road construction tunnels reservoirs …breport.myiris.com/bpepl/praindu3_20120329.pdf · design...

ROAD CONSTRUCTION

WATER SUPPLY

BUILDINGS

RESERVOIRS

BRIDGES

RAILWAY

STATIONS

AIRPORTS

TUNNELS

2nd Feb , 2011

B P EQUITIES Pratibha Industries Limited

Share Holding Pattern (%)

Sector Outlook Positive

CMP (Rs) 45.4

Target Price (Rs) 57.0

BSE code 532718

NSE Symbol PRATIBHA

Bloomberg PRIL IN

Reuters PRTI.BO

Key Data

Nifty 5,179

52WeekH/L(Rs) 73.9/28.1

O/s Shares (mn) 99

Market Cap (Rs mn) 4,513

Average volume

3 months 175,163

6 months 145,318

1 year 196,351

Stock

Face Value (Rs) 2.0

Relative Price Chart

Research Analyst Jiten Rushi

[email protected]

022-61596410

Execution to drive growth Company Description Pratibha Industries Limited (PIL) is a Mumbai based Company incorporated in 1982. It is a flagship company of the Pratibha Group. It engages in infrastructure development sector, including water sup-ply and urban infrastructure. It's project profile consists of commercial complexes, water treatment plants, water transmission and distribution projects, elevated and underground reservoirs, pre-cast design and construction, group housing projects, road construction and real estate. The company provides services for execution of building, pipes, tunnels, airports, roads and saw pipes. PIL business operations are mainly concentrated in India. The company operates through its four subsidiaries and several joint ventures for execution of projects.

Investment Rationale

Robust order book in the EPC segment provides healthy revenue visibility The company has a strong order book of Rs. 61,590 mn (excluding L1 orders of Rs. 6,000 mn) as on 31st Dec, 2011 which stands at ~5x FY11 sales providing healthy revenue visibility for next 30 to 36 months. We expect the topline to grow at a CAGR of ~26% from FY11 to FY14E as compared to CAGR of ~31% from FY08 to FY11. Going forward, we expect company’s order inflow to remain strong on the back of the government’s thrust on infrastructure spending.

Diversified order book with National Footprint The order book flows from diversified segments like buildings, water, tunnels and roads. This strategy has helped the company to mitigate the risk and reduce its dependence on any particular segment. In terms of business vertical the share of orders from various segments stands at water 53%, building 37%, tunnel 9% and road 2% as on 31st December, 2011. In terms of geographical break up ~46% of the order book is from Northern Region of India, ~45% from Western Region, ~5% from Overseas and balance all are accounted by rest of India.

Execution of projects through Joint Venture route The company has been executing projects in Joint Venture (JV) with international and domestic play-ers to target specific high potential orders across the EPC segment. The strategy is to go for selective bidding of projects in JV. This model not only enables the company to execute large size projects by mitigating the risk through JV route but also facilitates to have Pan India presence and enhances its technical & financial qualification, thus, de-risking its business model.

Consistent endeavour to enter into specialized infrastructure segments to sustain growth and create a diversified business model Over the years the company has been consistently and successfully foraying into specialized infra-structure segments by bringing expertise in the business, thus, opening up new opportunities for the company's sustainable growth. During FY12 the company has bagged projects into specialized verti-cals such as Micro Tunneling and Metros. By foraying into new space the company has been able to increase its segmental portfolio and has created a niche for itself in various verticals of different seg-ments, thereby, creating a diversified business model and de-risking its dependence on any particular segment.

Outlook & Valuation Based on the robust order book position, we expect the company to grow at CAGR of ~26% from FY11 to FY14E. The company is well poised to tap the growing opportunities from the urban and rural infra space supported by government spending. We expect PIL’s foray into the BOT space will start generating steady cashflow by end of FY13. We expect the valuation gap to narrow in the medium term and the company will trade at a valuation in comparison to its peers. At the CMP of Rs. 45.4, the stock is trading at P/E of 4.7x & P/Bv of 0.7x to its FY13E EPS of Rs. 9.5 & BV of Rs. 63.8. We rec-ommend ‘BUY’ and assign a P/E multiple of 6x (10% discount to avg. of peers) to its FY13E EPS of Rs. 9.5 and arrive at a target price of Rs. 57 which provides potential upside of 26%.

