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Pratibha Industries Ltd
ENAM Securities Direct 30th August 2012
ENAM DIRECT EQUITY RESEARCH
CO
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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.
The Company operates through three segments: Water Projects (40.1%): Water treatment plants, Water T&D Projects, elevated and
underground reservoirs etc. Building Projects (34.4%): Residential/Comm., Hospitals, Car parks etc. Urban Infra (25.5%): Airports, Metros & Railways, Tunnelling, Roads/Bridges etc.
Investment Rationale
• One of the leading players in the infrastructure segment: Pratibha has emerged asone of the leading players in the infrastructure segment with 3 decades ofexperience & focus towards a wide range of projects in water supply, surfacetransport, urban infra as well as BOT projects.
• Strong & well diversified order book (4x FY12 sales) provides revenue visibilityfor 30-36 months: Pratibha has an order book of Rs 6,611 cr as on June 12’ (Rs 5,102order backlog + Rs 1,509 new orders) diversified across water projects (40.1%),building projects (34.4%) and urban infrastructure (25.5%). There are 66 runningprojects (Public/Govt: Private – 77:23); largest being the tunnel project for DelhiMetro Rail Corp. (4 projects) which constitutes 24% of order book. Top 10 projectscontribute ~66% towards the total order book.
• 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 India and maintain its order book growth.
• Execution of projects through Joint Venture: 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.
• 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.
• 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 expect the margins to sustain between 13.25%-14.00% levels owing to 1) Company’s focus towards high margin water engineering & tunnelling projects 2) Order book is well protected through escalation clause.
Initiate with a BUY rating Pratibha Industries would benefit from its strong order book position. Company hasconstantly demonstrated its capabilities by performing exceedingly well over a periodof time wherein revenue grew at 41%, operating profit grew at 44% & net profit at 32%CAGR from FY2007-2012. We expect Pratibha’s revenue to grow at 27%, operatingprofit at 26% & profits at 21% CAGR (FY12-FY14). Looking at the strong & qualityorder book from eminent clientele we believe Pratibha is available at an attractivevaluation. 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 Industrieswith 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.
CMP (Rs) 48 Target price (Rs) 65 Potential upside 35%
Stock data
No. of shares (cr) 10.10
FV (Rs) 2
Market cap (Rs cr) 485
52 Wk Hi/low (Rs) 54.45/27.80
Avg. daily vol.* (Shrs) 1,00,339
BSE Code 532178
NSE Code PRATIBHA
Bloomberg code PRIL IN
Reuters Code PRTI.BO
* 6 monthly average
Shareholding (%)
June-12 QoQ Chg
Promoter 51.83 (0.61)*
FIIs 15.73 (0.28)
MFs / UTI 5.06 (0.15)
Others 27.38 1.04 * On account of conversion of Preference shares
allotted to Van Dyck. (Subsidiary of Chrys Capital).
Price performance
Source: Cap. line, ENAM Direct Research
Vinay Bhandari [email protected]
Financials (Consolidated)
Y/E Mar Sales (Rs cr)
PAT (Rs cr)
EPS (Rs.)
Change (YoY %)
P/E (x)
RoE (%)
RoCE (%)
EV/EBITDA (x)
DPS (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
0
50
100
15000
16000
17000
18000
19000
Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12
BSE_SENSEX Pratibha Industries Ltd
BUY
30th August 2012 ENAM Securities Direct 2
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
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).
