the tunnel project for Delhi Metro Rail Corp. (4 projects) which constitutes 24% of order book. Top 10 projects contribute ~66% towards the total order book.
• Order book tilted towards high margin orders
Company Overview
Rs 2,031 Cr Rs 1,935 Cr Rs 2,100 Cr Rs 3,624 Cr Rs 5,667 Cr Rs 6,611 Cr 100%
80% 71%
60% 55% 55% 52% 47% 40% 40% 35% 36% 36% 34% 26% 25% 26% 20% 20% 17% 10% 12% 3% 0% 2008 2009 2010 2011 2012 Q1 FY13*
Water Building Urban Infra
Source: Company, ENAM Direct Research
Historical Sales/Order Book
8000 4.0 3.4 2.9 3.0 6000 2.6 3.0 2.1 4000 2.0
2000 1.0
0 0.0 FY09 FY10 FY11 FY12 Q1 FY13*
Sales Closing Orderbook - Rs Cr Orderbook / Sales (RHS)
Source: Company, ENAM Direct Research; * Order Book to Sales on an annualized basis
30th August 2012 ENAM Securities Direct 5
Pratibha Industries Ltd
• Quality order flow expected to continue: Having developed a formidable presence in the domestic market, Pratibha is focusing to further expand its operations across India and in the Middle East where it is already executing a project for the Dubai Electricity and Water Authority worth Rs 370 cr. We expect the order flow to continue backed by quality construction and timely execution of commitment. Also, better business mix & less sub-contraction of work would ensure better operating margin for the company.
Revenues to grow at 27% CAGR
7% 3000 = 2 R 2,705 AG 2500 C 2,199
2000 1,666 1500 1% = 4 1,268 GR CA 1,007
Amount (Rs Cr) (Rs Amount 1000 746 476 500 295
0 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13E FY 14E
Source: Company, ENAM Direct Research
Coupled with higher operating profit with stable margins
6% 400 = 2 16.0% GR CA 300 12.0%
200 4% 8.0% = 4 CAGR 100 4.0%
0 0.0% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13E FY 14E
Operating Profit Margin (%)
Source: Company, ENAM Direct Research
30th August 2012 ENAM Securities Direct 6
Pratibha Industries Ltd
Resulting into higher profits
150 % 21 R = G 120 CA
100 94 82 32% 70 R = CAG 57 Amount (Rs Cr) (Rs Amount 50 42 35
20
0 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13E FY 14E
Source: Company, ENAM Direct Research • One of the leading players in the infrastructure segment: Pratibha has emerged as one of the leading players in infrastructure segment with 3 decades of experience & focus towards a wide range of projects in water supply, surface transport, urban infra as well as BOT projects. Over past one decade Pratibha has executed projects worth ~Rs 6,100 cr. • Pratibha set to leverage on its gross block: To reduce its dependency on outsource/lease of equipments, Pratibha has strengthen its fleet size over the past 5 years. The gross block for the company has increased at 86% CAGR from Rs 25 cr in FY 2007 to Rs 545 cr in FY 2012. This not only proves to be a cost effective option for the company but also helps in timely execution of project. • Operating margins expected to sustain at current levels: Company has not only secured reasonable margin orders but also has effectively managed its operating cost which has helped it to improve on operating levels over the last 3 years - Operating margin has gone up from 10.8% in FY10 to 13.3% in FY12 and we expects the margins to sustain between 13.25%-14.00% levels owing to 1) Company’s focus towards high margin water engineering & tunnelling projects 2) 95% of order book is well protected through escalation clause. • Consistent endeavour to enter into specialized infrastructure segments to sustain growth and create a well diversified business model: Pratibha has won projects into specialized verticals such as Micro Tunnelling and Metros. Company has been able to increase its segmental portfolio and has created a niche for itself in various verticals of different segments, thereby, creating a diversified business model and de-risking its dependence on any particular segment. • Managing working capital efficiently: Pratibha has been able to maintain a healthy operating profitability due to its efficient working capital management. As of March 2012, company's working capital stood at 112 days - a comfortable level by industry standards.