Construction & Engineering | Initiating Coverage 29th March, 2012

Buy

BUY HOLD SELL

> 15% -5% to 15% < -5%

Stock Rating

Source: Company, BP Equities Research

Key Financials (Consolidated) YE March (Rs mn) FY10 FY11 FY12E FY13E FY14E Net Sales 10,072 12,681 16,347 20,244 25,192 Growth % 32.9% 25.9% 28.9% 23.8% 24.4% EBIDTA 1,366 1,720 2,228 2,691 3,285 Growth % 49.1% 25.9% 29.5% 20.8% 22.1% Net Profit 565 714 782 964 1,230 Diluted EPS 6.8 7.2 7.9 9.5 12.2 Growth % 26.3% 5.5% 9.5% 21.4% 27.5%

Key Ratios EBIDTA (%) 13.6% 13.6% 13.6% 13.3% 13.0% NPM (%) 5.6% 5.6% 4.8% 4.8% 4.9% RoE (%) 22.3% 18.7% 15.0% 16.0% 17.4% RoCE (%) 15.7% 14.2% 13.3% 12.1% 12.7%

Valuation Ratios P/E (x) 6.3x 5.8x 4.8x 3.7x P/BV (x) 0.9x 0.8x 0.7x 0.6x EV/EBITDA (x) 4.2x 5.1x 4.5x 4.0x Market Cap./ Sales (x) 0.3x 0.3x 0.2x 0.2x

52.4%

16.8%

5.4%

25.4%

Promoter FII DII Others

Pratibha Industries Limited Initiating Coverage

Institutional Research BP Equities Pvt. Limited (www.bpwealth.com) 3/29/2012 3

BP Equities reports are also available on Bloomberg [BPEP <GO>]

Healthy order book position of

Rs. 61,590 mn which is ~5x

FY11 sales

Sales to grow at a CAGR of

~26%% from FY11 to FY13E as

compared to CAGR of ~31%

from FY09 to FY11

Order Inflows during FY09 to

Dec’11 has grown at a CAGR

of ~68% while, Closing order

book has grown at a GAGR of

~50% during the same period

Investment Rationale

Healthy order book provides revenue visibility

The company has a strong order book of Rs. 61,590 mn (excluding L1 orders of Rs. 6,000 mn) as on

31st Dec, 2011 which stands at ~5x FY11 sales providing healthy revenue visibility for next 30 to 36

months. We expect the topline to grow at a CAGR of ~26% from FY11A to FY14E as compared to

CAGR of ~31% from FY08A to FY11A. Going forward, we expect company’s order inflow to remain

strong on the back of the government’s thrust on infrastructure spending.

It can be seen from the above table that the order inflow has grown at a CAGR of ~68% from FY09 to

Dec’11 showing strong execution capability of the company resulting in consistent flow of new as well

as repeated orders from various set of clients. The company has been maintaining its closing order

book run rate which has gone up from Rs. 19,352 mn to Rs. 65,681 mn, a growth at a CAGR of ~50%

from FY09 to Dec’11. FY12 so far has been excellent year for the company as flows of orders stands

at Rs. 33,500 mn for first 9 months in contrast with Rs. 27,927 mn for whole of FY11. The order in-

flows for FY12 is the highest in the history of the company.

Figure 2: Order Book Trend

Figure 1: Order Book Movement

Years (Rs in mn) FY2008 FY2009 FY2010 FY2011 Dec'11

Opening Order Book 11,000 20,312 19,352 21,000 36,246

Order Inflow 14,963 7,098 11,720 27,927 33,500

Order Executed (Sales) 5,651 8,058 10,072 12,681 11,471

Closing Order Book 20,312 19,352 21,000 36,246 65,681

Order Inflow growth (yoy) 110% -53% 65% 138% 20%

Sales Growth (yoy) 88% 43% 25% 26% -10%






Company (Rs in mn) Total Order Inflow

for 9MFY12 (A)

Closing Order Book as on FY11

(B)

Order Book Inflow as a % of Closing Order Book

(A/B) Pratibha 33,500 36,246 92% NCC 99,400 161,800 61% IVRCL 107,000 216,050 50% MBL Infrastructure 6,328 10,699 59% Unity Infraprojects 16,314 35,011 47% CCCL 27,109 49,675 55% Patel Engineering Nil 95,000 NA Simplex Infrastructure 38,398 147,074 26% Ramky Infrastructure 46,970 109,988 43% Supreme Infrastructure 18,235 31,170 59% HCC 18,001 181,270 10%

Robust order inflow of Rs.