Pratibha Group
Pratibha Industries Ltd
Construction Division Saw Pipes (In-house)
Water Supply and Environmental EngineeringWater TransmissionWater / Waste Water Treatment Integrated Water Supply Projects
Urban Infrastructure and Underground WorksAirports Metros & Railways Roads / BridgesTunneling Micro Tunneling
BuildingsHigh Rise Buildings / Iconic StructuresRetail / Commercial / Residential ProjectsHospitals and Schools Car Parks
ConcessionsOil and Gas
Onshore ProjectsOffshore Projects
Commenced Production in Mid 2007. Manufactures high Quality Spiral (HSAW) line pipes for water, oil & gas application Range 16” to 100” (400 mm to 2500 mm) Dia. Capacity – 90000 MT per annumIn house capacity to provide –
External pipe coating by 3 layer polyethyleneInternal lining by Liquid Epoxy OR centrifugally applied Cement Mortar liningPlant located in close proximity to National Highway and Seaports like JNPT & Mumbai
Provides pipes to construction division for water management projects, giving a competitive edgeAccredited with ISO 9001, EMS ISO:14000, OHSAS 18001 besides IS:3589, IS:5504, API-5L license
Pratibha Group
Pratibha Industries Ltd
Construction Division Saw Pipes (In-house)Construction Division Saw Pipes (In-house)
Water Supply and Environmental EngineeringWater TransmissionWater / Waste Water Treatment Integrated Water Supply Projects
Urban Infrastructure and Underground WorksAirports Metros & Railways Roads / BridgesTunneling Micro Tunneling
BuildingsHigh Rise Buildings / Iconic StructuresRetail / Commercial / Residential ProjectsHospitals and Schools Car Parks
ConcessionsOil and Gas
Onshore ProjectsOffshore Projects
Commenced Production in Mid 2007. Manufactures high Quality Spiral (HSAW) line pipes for water, oil & gas application Range 16” to 100” (400 mm to 2500 mm) Dia. Capacity – 90000 MT per annumIn house capacity to provide –
External pipe coating by 3 layer polyethyleneInternal lining by Liquid Epoxy OR centrifugally applied Cement Mortar liningPlant located in close proximity to National Highway and Seaports like JNPT & Mumbai
Provides pipes to construction division for water management projects, giving a competitive edgeAccredited with ISO 9001, EMS ISO:14000, OHSAS 18001 besides IS:3589, IS:5504, API-5L license
30th August 2012 ENAM Securities Direct 3
Pratibha Industries Ltd
GROWTH PATH Company Overview
Source: Company, ENAM Direct Research
Order book Break up
Region-wise Public/Govt. : Private
Source: Company, ENAM Direct Research
295 476
746
1,007
1,268
1,666
36 61 83 139 176 22520 35 42 57 70 82
0
400
800
1200
1600
2000
FY 07 FY 08 FY 09 FY 10 FY 11 FY 12
Am
ount
(Rs C
r)
Net Revenue Operating Profit Net Profit
Net Revenue grew 41%; EBITDA at 44% & Profits at 32% CAGR
1.1%
2.1%
2.2%2.4%
2.1%0.2%
4.6% 0.9% 0.4%
0.9%0.5%
26.9% 7.1%
48.4%
MP Rajasthan UP Haryana Dubai
Goa Gujarat Karnataka J&K Tamil nadu
Bangladesh Maharashtra Bihar Delhi
23%
77%
Private Public/Govt
30th August 2012 ENAM Securities Direct 4
Pratibha Industries Ltd
Top 10 Orders Sr. No Project Description Client Segment City Size
(Rs Cr)
1
Design and Construction of Tunnel by Shield TBM, Tunnels, Stations and Ramp by Cut & Cover method between Motibagh and Lajpat Nagar Stations for underground works
Delhi Metro Rail Corporation Ltd.
Urban Infra
Delhi 1,090
2 Interceptor Sewer Engineers India Ltd Water Delhi 681
3 Interceptor Sewer Engineers India Ltd Water Delhi 553
4 Design and Construction of Tunnel by Shield TBM - Janpath & Mandi House Stations by Cut and Cover Method for Underground Works
Delhi Metro Rail Corporation Ltd.
Urban Infra
Delhi 401
5 Construction of ESIC Medical College comprising of Hospital Building, Medical College, Hostels, Residential Complex including allied services at Bihta
National Buildings Construction
Corporation Ltd. Building Patna 375
6 Construction of Group Housing Project "Skyon"at Sector 60 Gurgaon - Civil, Structural & Internal Finishing Works
Ireo Pvt Ltd. Building Gurgaon 345
7 Construction of Residential Building called as "Runwal Green"
Runwal Developers Pvt Ltd, Mumbai
Building Mumbai 298
8
Contract For Bulk Water Transmission Pipeline From Dhanki To Maliya Rising Main From Chainage 0 To 63 Kms With Intake Arrangement, P.H. & Pumping Machinery Contract No. Nc-30
Gujarat Water Infrastructure Ltd.