30th August 2012 ENAM Securities Direct 7
Pratibha Industries Ltd
Efficiently managing working capital…
3,000 2,705 40%
2,199 30% 2,000 1,666 1,268 20% 1,007 1,000 746 10% 81 114 107 112 109 107 0 0% 2009 2010 2011 2012 2013E 2014E
Net Sales (Rs Cr) Working Capital (Days) Working Cap/Net Sales - (%)
Source: Company, ENAM Direct Research • BOT projects to enhance value: Pratibha has 2 BOT (Annuity) projects – 1. Bhopal – Sanchi road project from NHAI in 51:49 Joint Venture with Abhyudaya Housing and Construction Pvt. Ltd. (EPC contractor). The project involves 2 - lanes of Bhopal-Sanchi section of NH-86 of 54 km to be executed. It has completed 18% of the work and the construction is expected to be completed by Q2FY14. Payments to the J.V shall be made through semi-annual annuities of ~Rs. 13 cr for 13 years totalling ~Rs. 338 cr. 2. Delhi Metro Rail Corporation (DMRC) multi level car parking project in which the company had to construct four levels of car parking and two levels of commercial space above New Delhi Railway Station cum Airport Terminal of Airport Express Line. The construction cost is envisaged at Rs 164 cr with a concession period of 30 years. The total commercial space is 0.18 mn sq ft, which Pratibha expects to lease out by FY13 with an expected lease rental of Rs 165/sq ft/ month. • Execution of projects through Joint Venture route with International and Domestic players: Pratibha has been executing projects in Joint Venture (JV) with international and domestic players to target specific high potential orders across the EPC segment. This model not only enables the company to execute large size projects but also facilitates to have Pan India presence and enhances its technical & financial qualification, thus, de-risking its business model. We believe that Company will continue to enter into JV’s to augment its potential in various projects.
30th August 2012 ENAM Securities Direct 8
Pratibha Industries Ltd
Few Strategic alliances with key global players in its business segments
Sr. No. Name of Partner Segment 1 Ostu Stettin , Austria Tunneling 2 ITD, Thailand Airports 3 China State Construction, Hong Kong Buildings and Urban Infrastructure 4 Huamei, China Urban Infrastructure 5 Zhuhai, China Sewerage 6 China Rail First Group, China Metros 7 DVGSK, Russia Urban Infrastructure 8 Leikpin, UAE Oil & Gas – Offshore 9 Gulf Petroleum Services, Oman Oil & Gas – Onshore 10 Shanghai Urban Construction Group, China Urban Infrastructure 11 Al Ambia Sdn Bhd, Malaysia Buildings 12 Mosinzhstroi, Russia Micro Tunneling 13 SMC, Malaysia Water Treatment 14 Stroystandart, Russia Concessions Source: Company, ENAM Direct Research • Pan India presence: Pratibha initially started as a focused player in Maharashtra but has now diversified across different states in past few years. Out of the total order book Maharashtra contributes only 27%, Delhi 48%, Bihar 7%, Dubai 2% and remaining 16% is distributed in rest of India. We expect Pratibha to expand across geographies and maintain its order book growth.
Jammu & Kashmir
Harayana Delhi Assam Uttar Pradesh Rajasthan Bihar
Gujarat Madhya Pradesh Bangladesh
Maharashtra Thana
Mumbai Hyderabad
Goa Andhra Pradesh Pratibha Group presence
Karnataka Corporate Office Zonal Office Tamil Nadu Plant
Source: Company, ENAM Direct Research
30th August 2012 ENAM Securities Direct 9
Pratibha Industries Ltd
BUSINESS OVERVIEW
Water Supply & Environmental EngineeringSegment overview Key projects executed
Project Cost • Water Supply and Environmental Project Description (Rs Cr) Engineering Construction of Integrated Water ¾ Water Transmission Projects Supply Scheme at Nagaur, 332 ¾ Water / Waste Water Treatment Projects Rajasthan on turnkey basis. ¾ Integrated Water Supply Projects Providing & Laying 3,000 mm dia ¾ Metering Projects Water Transmission Pipe Line 274 • Executed more than 1,000 km of pipeline near Mumbai. Design & Construction of 24 x 7 projects for various diameters upto 3000 mm, Water Supply Scheme in Navi 201 under the following types of contracts: Mumbai. Providing & Laying 3,000 mm dia • Turnkey & Design Build Contracts Water Transmission Pipe Line 161 ¾ Annuity Contracts near Mumbai. ¾ Cash Contracts Providing & Laying 3,000 mm dia Water Transmission Pipe Line in 124 • Significant Operation & Maintenance Mumbai. Experience for above projects. Design & Construction of Storm Water Pumping Station in 75 Mumbai.