33,500 mn for 9MFY12 which

stands at 92% of closing order

book of FY11 as compared to

its peers

Compared to peers the order

pipeline of the company has

remained consistent

Book-to-Bill ratio of ~5x FY11

and ~5.7x 9MFY12 sales

Figure 3: Fresh order book comparison

The company has placed many bids for various projects and the average bid per month is ~Rs20 to

25 bn which would meet the company’s targeted closing order book of ~Rs60 bn by end of FY12. As

on date the outstanding bids for the company stands at ~Rs20 bn. Its order book which stands at Rs.

61,590 mn translating book-to-bill ratio of ~5x FY11 and ~5.7x 9MFY12 sales.

Figure 4: Book-to-Bill ratio trend (x)

Figure 5: List of key projects bagged during 9MFY12



Project Description Awarding Authority Segment Project Cost (Rs in mn)

Design and Construction of Tunnel by Shield TBM and Janpath and Mandi House Stations by Cut and Cover method between Central Secretariat and Mandi House for Underground works under Delhi MRTS Project.”

DMRC Metros -Tunnel

4,670

Interceptor Sewer Pkg 2 - Yamuna DJB Water 6,928

Interceptor Sewer Pkg 3 - Yamuna DJB Water 5,566

Swarnim Gujarat Kutch Water Grid programme –Package No. NC-30 – Water supply scheme from Dhanki to Maliya – Rising main from Ch.0 to 63 Kms. with intake arrangement, pumping machinery & other electro-mechanical equipment, accessories, instrumentation control etc with 5 years Operation & Maintenance

Gujarat Water Infrastructure Limited

Water 4,030

Construction of Residential building at Upper Juhu - Rustomjee Elements Rustomjee Realty Pvt. Ltd. Building 1,530

Construction of 23 Residential building at Kalyan - Tata Amantra Tata Housing Development Company Ltd.

Building 1,360

Construction of 58 Residential Building at Dombivali - Casa Rio Lodha Group Building 1,795

Construction of Residential Building at Mulund (W) - Runwal Greens Runwal Homes Pvt. Ltd. Building 3,620 Source: Company, BP Equities Research





The order book position

stands at Rs. 61,590 mn ex-

cluding L1 orders of Rs. 6,000

mn which consist of 70% from

water segment and balance

from building segment

Targeting overseas market like

Bangladesh, Sri Lanka & Mid-

dle East having huge opportu-

nities which can bring sub-

stantial business

Geographical diversification

reduces concentration risk

Has operations in Dubai to

oversee the ongoing reservoir

project of ~Rs 4bn and expand

in the region

Diversified order book with National Footprint

The order book flows from diversified segments like buildings, water, tunnel and roads. This strategy

has helped the company to mitigate the risk and reduce its dependence on any particular segment. In

terms of business vertical the share of orders from various segments stands at water 53%, building

37%, tunnel 9% and road 2% as on 31st December, 2011. During 9MFY12 the order inflow has been

dominated by water segment at 56% followed by Building at 30% and balance from tunnel segment.

We have seen improvement in order inflow from the water segment during 9MFY12 which will help the

company to maintain its targeted EBIDTA margins between 13-14% as it is observed that EBIDTA

margins from water segment (13.5%-14.5%) is better over building segment (12%-13%). Thus, any

rise in order book inflow from the water segment would eventually have a positive impact on the mar-

gins. We expect that the company would maintain its order book ratio of over 50% from the water seg-

ment going forward to sustain better margins. Management has informed that the order book is cov-

ered by escalation clause thereby protecting the company form the risk of rise in raw material prices.

Historically the company’s order flows were concentrated to Maharashtra. Over a period of time the

company has taken a initiative and have expanded its presence out of Maharashtra to become a PAN

India player. As a result, dependence on Maharashtra has come down to 34% and increased its reach

to other state like Delhi 31%, Bihar 9%, MP 7% and followed by others. The company has ~70 ongo-

ing projects spread across 14 states and in terms of geographical break up ~46% of the order book is

from Northern Region, ~45% from Western Region, ~5% from Overseas and balance all are ac-

counted by rest of India. The company also has a Saw pipe division plant at Wada near Mumbai. We

expect company to expand across various geography and maintain its order book growth.

