|Posted by SRIKANTHBABU KALIKI on June 5, 2011 at 12:28 PM|
Company: Pratibha Industries (NSE Symbol: PRATIBHA)
Close Price: Rs. 54.80 (03-June-2011)
Market Cap 964.57 * EPS (TTM) 4.10 * P/E 13.49 * P/C 11.24
* Book Value 20.93 * Price/Book 2.64 Div(%) 30.00% * Div Yield(%) 1.08
Market Lot 1.00 Face Value 2.00 Industry P/E 38.62
The stock of Pratibha Industries, a construction contractor has suffered a sharp slide as slowing execution and order inflows plagued the construction sector.
However, order inflow which was tepid for much of last year has shown a strong pick up from January. Pratibha has a well-established presence in the higher-margin water segment. Price escalation clauses, and backward integration has helped prevent a sharp slide in operating margins as input costs rise. It's first project as a developer is slated to begin revenue generation later this year.
We reiterate a buy in this stock for investors with a two to three year perspective. At Rs 55, the stock is at 7.3 times trailing 12-month earnings and 4.02 times estimated earnings for FY13. However, given the company's small cap status, investors are advised to limit portfolio exposure to the stock.
INFLOWS PERK UP
Outstanding order book currently stands at Rs 4,335 crore, at 3.4 times revenues for FY-11. Though order book has been flat compared to June 2010, orders worth Rs 1,272 crore have come in from January ‘11. The company also has lowest bidder status on a further Rs 600 crore, suggesting that the tepid order inflow of last year is unlikely to persist
Pratibha's main strength is its expertise in higher-margin large-scale water projects. The segment forms 55 per cent of the order book. The remaining order book is taken up by construction of residential and commercial buildings, airports, roads and other urban infrastructure projects. This segment finds support from State as well as Central Government infrastructure spending programmes .
Geographically, too, projects are spread across the country. It's also recently moved into the West Asian market, with an order win from Dubai.
Another factor that bodes well for healthy growth is Pratibha's ability to partner other players to secure bigger or more complex projects. It has previously worked in joint ventures with players such as Gammon, Patel Engineering and others.
While such partnerships may constrain near-term revenue flow, it allows the company to build its expertise and ability to tackle large-scale projects. This will in turn help it move up the value chain to cement its transition from a contractor to a developer.
The company bagged Rs 467 crore project along with China First Rail for the construction of tunnels for the Delhi Metro Rail Corporation.
The company already has a couple of projects on a Build-Operate-Transfer (BOT) basis, the first of whichis expected by the company to begin revenue generation at end-2011.
Revenues clocked a three-year compounded annual growth of 31 per cent to Rs 1,268 crore while net profits grew 28 per cent to Rs 71 crore in grew FY-11.
With over 90 per cent of the order book on price escalation clauses, the company has managed to limit the effects of rising cost of inputs such as steel and cement. Backward integration into the manufacture of SAW pipes used for water projects among others helped protect margins from rising costs . Operating margins for FY-11 stood at 13.9 per cent, down marginally from 14.1 per cent the year before.
Pratibha raised Rs 150 crore from private equity in the latter half of FY-11, using this amount to partly pay off debt and fund working capital. Debt-equitystands at a comfortable 0.77 times. Total debt dropped from Rs 434.8 crore to Rs 377.2 crore.
Interest costs, hitherto a drag on profits and margins, may thus ease up. Indeed, interest costs for the quarter ended March '11 declined 14 per cent. Net profit margins for FY-11 stood at 5.6 per cent, the same as that in FY-10.
Working capital cycle too has improved to 140 days in FY-11 from the 150 days in FY-10.
SOURCE : The HINDU BUSINESSLINE
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