Key clients Key projects Underway
Project Cost • Municipal Corporation of Greater Mumbai Project Description (Rs Cr) • Delhi Jal Board Replacement of Tansa Mains by 406 2750 mm dia MS Pipelines. • Gujarat Water Infrastructure Limited Contract for Pumped Water • Rajasthan Public Health & Engineering Supply Scheme Danki for Gujarat 403 Department Water Infrastructure Ltd Integrated Water Supply Scheme at 294 • Bangalore Water Supply & Sewerage Board Meerut (Turnkey). • Jammu & Kashmir Economic Reconstruction Augmentation of Water Supply 162 Network in Navi Mumbai Agency Supply & Installation of AMR 153 • Navi Mumbai Municipal Corporation Water Meters in Mumbai City.
Source: Company, ENAM Direct Research
30th August 2012 ENAM Securities Direct 10
Pratibha Industries Ltd
Integrated Water Supply Scheme at Nagaur, Rajasthan Al Ghafat Reservoir, Dubai
Supply & Installation of 3000 mm internal diameter M.S rising main
Intake with Treatment Plant & Pumping Station at Latur, Maharashtra
Source: Company, ENAM Direct Research
30th August 2012 ENAM Securities Direct 11
Pratibha Industries Ltd
• Urban Infra & Underground Works
Segment overview Key projects executed
• Urban Infrastructure & Underground Works Project Cost Project Description ¾ Airports (Rs Cr) ¾ Metros & Railways Construction of 6.8 km long ¾ Roads / Bridges Modak Sagar Tunnel near 223 ¾ Tunneling Mumbai. ¾ Micro Tunneling Construction of 3.6 km long • Fastest Growing Segment with the highest Tunnel from Malabar Hill to 157 potential Cross Maidan in Mumbai. • Project Portfolio comprises ¾ Two International Airports completed Construction of New ¾ Two Tunnels aggregating to 11.5 km International Terminal Building, 122 day-lighted Ahmedabad, India. ¾ One Metro Contract under execution Modular Expansion of Amritsar with 5 km of tunnels 106 Airport, India ¾ 33.8 kms of Micro Tunneling under implementation Modular Expansion of Delhi 55 ¾ Vast Asset Base comprising 4 TBMs & Airport-Arrival Terminal, India ¾ 9 MTBMs
Key Clients Key projects Underway
Project Cost • Municipal Corporation of Greater Mumbai Project Description (Rs Cr) • Engineers India Limited Design and Construction of • Airports Authority of India Interceptor Sewers including 1,250 Micro-tunneling (2 Packages) for • Delhi Metro Rail Corporation the Delhi Jal Board • National Highways Authority of India Design and Construction of • Delhi Jal Board Tunnel by Shield TBM and 2 467 Underground Stations for Delhi Metro
Source: Company, ENAM Direct Research
30th August 2012 ENAM Securities Direct 12
Pratibha Industries Ltd
Sardar Vallabhbhai Patel Internl. Delhi International Airport – Airport, Ahmedabad Domestic Terminal
Metro Rail - Railway Station – Delhi Ghansoli, Navi Mumbai
Railway Station at Airoli , Navi Malabar Hill & Modak Sagar Tunnel in Mumbai Mumbai
Source: Company, ENAM Direct Research
30th August 2012 ENAM Securities Direct 13
Pratibha Industries Ltd
• Building
Segment overview Key projects executed