Figure 7: Pan-India presence & Geographical order book break up


Figure 6: Order book mix




Has forged strategic alliances

with key global players in its

business segments to com-

pete for major infrastructure

projects

Of the total order inflow during

9MFY12 ~55% orders bagged

through JV route and of which

~93% of orders are to be exe-

cuted by the company

Company to expand through

JV’s going forward

Joint ventures hs enabled the

company to add large ticket

orders

Execution of projects through Joint Venture route

The company has been executing projects in Joint Venture (JV) with international and domestic play-

ers to target specific high potential orders across the EPC segment. The strategy is to go for selective

bidding of projects in JV’s. This model not only enables the company to execute large size projects by

mitigating the risk through JV route but also facilitates to have Pan India presence and enhances its

technical & financial qualification, thus, de-risking its business model. Of the total order inflows of Rs

33,500 mn during 9MFY12, ~55% of the orders were bagged through JV’s and of which ~93% of or-

ders are to be executed by the company which shows the execution capability of the company.

Figure 8: List of JV Partner

It can be seen that the company has been consistently bidding projects through JV route which has

given them a expertise over advanced technologies and improving its execution capabilities. We ex-

pect company to continue to bid for large and complex projects through JV’s which would improve its

current potential and help them to venture into different verticals of infrastructure segment.

Figure 9: List of key projects bagged through JV route during 9MFY12


Name of Partner Segment

Ostu Stettin, Austria Water - Tunneling

Mosinzhstroi, Russia Water - Micro Tunneling

SMC, Malaysia Water Treatment

Gammon Water Supply

Zhuhai, China Sewerage

ITD, Thailand Airports

China State Construction, Hong Kong Buildings and Urban Infrastructure

Huamei, China Urban Infrastructure

DVGSK, Russia Urban Infrastructure

Shanghai Urban Construction Group, China Urban Infrastructure

Unity Infraprojects, Urban Infrastructure

Al Ambia Sdn Bhd, Malaysia Buildings

Leikpin, UAE Oil & Gas - Offshore

Gulf Petroleum Services, Oman Oil & Gas - Offshore

Stroystandart, Russia Concessions

Gharpure Engineering and Construction Pvt Ltd Power

China Rail First Group, China Metros - Tunnel

Project Description Awarding Authority

Project Cost (Rs in mn)

JV Partner

Design and Construction of Tunnel by Shield TBM and

Janpath and Mandi House Stations by Cut and Cover

method between Central Secretariat and Mandi House

for Underground works under Delhi MRTS Project.”

DMRC 4,670 China Rail First Group, China

Interceptor Sewer Pkg 2 - Yamuna DJB 6,928 Mosinzhstroi, Russia

Interceptor Sewer Pkg 3 - Yamuna DJB 5,566 Mosinzhstroi, Russia





Expanded from traditionally

water segment player to urban

infra player & consistently ex-

panding its business segmen-

tal portfolio

Consistent endeavour to enter into specialized infrastructure segments to sustain growth and

create a diversified business model

Over the years the company has been consistently and successfully foraying into specialized infra-

structure segments by bringing expertise in the business, thus, opening up new opportunities for the

company's sustainable growth. During FY12 the company has bagged projects into specialized verti-

cals such as Micro Tunneling and Metros. By foraying into new space the company has been able to

increase its segmental portfolio and has created a niche for itself in various verticals of different seg-

ments, thereby, creating a diversified business model and de-risking its dependence on any particular

segment.