Water Dhanki 290
9
Replacement of two Nos. of 1800 mm dia. Existing riveted Tansa mains from Tansa to Tarali by One No. 2750 mm dia. MS all welded pipeline in the H.E.'s outside city division. Section I- From Tansa Dam to Jamboli
Municipal Corporation of Brihan Mumbai
Water Mumbai 165
10 Construction of Office Complex for ONGC on plot C-69 at Bandra Kurla Complex, Mumbai - 51
Oil And Natural Gas Corporation Ltd.
Building Mumbai 156
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 5
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
Source: Company, ENAM Direct Research
Historical Sales/Order Book
Source: Company, ENAM Direct Research; * Order Book to Sales on an annualized basis
26%20%
55%47%
52%
40%
71%
55%
35% 36% 36% 34%
3%
25%
10%17%
12%
26%
0%
20%
40%
60%
80%
100%
2008 2009 2010 2011 2012 Q1 FY13*
Water Building Urban Infra
Rs 2,031 Cr Rs 1,935 Cr Rs 2,100 Cr Rs 3,624 Cr Rs 6,611 CrRs 5,667 Cr
2.62.1
2.9
3.43.0
0.0
1.0
2.0
3.0
4.0
0
2000
4000
6000
8000
FY09 FY10 FY11 FY12 Q1 FY13*
Sales Closing Orderbook - Rs Cr Orderbook / Sales (RHS)
30th August 2012 ENAM Securities Direct 6
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
Source: Company, ENAM Direct Research
Coupled with higher operating profit with stable margins
Source: Company, ENAM Direct Research
295476
746
1,007
1,268
1,666
2,199
2,705
0
500
1000
1500
2000
2500
3000
FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13E FY 14E
Am
ount
(Rs C
r)
CAGR = 41%
CAGR = 27%
295476
746
1,007
1,268
1,666
2,199
2,705
0
500
1000
1500
2000
2500
3000
FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13E FY 14E
Am
ount
(Rs C
r)
CAGR = 41%
CAGR = 27%
0.0%
4.0%
8.0%
12.0%
16.0%
0
100
200
300
400
FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13E FY 14E
Operating Profit Margin (%)
CAGR = 44%
CAGR = 26%
0.0%
4.0%
8.0%
12.0%
16.0%
0
100
200
300
400
FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13E FY 14E
Operating Profit Margin (%)
CAGR = 44%
CAGR = 26%
30th August 2012 ENAM Securities Direct 7
Pratibha Industries Ltd
Resulting into higher profits
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.
20
3542
57
70
82
94
120
0
50
100
150
FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13E FY 14E
Am
ount
(Rs C
r)
CAGR = 32%
CAGR = 21%
20
3542
57
70
82
94
120
0
50
100
150
FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13E FY 14E
Am
ount
(Rs C
r)
CAGR = 32%
CAGR = 21%
30th August 2012 ENAM Securities Direct 8
Pratibha Industries Ltd
Efficiently managing working capital…
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.
7461,007
1,2681,666
2,199
2,705
81 114 107 112 109 1070%
10%
20%
30%
40%
0
1,000
2,000
3,000
2009 2010 2011 2012 2013E 2014E
Net Sales (Rs Cr) Working Capital (Days) Working Cap/Net Sales - (%)
30th August 2012 ENAM Securities Direct 9
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.
Source: Company, ENAM Direct Research
Pratibha Group presence
Zonal Office
Plant
Corporate Office
Jammu & Kashmir
DelhiHarayana
Rajasthan
Gujarat Madhya Pradesh
Bihar
Assam
Hyderabad
Andhra Pradesh
Uttar Pradesh
Maharashtra
Karnataka
Goa
Mumbai
Thana
Tamil Nadu
Bangladesh
Pratibha Group presencePratibha Group presence
Zonal OfficeZonal Office
PlantPlant
Corporate OfficeCorporate Office
Jammu & Kashmir
DelhiHarayana
Rajasthan
Gujarat Madhya Pradesh
Bihar
Assam
Hyderabad
Andhra Pradesh
Uttar Pradesh
Maharashtra
Karnataka
Goa
Mumbai
Thana
Tamil Nadu
Bangladesh
30th August 2012 ENAM Securities Direct 10
Pratibha Industries Ltd
BUSINESS OVERVIEW
Water Supply & Environmental EngineeringSegment overview Key projects executed
• Water Supply and Environmental
Engineering
Water Transmission Projects Water / Waste Water Treatment Projects Integrated Water Supply Projects Metering Projects
• Executed more than 1,000 km of pipeline
projects for various diameters upto 3000 mm,
under the following types of contracts:
• Turnkey & Design Build Contracts
Annuity Contracts Cash Contracts
• Significant Operation & Maintenance
Experience for above projects.