Project Cost • Buildings Project Description (Rs Cr) ¾ High Rise Buildings / Iconic Structures The Capital(C 70): Construction of 22 ¾ Retail / Commercial / Storeyed Commercial Tower with 6 181 Residential Projects Basements (1,400 Car Parks) at ¾ Hospitals and Schools Bandra-Kurla Complex, Mumbai ¾ Car Parks Imperial Heights: Construction of • Made significant headway by building an Twin High Rise Residential Complex order book of US$ 400mn in less than (50 Storeyed) with Aluminum 90 5 years Shuttering (6 Day, Slab Cycle) in • Implementing a range of diverse Projects Mumbai for leading Clientele across Government Sunshine Tower: India’s Tallest & Private Sectors Structural Steel Commercial Building 60 • Currently more than 20 projects (192 Mtrs) in Mumbai underway with more than 20 million sft MCT: Construction of Institutional under construction 40 Building in Navi Mumbai • Significant investment in asset base viz. Form Work Assets > 1,00,000 sq. mtrs., The Capital (C 70): Construction of 30 Tower Cranes, 35 Concrete Pumps, 22 Storeyed Commercial Tower with 181 25 Batching Plants 6 Basements (1,400 Car Parks) at • Expect significant ramping up of this Bandra-Kurla Complex, Mumbai
segment in the near future by expanding into newer geographies and adding new clients
Key Clients Key projects Underway
Project Cost • Tata Housing Project Description (Rs Cr) • Rustomjee Group Construction of ESIC Hospital and 525 • National Building Construction Medical College in Patna, Bihar Corporation Construction of 2 Residential 366 • ONGC Complexes in Gurgaon near Delhi • Wadhwa Associates Construction of Corporate Office for 241 ONGC in Mumbai • IREO Construction of Mega Residential Pioneer Land Development 180 • Township near Mumbai
Source: Company, ENAM Direct Research
30th August 2012 ENAM Securities Direct 14
Pratibha Industries Ltd
Imperial Heights , Mumbai – Wadhwa THE CAPITAL(C70), Mumbai – Group Wadhwa Group
DMRC Multi-Level Car Park in New Delhi
AMANTRA, Kalyan – TATA Housing ONGC, CORPORATE OFFICE, Mumbai
ANGELICA & ASPEN, Mumbai – ESIC Medical College & Hospital, Bihar Mahindra Life - NBCC
Source: Company, ENAM Direct Research
30th August 2012 ENAM Securities Direct 15
Pratibha Industries Ltd
VALUATIONS & OUTLOOK
We believe Pratibha Industries would benefit from the opportunities in the infrastructure segment derived primarily by the 12th Five Year Plan. Company has constantly demonstrated its capabilities by performing exceedingly well over a period of time. We expect Pratibha’s revenues to grow at 27%, EBITDA at 26% & profits at 21% CAGR (FY12- FY14). Also, the return ratio profile for the company should improve since major capex (fleet size – machinery) is over which would take care of its revenues till FY14E. Hence we believe that asset turnover would improve going forward which would result in quality earnings.
Looking at the strong & quality order book from eminent clientele we believe Pratibha is available at an attractive valuation. At CMP of Rs 48, the stock is trading at 4.1x its FY14E EPS (over 40% discount to its 2yr fwd PE multiple of 7x). We initiate a ‘BUY’ on Pratibha Industries with target price of Rs 65 (valued at 5.5x FY14E EPS ~ 20% discount to its 2 yr fwd PE x) – a potential upside of 35% over 15-18 months period.
Pratibha Industries – 2yr Fwd PE (x) band
18 16 14 12 10 8 6
Fwd PE (x) 4 2 0 -08 -07 -12 r-10 y g g p Jul-09 Jan-08 Jan-11 Jun-11 Oct-08 Oct-11 Feb-09 Sep-10 Apr-07 A Mar-12 Au Nov-09 Au Ma PE Mean +1 STD Dev. -1 STD Dev.