Figure 10: Growth trajectory & Future focus

Traditionally focused on water segment, the company now has a diversified order book encompassing

segments like water, buildings, tunnels, roads, airports and metros. In each of the segments the com-

pany has specialized to execute complex projects. The company also plans to enter verticals such as

hydro/thermal power (civil construction works), hydro-carbons (pipelines, surface facilities, onshore

facilities, midstream and downstream) and solid waste management to widen its verticals base. Dur-

ing FY12 the company has bagged first time projects into specialized verticals such as Micro Tunnel-

ing and Metros which is ~28% of the total order book. The company’s consistent endeavour to enter

into niche and specialized segments will help them to increase its business portfolio across diverse

verticals which would open larger opportunities in future helping them to maintain its growth trajectory

and expand across different segments thereby derisking the business model. Following are the details

of latest specialized projects bagged by the company:





The initiative is one of the larg-

est & first-of-it-kind to be un-

dertaken in India and if suc-

cessful the govertment has

identified outlays of ~Rs. 300

bn, which the company can

cash in going forward

Marquee clientele base giving

repeat business

Design and construction of Interceptor Sewers in Delhi - Rs. 12.5 bn (Micro Tunneling)

The scope of work includes the complete design and installation of the interceptor sewers using

trenchless technology, design and construction of interceptor chambers as well as the sewerage

pumping stations. The order is for the abetment of pollution in Yamuna river. The project ahs been

divided into two packages which includes designing, construction and lying of interceptor sewers

along three major drains - Najafgarh, Supplementary & Shahadra. The project is scheduled to be

completed in 3 years, also includes operation and maintenance component spanning 11 years. The

project work entails micro tunneling, civil & structure work, electrical & instrumentation, as well as me-

chanical work. This is the largest order bagged by the company through a JV route with Mosinzhstroi

Open Joint Stock Company Ltd, Russia for the Delhi Jal Board projects. The order has been awarded

through Engineers India Ltd.

Design and construction of Tunnel and Construction & Extension of Stations - Rs. 4.7 bn

(Metros)

The scope of work for this project includes designing, engineering and construction of two sections of

underground twin tunnels for Metro Phase 3 project of Delhi Metro Rail Corporation’s (DMRC) MRTS

project. One section is from Janpath to Mandi house and the second section is from Janpath to Cen-

tral Secretariat, including the construction of one station at Janpath and extension of a station at

Mandi House. The project is scheduled to be completed in 36 months. The project has been bagged

through JV route with China Rail First Group, China.

Strong and Esteemed Clientele

Over a period of time PIL has build up a strong and esteemed clientele especially government clients.

Of the total order book about ~73% is from government and balance is from private players. Strong

and timely execution of projects has led to developing strong client relationships which has resulted in

repeated orders. Most of the orders being dominated by government due to which the risk of cancella-

tion of orders has been mitigated.

Figure 11: Key client list


Awarding Authority Clients

Government

Airports Authority of India, ONGC, Delhi Metro Rail Corporation Ltd., CIDCO,

NBCC, MCGM, MMRDA, Gujarat water Infrastructure Ltd., UP Jal Nigam,

Engineers India Ltd., Navi Mumbai Municipal Corporation, Delhi Jal Board,

etc.

Private

Tata Housing, Rustomjee Realty, Mahindra Lifespaces, Lodha Group, Run-

wal Group, Raymond, K. Raheja, Nirmal Lifestyle, GMS, Sunteck Primal,

Sunshine Housing, etc.




Post operation - these projects

will improve the cash flow po-

sition of the company

Adding value by foraying into BOT segment

Initially the company was bidding projects on lump sum, EPC or annuity basis but after bringing in

expertise through joint venture the company has started bidding for specialized projects on BOT basis

also. At present the company has two BOT projects at its disposal i.e. Bhopal Sanchi Road BOT pro-

ject and DMRC multi level car parking project. It has been observed that the company has kept them-

selves away from the road BOT project due to lack of experience and intense competition but we ex-

pect the company’s focus to remain on cash contracts over BOT projects going forward. The manage-

ment has informed that they would go for selective bidding for road BOT projects.

Figure 12: Details of BOT projects

Bhopal Sanchi Road BOT Project

The company had bagged an annuity road project from NHAI in 51:49 joint venture with Abhyudaya

Housing and Construction Pvt. Ltd. The project involves 2‐laning with paved shoulders of Bhopal‐

Sanchi section of NH‐86 of 53.775 km to be executed on BOT (Annuity) basis under DBFOT pattern

of NHDP Phase III. Construction period is of two years and post completion of construction, payments

shall be made through semi‐annual annuities of Rs.129.5mn for 13 years totaling Rs.3.37bn.

