EQUITY RESEARCH Pratibha Industries Ltdbreport.Myiris.com/ENAMSDPL/PRAINDU3_20120830.pdfAug 30, 2012 · th Pratibha Industries Ltd ENAM Securities Direct 30 August 2012 ENAM DIRECT

Pratibha Industries Ltd

ENAM Securities Direct 30th August 2012

ENAM DIRECT EQUITY RESEARCH

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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


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


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


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



GROWTH PATH Company Overview

Source: Company, ENAM Direct Research

Order book Break up

Region-wise Public/Govt. : Private


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



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%




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


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)



• 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


Coupled with higher operating profit with stable margins


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


Am

ount

(Rs C

r)

CAGR = 41%

CAGR = 27%

0.0%

4.0%

8.0%

12.0%

16.0%

0

100

200

300

400


Operating Profit Margin (%)

CAGR = 44%

CAGR = 26%

0.0%

4.0%

8.0%

12.0%

16.0%

0

100

200

300

400


Operating Profit Margin (%)

CAGR = 44%

CAGR = 26%



Resulting into higher profits


• 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


Am

ount

(Rs C

r)

CAGR = 32%

CAGR = 21%

20

3542

57

70

82

94

120

0

50

100

150


Am

ount

(Rs C

r)

CAGR = 32%

CAGR = 21%



Efficiently managing working capital…


• 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 - (%)



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


• 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.


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



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


(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




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




• 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


(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


(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




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




• 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


(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


(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




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




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

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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.



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



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


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




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).



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.



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.

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. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgement by any recipient. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including those involving futures, options and other derivatives as well as non investment grade securities - involve substantial risk and are not suitable for all investors. Enam Securities Direct Private Limited has not independently verified all the information given in this document. Accordingly, no representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval. Enam Securities Direct Private Limited, its affiliates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that is already available in publicly accessible media or developed through analysis of ENAM Securities Direct Private Limited. The views expressed are those of the analyst and the Company may or may not subscribe to all the views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. Neither this document nor any copy of it may be taken or transmitted into the United State (to U.S. Persons), Canada, or Japan or distributed, directly or indirectly, in the United States or Canada or distributed or redistributed in Japan or to any resident thereof. 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EQUITY RESEARCH Pratibha Industries Ltdbreport.Myiris.com/ENAMSDPL/PRAINDU3_20120830.pdfAug 30, 2012 · th Pratibha Industries Ltd ENAM Securities Direct 30 August 2012 ENAM DIRECT