Source: ENAM Direct Research
30th August 2012 ENAM Securities Direct 16
Pratibha Industries Ltd
PEER GROUP VALUATION
( Rs cr) Sales PAT EPS (Rs) PE (x) Company FY11 FY12 FY13E FY11 FY12 FY13E FY11 FY12E FY13E FY11 FY12E FY13E Patel Engg. 3,464 3663 3,831 123 75 93 18 10.75 12.7 4.3 7.0 6.0 NCC 6,122 6663 6,738 222 55 86 8 2.14 3.4 4.3 17.1 10.9 Simplex Infra 4,889 5972 6,712 124 84 107 25 16.91 21.6 8.1 12.1 9.4 IVRCL 6,804 7100 7,604 51 51 124 2 2.5 4.6 22.0 16.6 9.0 C C C L 2,199 2128 2,379 47 -8 24 3 0.0 1.9 6.0 NA 8.2 Unity Infra. 1,772 2067 2,200 96 104 108 13 14.01 14.5 3.3 3.0 2.9 Supreme Infra. 918 1506 2,207 76 92 127 48 54.81 49.9 5.8 5.1 5.6 MBL Infrast. 1,002 1265 1,373 62 72 84 35 41.4 41.8 4.5 3.8 3.8 Ramky Infra 3,147 3848 4,470 206 244 204 39 42.67 35.6 2.5 2.2 2.7 Pratibha Inds. 1,268 1666 2,199 71 82 94 7 8.3 9.3 6.8 5.8 5.2 Average 6.8 8.1 6.4
Peer Group Valuation (Cont’d)
P/BV (x) EV/EBITDA (x) Operating margin
Company FY11 FY12e FY13e FY11 FY12E FY13E FY11 FY12E FY13E Patel Engg. 0.4 0.3 0.3 5.8 5.6 5.4 13.7% 13.4% 13.2% NCC 0.4 0.4 0.4 4.8 3.9 5.0 11.6% 13.4% 10.1% Simplex Infra 0.9 0.9 0.8 2.5 2.3 1.8 8.6% 7.6% 8.7% IVRCL 0.4 0.4 0.5 4.4 4.1 3.9 10.8% 11.3% 11.0% C C C L 0.4 0.5 0.4 3.9 2.5 2.8 4.3% 7.1% 5.7% Unity Infra. 0.5 0.4 0.4 1.3 1.1 1.2 15.7% 15.3% 13.2% Supreme Infra. 1.8 1.6 1.5 4.1 2.7 2.0 17.6% 16.4% 15.0% MBL Infrast. 1.0 0.7 0.7 2.3 1.8 1.6 13.3% 13.3% 13.8% Ramky Infra 0.5 0.5 0.6 1.4 1.0 1.0 13.9% 15.4% 14.0% Pratibha Inds. 1.0 0.9 0.8 2.7 2.1 1.6 13.8% 13.4% 13.4% Average 0.7 0.7 0.6 3.3 2.7 2.6 12.3% 12.7% 11.8% Source: Bloomberg, ENAM Direct Research
RISK & CONCERN • Concentrated Order Book: Pratibha derives ~75% of the total orders from Delhi and Maharashtra. Any slowdown in these respective regions could adversely impact Pratibha’s performance and future order inflow for the company. However the company has already started diversified into newer regions/geographies which would mitigate this risk. • Multiple adverse scenarios: Sustained high interest rates, slowing GDP growth, currency depreciation, fuel shortages, weak off-takers, execution delays will play spoilsport for the Infrastructure sector. The slowdown in the economic activity, especially in the infrastructure space, has resulted in poor performance and scarce order book for most of the companies in this sector. Also, investments across the board have taken a backseat with corporate capex activity still looking some time away.