DMRC - Multi level car parking project

The company had secured a BOT project for construction of multi‐level parking with commercial de-

velopment at New Delhi Railway Station cum Airport terminal of Airport Express Line from Delhi Metro

Rail Corporation Ltd. The project involves construction of four levels of car parking and two levels of

commercial space above the proposed New Delhi Railway station cum Airport terminal of Airport Ex-

press Line. This project had a construction period of 15 months and concession period of 28.5 years.

Company would also get the right to collect parking charges and lease rentals of commercial property

during the concession period.

Name (Rs in mn) Bhopal Sanchi Road BOT Project* DMRC - Multi level car parking project* Project cost 1,454 1,644

Revenue model Semi-Annuity Revenue would be coming from Leasing, Parking &

Advertising during the O&M Period

Equity interest 51% 100%

Economic Interest 51% 100%

Debt (%) 85% 85%

Equity (%) 15% 15%

Avg. cost of borrowings (%) 12.5% 13.5%

Construction Period (months) 24 18

Concession Period (Yrs) 13 28.5

Project Road Length (Kms) 53.78 NA

Project Details NA

Commercial Space of ~0.2 mn sq. ft. to be leased &

expected lease rentals of ~Rs. 150-175 per sq. ft.

per month and expected car parking facility of ~1000

cars per day with 50% revenue sharing with the ap-

pointed operator

Number of Lane 2 NA

State Madhya Pradesh Delhi

Awarding Authority NHAI DMRC

EPC work Allocation Abhudaya Housing & Construction (P) Ltd. Pratibha

JV Partner Abhudaya Housing & Construction (P) Ltd. NA

JV Partner stake 49% NA Expected Gross Revenue (Yr) 259 340 Status Expected to get operational by FY14 Expected to get operational by end of H1FY13

* Not considered in our valuation Source: Company, BP Equities Research




Fund raising has enhanced capital base and improved networth

During FY11, the company had issued and allotted 1,21,95,609 equity shares of Rs. 2/- each at a

premium of Rs. 80/- per shares by way of QIP issue and 38,04,348 equity shares of Rs. 2/- each @

premium of Rs. 90 per shares and 16,30,435 Compulsorily Convertible Participatory Preference

Shares of Rs. 92/- each to Van Dyck by way of Preferential allotment of shares. One CCPPS of Rs.

92/- each shall be converted into One Equity shares of Rs. 2/- each within 18 months from the date of

issue of the same i.e. 25th November,2010. The company has increased its capital base by issuing

shares by way of QIP and preferential allotment routes and raised Rs.1.5 bn. The enhanced capital

base and improved net worth has enabled the company to leverage its resources more judiciously and

ensure improved ratings for availing credit facilities at better rates for meeting its working capital

needs, pay off debt and capex requirement during FY11. The CCPPS are due for conversion in June

2012 which would bring down the promoter holding from 52.4% in FY12 to 51.6% in FY13 i.e. by

~1.5%. Post conversion the total number of outstanding shares would go up to 101.1 mn shares from

present 99.4 mn shares and the paid up capital would go up from Rs. 199 mn to Rs. 202 mn.

PIL enjoys better margins due to sizeable gross block

Given PIL’s selective approach in bidding and its in-house execution capabilities, PIL is among the

few construction players who enjoy stable and better margins. It has a large fleet of sophisticated and

state of the art construction equipment with a gross block of Rs.5,335 mn as on 31st December,2011.

The gross block has gone up from Rs.157 mn in FY06 to Rs. 3,586 mn in FY11 and we expect it to go

up to Rs 8,185 mn by FY14E. This upstream in gross block will result in faster site-level turnarounds

and order book liquidation which will help the company to capitalize on fresh opportunities. Over the

years we have seen a rise in asset base which has resulted in dependence on company’s own equip-

ment and eventually reduction in subcontracting of work leading to maintenance of operating mar-

gins. This has also enabled them to be cost effective with better EBIDTA & PAT margins. As we can

see that EBIDTA, Operating and PAT margins has remained stable at 13.6%, 12.2% and 5.6% re-

spectively. We have assumed a downward trend in margins considering the rise in raw material cost

and interest rate scenario from FY12 onwards. We expect fixed asset turnover ration to remain stable

at 3.8x by FY14.

