Multi Baggers

Pratibha Industries

Healthy order-book position provides strong growth visibility

Pratibha Industries Ltd. (PIL) has a healthy order-book position of  approx. Rs.58 bn (excl. L1 orders worth Rs.8 bn), which is  approx. 4.6x FY11 revenue, thus providing strong revenue growth visibility over the next few years. Despite muted order inflow in industry in FY12, PIL has been successful in bagging contracts worth approx. Rs.32 bn in FY12 which is highest ever in the history of the Company. Order-book has grown at a CAGR of  approx. 30% over the last 4 years from merely Rs. 20 bn in FY08 to  approx. Rs.58 bn in FY12., thus representing the credibility of the management to constantly secure fresh orders.

Well diversified Business Model

The Company over a period of time has well-diversified across sectors such as water infrastructure, civil construction, tunnel, roads etc. This diversification across verticals will not only help PIL to tap opportunities in different segments, but would also help the Company in reducing risk of slowdown in any particular segment. Also after strong foothold in Maharashtra, the Company has gradually diversified in various other states like Delhi, Bihar, Rajasthan, Karnataka, UP etc, thus mitigating the regional risk.

Higher Margins likely to Sustain in Future

Better business mix, existence of price escalation clause coupled with project selection criteria will enable the Company to maintain higher margins in future. Of the total order-book position, approx. 63% is from Infrastructure segment, having comparatively higher EBITDA margin of approx. 13.5-14%. Also strong order-backlog would enable the company to shun away from irrational bidding, thus avoiding low-margin orders. However, on conservative basis, we have assumed marginal decline in net margins from FY12 onwards.

New Ventures to open huge opportunities in future

With leveraging its expertise, the company historically has been foraying into newer areas, thus opening new avenues. Recently the Company entered into areas like Metro Rail & Microtunneling & has bagged contracts worth Rs.16 bn from these segments. Foray into such niche segments would not only enable the Company to widen its reach but would also provide firstmover advantage which in turn could open huge opportunities for the Company in future.

Outlook and Valuation

PIL is one of the leading players in the Infrastructure segment. Healthy order-book position of approx. Rs.58 bn (approx.4.6 x FY11 revenue) coupled with strong execution capabilities provides strong revenue visibility for next few years. Also diversification across verticals would not only provide huge opportunities but would also act as cushion against slowdown in any particular segment. At the CMP of Rs.35, the stock is quoting at 4.4x and 3.9x its FY12E & FY13E EPS of Rs.7.9 and Rs.8.9 respectively. Hence considering, healthy order-book position, its ability to win orders in such challenging economic environment coupled with its well diversified business model, we recommend 'BUY' on the stock with a price target of Rs.48.

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