30th August 2012 ENAM Securities Direct 17
Pratibha Industries Ltd
FINANCIALS (CONSOLIDATED)
Profit & Loss Statement (Rs Cr)
Y/E Mar 2011 2012 2013E 2014E Net sales 1,268 1,666 2,199 2,705 Other operating income 4 5 8 10 Total Income 1,272 1,671 2,207 2,715
Construction Expenses 981 1,381 1,792 2,204 Cost of Goods Sold 910 1,145 1,559 1,939 Employee Cost 68 107 127 156 Contribution (%) 23% 25% 23% 23% Other SG&A Expenses 118 195 224 262
Operating profit 176 225 297 357 Other Income 13 6 7 10 PBIDT 189 231 304 367 Depreciation 17 23 39 52 Finance Cost 76 96 135 149 Pre Tax Profit 97 112 130 166 Tax provision 25 30 36 47 Adjusted PAT 71 82 94 120
Balance sheet (Rs Cr)
Y/E Mar 2011 2012 2013E 2014E Total assets 928 1,546 1,746 1,954 Gross block 359 545 947 1,022 Net fixed assets 303 466 843 867 CWIP 54 277 50 50 Investments 0 3 3 3 Working cap. (excl cash) 442 608 772 930 Cash / Bank balance 128 193 78 104
Capital employed 928 1,546 1,746 1,954 Equity capital 20 20 20 20 Reserves 448 523 622 730 Borrowings 442 981 1,081 1,181 Others 18 23 23 23
Source: Company, ENAM Direct Research
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Pratibha Industries Ltd
Key ratios (%)
Y/E Mar 2011 2012 2013E 2014E Sales growth 26% 31% 32% 23%
OPM 13.8 13.4 13.4 13.1 Oper. profit growth 26 28 32 20 COGS / Net sales 72 69 71 72 Overheads/Net sales 9.3 11.7 10.2 9.7 Depreciation / G. block 5.0% 5.0% 5.3% 5.3%
Net wkg.cap / Net sales (x) 0.3 0.4 0.4 0.3 Net sales / Gr block (x) 3.8x 3.7x 2.9x 2.7x
ROCE 20.7% 16.6% 16.0% 17.1% Net Debt / equity (x) 0.6 1.4 1.6 1.4 Effective tax rate 26.2% 26.4% 27.5% 28.0% ROE 18.8% 15.8% 15.7% 17.2% Payout ratio (Div/NP) 9% 7% 9% 9%
EPS (Rs.) 7.1 8.3 9.3 11.8 EPS Growth 5% 17% 13% 27% CEPS (Rs.) 9.6 10.6 13.3 17.0 DPS 0.6 0.6 0.8 1.0
Source: Company, ENAM Direct Research
Cash flow (Rs Cr)
Y/E Mar 2011 2012 2013E 2014E Sources 235 642 224 259 Cash profit 87 105 133 171 (-) Dividends 7 7 9 12 Retained earnings 80 98 124 159 Issue of equity 144 0 0 0 Borrowings 5 539 100 100 Others 5 5 0 0
Applications 235 642 224 259 Capital expenditure 87 409 175 75 Investments -5 3 0 0 Net current assets 90 166 164 158 Change in cash 62 65 -115 26 Source: Company, ENAM Direct Research
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Pratibha Industries Ltd
APPENDIX
USD 1 tn spending in Infrastructure in the 12th Plan
The Planning Commission of India has stressed on the need and requirement of infrastructural development in India through a number of policies and initiatives for a growing economy of India. The initial projections for infrastructure in the 12th Five Year Plan (FY13-17) is at USD 1 tn. Large investments have been put forward for the Twelfth five-year Plan which includes over USD 235 bn towards national highways and state roads, new rail lines, hydropower, metro rail systems, etc. An estimated investment of USD 135 bn is required in water and sewerage systems during 2012-31 itself. This indicates that there is huge investment potential in infrastructure. How much it would convert to real investment have to be watched for.
Opportunities in Infrastructure & Construction Sector
We believe there is an urgency in the Indian economy towards the need for robust infrastructure to revive and sustain the targeted pace of growth. Infrastructure Industry in India has been experiencing a rapid growth in different segments due to increase in urbanization and ever increasing foreign investments in this sector as a whole. With due government encouragement, the industry has canvas of opportunities.
India’s growing economy is placing huge demands on critical infrastructure – power, roads, railways, ports, transportation systems, and water supply and sanitation. While the government has raised its investments in infrastructure, the investment gap remains daunting with an estimated ~USD 1 trillion required to meet the country’s resource needs over the next five years.