Project Description Project Cost
(Rs Cr)
Construction of Integrated Water Supply Scheme at Nagaur, Rajasthan on turnkey basis.
332
Providing & Laying 3,000 mm dia Water Transmission Pipe Line near Mumbai.
274
Design & Construction of 24 x 7 Water Supply Scheme in Navi Mumbai.
201
Providing & Laying 3,000 mm dia Water Transmission Pipe Line near Mumbai.
161
Providing & Laying 3,000 mm dia Water Transmission Pipe Line in Mumbai.
124
Design & Construction of Storm Water Pumping Station in Mumbai.
75
Key clients Key projects Underway
• Municipal Corporation of Greater Mumbai
• Delhi Jal Board
• Gujarat Water Infrastructure Limited
• Rajasthan Public Health & Engineering
Department
• Bangalore Water Supply & Sewerage Board
• Jammu & Kashmir Economic Reconstruction
Agency
• Navi Mumbai Municipal Corporation
Project Description Project Cost
(Rs Cr)
Replacement of Tansa Mains by 2750 mm dia MS Pipelines.
406
Contract for Pumped Water Supply Scheme Danki for Gujarat Water Infrastructure Ltd
403
Integrated Water Supply Scheme at Meerut (Turnkey).
294
Augmentation of Water Supply Network in Navi Mumbai
162
Supply & Installation of AMR Water Meters in Mumbai City.
153
Source: Company, ENAM Direct Research
30th August 2012 ENAM Securities Direct 11
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 12
Pratibha Industries Ltd
• Urban Infra & Underground Works
Segment overview Key projects executed
• Urban Infrastructure & Underground Works Airports Metros & Railways Roads / Bridges Tunneling Micro Tunneling
• Fastest Growing Segment with the highest potential
• Project Portfolio comprises Two International Airports completed Two Tunnels aggregating to 11.5 km
day-lighted One Metro Contract under execution
with 5 km of tunnels 33.8 kms of Micro Tunneling under
implementation Vast Asset Base comprising 4 TBMs & 9 MTBMs
Project Description Project Cost
(Rs Cr)
Construction of 6.8 km long Modak Sagar Tunnel near Mumbai.
223
Construction of 3.6 km long Tunnel from Malabar Hill to Cross Maidan in Mumbai.
157
Construction of New International Terminal Building, Ahmedabad, India.