Figure 13: Fixed Asset Turnover ratio & Margin Trend

We also believe that going ahead the company is expected to incur capex of ~Rs. 2.5 bn by FY14 to

meet the capex requirement of its new ventures like metros, micro tunneling, solid waste manage-

ment, etc. We expect that the company is now set to capitalize on growing opportunities on the back

of huge gross block base.

Fund raised to the tune of ~Rs.

1.5 bn to enhance capital base

and improve its networth

CCPPS are due for conversion

in June’12 which would bring

down the promoter holding

from 52.4% in FY12 to 51.6% in

FY13 i.e. by ~1.5%

State of the art construction

equipment will result in faster

site-level turnarounds and or-

der book liquidation

Gross block has grown at a

CAGR of 54% from FY08 to

FY11 and expected to grow at

a CAGR of 32% from FY11 to

FY14E

To capitalize on the back of

huge gross block base





Robust order book to sup-port revenue growth

Revenue is expected to grow from Rs. 12,681 mn in FY11 to Rs. 25,192 mn by FY14E

EBIDTA margins from water & irrigation segment is ~13.5% to 14.5%, building segment is ~12% to 13% and road seg-ment ~11% to 12% as in-formed by the management

Financial Overview

Strong Revenue Growth

We expect revenue to grow at a CAGR of 26% from FY11 to FY14E on the back of strong track record

on the execution front. We expect the water segment to contribute more than 50% to maintain the

growth rate of the company going forward.

Figure 14: Revenue Trend

Margin outlook to remain stable

The EBIDTA margins are expected to remain stable at 13% in FY14E against 13.6% in FY11 while

PAT margins are expected remain at 4.9% in FY14E against 5.6% in FY11. EBIDTA margins from wa-

ter segment is ~13.5% to 14.5%, building segment is ~12% to 13% and road segment ~11% to 12% as

informed by the management. Higher contribution from water segment would eventually enable the

company to maintain higher margins in future. However, we have assumed marginal decline in margins

on a conservative basis. PAT margins are conservatively assumed on a lower side at 4.9% in FY14E

due to rising interest cost scenario. Almost all the projects are covered by escalation with protects the

margins of the company in rising commodity price scenario.

Figure 15: EBIDTA & PAT Trend


Source: Company Reports, BP Equities Research

CAGR - 24% FY11 to 14E CAGR - 20% FY11 to 14E




ROE & ROCE is expected to remain stable at 17.4% & 12.7% by FY14E

D/E ratio to remain stable at 1.5x

Improvement in ROE ROCE and EPS growth

The diluted EPS of the company is expected to remain stable and grow at a CAGR of 19% from FY11

to FY14E as against CAGR of 20% over FY08 to FY11. We see a declining trend in the ROE and

ROCE during FY12E & 13E due to high capex but the returns would eventually improve going for-

ward.

Figure 16: EPS, ROE & ROCE Trend

Debt Equity Scenario

During FY12E we see rise in D/E ratio to 1.6x. This was due to robust order inflow which resulted in

huge capex. We expect reduction in debt going forward and the D/E ratio is expected at 1.5x which

looks to be reasonable looking at the company’s closing order book backlog of Rs. 61,590 mn. The

management feels a D/E ratio of 1.5x is comfortable going forward.

Figure 17: Debt Trend






Company Overview

Company Description Pratibha Industries Limited (PIL) is a Mumbai based Company incorporated in 1982, promoted by Ajit

B. Kulkarni. It is the flagship company of the Pratibha Group. Pratibha group has two entities -

Pratibha Industries Ltd., a listed entity and Pratibha Pipes and Structural Ltd., a promoter group entity. PIL engages in infrastructure development sector, including water supply and urban infrastructure. It's

project profile consists of commercial complexes, water treatment plants, water transmission and dis-

tribution projects, elevated and underground reservoirs, pre-cast design and construction, group hous-

ing projects, road construction and real estate. The company provides services for execution of build-

ing, pipes, tunnels, airports, roads and saw pipes. PIL business operations are majorly concentrated

in India. The company operates through its four subsidiaries and several joint ventures for execution

of projects. Currently the employee strength of the company stands at ~3000 people working on ~70

ongoing projects.

Business Structure

PIL works under two different verticals viz., Construction division and Saw pipes division.