For India's rapid and sustained growth, major investments in power, transport, water, and urban development are needed. Inadequate urban infrastructure is hampering the expansion of growth centres. While the Eleventh Plan had forecasted a major role for private sector involvement in infrastructure development through PPPs, it has not materialized to the extent hoped for in the aftermath of the global financial crisis.
The Indian construction industry plays a pivotal part in the national economic growth. It has witnessed rapid growth over the last few years, clearly indicating the benefit of securing “Industry” status. The construction sector is strongly linked to the overall growth and development of the economy. There has been increased emphasis on involving private sector for infrastructure development through public private ownerships and mechanism like BOT (Build Operate Transfer), BOOT (Build Operate Own Transfer) and BOLT (Build Operate Lease Transfer).
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Pratibha Industries Ltd
Construction sector may be broadly classified into the following categories:
¾ Real estate construction investments (i.e. residential and commercial construction) ¾ Infrastructure construction investments (i.e. roads, urban infrastructure, power, irrigation and railways) ¾ Industrial construction investments (i.e. steel plants, textiles plants, oil pipelines and refineries) ¾ Growth in the construction industry is expected to be led by growth in infrastructure and ¾ Industrial construction investments, which are expected to grow at a faster pace.
Opportunities for Pratibha Industries
India’s economy is expected to grow at a much faster pace than its peers. Liberalization of government regulations and a deliberate strategy on the part of the Government to promote infrastructure spells ample opportunity for the growth of Pratibha Industries. Major infrastructure development requires a substantial influx of investment capital.
Pratibha Ind.’s infrastructure division see excellent opportunities, with roads and highways, ports and airports, railways and power standing out as particular bright spots, with staggering sums of investment planned. To capture the growing demand Pratibha Ind. has partnered with leading global developers and O&M providers to bring world- class systems and best practices to India.
Company has emerged as one of the leading players in the water segment space with over 30 years experience in manufacturing of pipes, construction of complex water supply treatment, surface transport, urban infrastructure as well as BOT Projects. Over the next few years, Pratibha Ind. is poised to benefit from large Projects planned by the Central and State governments in the Infrastructure and Construction segment in India.
Pratibha Ind. has also identified new growth areas such as hydro carbon and power projects which would continue to help the company maintain robust order book growth going forward. Company also plans to continue to expand its presence across geographies as well as different business segments which should help in mitigating business specific and geographic risk.
In its repeated success, Pratibha Ind. has won another contract worth Rs 1,090 cr from DMRC which involves design and construction of tunnel by TBM’s, construction of tunnels, stations and ramp by cut and cover between Motibagh and Lajpat Nagar Stations (both excl.) for underground works on Mukundpur-Yamuna Vihar corridor of Delhi MRTS project phase III.
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Pratibha Industries Ltd
CONFLICT OF INTEREST DISCLOSURE We, at ENAM, are committed to providing the most honest and transparent advice to our clients. However, given the nature of the capital markets, from time to time we are faced with situations that could give rise to potential conflict of interest. In order to provide complete transparency to our clients, before we make any recommendations, we are committed to making a disclosure of our interest and any potential conflict IN ADVANCE so that the interests of our clients are safe- guarded at all times. In light of this policy, we have instituted what we believe to be the most comprehensive disclosure policy among leading investment Banks/brokerages in the world so that our clients may make an informed judgment about our recommendations. The following disclosures are intended to keep you informed before you make any decision- in addition, we will be happy to provide information in response to specific queries that our clients may seek from us. Disclosure of interest statement (As of 24th August 2012) 1. Analyst ownership of the stock No 2. Firm ownership of the stock No 3. Directors ownership of the stock Yes 4. MBD Relationship No 5. Broking relationship No We are committed to providing completely independent and transparent recommendations to help our clients reach a better decision.
This document has been prepared by Enam Securities Direct Private Limited – Privileged Client Group. Affiliates of Enam Securities Direct Private Limited focused on Institutional Equities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating and target price of the Affiliates research report. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent. 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