122
Modular Expansion of Amritsar Airport, India
106
Modular Expansion of Delhi Airport-Arrival Terminal, India
55
Key Clients Key projects Underway
• Municipal Corporation of Greater Mumbai
• Engineers India Limited
• Airports Authority of India
• Delhi Metro Rail Corporation
• National Highways Authority of India
• Delhi Jal Board
Project Description Project Cost
(Rs Cr)
Design and Construction of Interceptor Sewers including Micro-tunneling (2 Packages) for the Delhi Jal Board
1,250
Design and Construction of Tunnel by Shield TBM and 2 Underground Stations for Delhi Metro
467
Source: Company, ENAM Direct Research
30th August 2012 ENAM Securities Direct 13
Pratibha Industries Ltd
Sardar Vallabhbhai Patel Internl. Airport, Ahmedabad
Delhi International Airport – Domestic Terminal
Metro Rail - Delhi
Railway Station – Ghansoli, Navi Mumbai
Railway Station at Airoli , Navi Mumbai
Malabar Hill & Modak Sagar Tunnel in Mumbai
Source: Company, ENAM Direct Research
30th August 2012 ENAM Securities Direct 14
Pratibha Industries Ltd
• Building
Segment overview Key projects executed
• Buildings High Rise Buildings /
Iconic Structures Retail / Commercial /
Residential Projects Hospitals and Schools Car Parks
• Made significant headway by building an order book of US$ 400mn in less than 5 years
• Implementing a range of diverse Projects for leading Clientele across Government & Private Sectors
• Currently more than 20 projects underway with more than 20 million sft under construction
• Significant investment in asset base viz. Form Work Assets > 1,00,000 sq. mtrs., 30 Tower Cranes, 35 Concrete Pumps, 25 Batching Plants
• Expect significant ramping up of this segment in the near future by expanding into newer geographies and adding new clients
Project Description Project Cost
(Rs Cr)
The Capital(C 70): Construction of 22 Storeyed Commercial Tower with 6 Basements (1,400 Car Parks) at Bandra-Kurla Complex, Mumbai
181
Imperial Heights: Construction of Twin High Rise Residential Complex (50 Storeyed) with Aluminum Shuttering (6 Day, Slab Cycle) in Mumbai
90
Sunshine Tower: India’s Tallest Structural Steel Commercial Building (192 Mtrs) in Mumbai
60
MCT: Construction of Institutional Building in Navi Mumbai
40
The Capital (C 70): Construction of 22 Storeyed Commercial Tower with 6 Basements (1,400 Car Parks) at Bandra-Kurla Complex, Mumbai
181
Key Clients Key projects Underway
• Tata Housing
• Rustomjee Group
• National Building Construction Corporation
• ONGC
• Wadhwa Associates
• IREO
• Pioneer Land Development
Project Description Project Cost
(Rs Cr)
Construction of ESIC Hospital and Medical College in Patna, Bihar
525
Construction of 2 Residential Complexes in Gurgaon near Delhi
366
Construction of Corporate Office for ONGC in Mumbai
241
Construction of Mega Residential Township near Mumbai
180
Source: Company, ENAM Direct Research
30th August 2012 ENAM Securities Direct 15
Pratibha Industries Ltd
Imperial Heights , Mumbai – Wadhwa Group
THE CAPITAL(C70), Mumbai – Wadhwa Group
DMRC Multi-Level Car Park in New Delhi
AMANTRA, Kalyan – TATA Housing ONGC, CORPORATE OFFICE, Mumbai
ANGELICA & ASPEN, Mumbai – Mahindra Life
ESIC Medical College & Hospital, Bihar - NBCC
Source: Company, ENAM Direct Research
30th August 2012 ENAM Securities Direct 16
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
Source: ENAM Direct Research
02468
1012141618
Apr
-07
Aug
-07
Jan-
08
May
-08
Oct
-08
Feb-
09
Jul-0
9
Nov
-09
Apr
-10
Sep-
10
Jan-
11
Jun-
11
Oct
-11
Mar
-12
Aug
-12
Fwd
PE (x
)
PE Mean +1 STD Dev. -1 STD Dev.
30th August 2012 ENAM Securities Direct 17
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.
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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)
Source: Company, ENAM Direct Research
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
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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:
Real estate construction investments (i.e. residential and commercial construction) Infrastructure construction investments (i.e. roads, urban infrastructure, power,
irrigation and railways) Industrial construction investments (i.e. steel plants, textiles plants, oil pipelines
and refineries) Growth in the construction industry is expected to be led by growth in
infrastructure and 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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CONFLICT OF INTEREST DISCLOSURE
We, at ENAM, are committed to providing the most honest and transparent advice to our clients. However, given thenature of the capital markets, from time to time we are faced with situations that could give rise to potential conflict ofinterest. In order to provide complete transparency to our clients, before we make any recommendations, we arecommitted to making a disclosure of our interest and any potential conflict IN ADVANCE so that the interests of ourclients are safe- guarded at all times. In light of this policy, we have instituted what we believe to be the mostcomprehensive disclosure policy among leading investment Banks/brokerages in the world so that our clients may make an informed judgment about our recommendations. Thefollowing disclosures are intended to keep you informed before you make any decision- in addition, we will be happyto 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.
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