Figure 18: Company Structure


Pratibha Industries Ltd

Saw Pipes Division

Water Supply & Environmental Engineering

Water Transmission Water/Waste Water Treatment Integrated Water Supply Projects

Urban Infrastructure & Underground Works

Airports Metros & Railways

Roads/Bridges Tunneling Micro Tunneling

Buildings

High Rise Buildings/Iconic Structure Retail/Commercial/Residential

Projects Hospitals & Schools Car Parks

Concessions

Oil & Gas

Onshore Projects Offshore Projects

Water Projects

Oil & Gas

Construction Division




Management Overview

Mrs. Usha B. Kulkarni, Executive Chairperson

She is the Chairperson of the group since its inception. She has more than 45 years of administrative

experience and has worked in various capacities in the organization. She is a graduate in Arts from

Pune University.

Mr. Ajit B. Kulkarni, Managing Director

He founded the Pratibha group in the year 1982. He established Pratibha at a very young age of 24

years and is responsible for day to day management of the company. He has extensive experience in

the construction management of various civil engineering projects.

Mr. Vinayak B. Kulkarni, Wholetime Director

A qualified mechanical engineer has been director since inception. He has extensive knowledge in the

Pre-cast products building units. His area of work include planning, scheduling, site and materials

management and ensuring timely execution.

Mr. Rohit Katyal, Wholetime Director

He has experience of almost 20 years in key areas such as regulatory frame work in India, finance,

operations and administration. He had established the Mechanical Division for the group. His key ar-

eas of work include operations, HRD, commercial, finance and administration.

Mr. Rahul Katyal, Group Director and COO

He is serving almost all the group companies. He is responsible for the local and overseas execution

of all the projects of the company.

Senior management team is supported by a team of qualified and experienced professional across

different verticals.

Key Milestone

Since inception the company has been able to set up a new benchmark for itself at regular intervals.

Figure 19: Major Milestones





Saw Pipe Division - looking to divest

Introduction

The division commenced its production in mid 2007. It manufactures High Quality Spiral (HSAW) line

pipes for water and oil & gas application. It has a production capacity of 90,000 MT per annum. Manu-

facturing unit covers space of 75,000 sq. feet and open space measuring 1,28,000 sq. meters. It pro-

vides end to end requirements including manufacturing, procurement and commissioning of pipes. It

provides pipes to construction division for water management projects, giving a competitive edge

through backward integration model. The plant is located at Wada near Mumbai and it is in close prox-

imity to national highways and seaports like JNPT & Mumbai. It is operating at ~40-50% of the in-

stalled capacity.

Purpose of the division - backward integration

The intent of setting up the saw pipe division was to propel the company into the top league of water

infrastructure contractors of the country, that purpose has since been achieved and the saw pipe busi-

ness is going through turbulent times across the country. All saw pipe manufactures are facing tuff

markets as there is excess capacity in the country along with reduction in demand due to which the

unit has become unviable.

Key clients

The division is servicing both government as-well-as private clients. Major clients include GAIL, L&T,

Indian Oil, Petron Civil Engineering, Kalpataru Power Transmission, etc.

Management looking to divest the stake and enhance EPS

The management felt that there could be strategic options to look at or relook at any option, which

would help enhance the value and become EPS accretive in the process. So in the saw pipe division

the management is looking at various options; one of those options is to look at complete sale. The

company has not made any progress on looking at complete sale as off now. The other option is to

induct a strategic investor for which talks are on. The management informed that they can look at relo-

cating the plant to another location, in case strategic investors so desire. Lastly the company is look-

ing for the option to merge with a new entity. The value of this division as identified by the manage-

ment is any where between Rs. 1.1 to 1.2 bn. The ultimate intent of the management is to add to the

EPS eventually and to the bottom line of the company and look at ways to enhance the value of the

company.

Pratibha Pipes & Structural Ltd - To become a subsidiary of PIL

Introduction

Pratibha Pipes & Structural Ltd. (PPSL) is a promoter group entity incorporated in the year 1996. It has 2 manufacturing facilities for custom built steel structures at Wada, near Mumbai with a manufac-turing capacity of 50,000 tonnes per annum. Manufacturing unit covers space of 75,000 sq. feet and open space measuring 1,28,000 sq. meters. It has strong expertise in fabrication of complex heavy engineering structures for various industries including power and oil & gas and it also service the dredging industry.

Purpose of the division - add value to PIL

The purpose of the division is to provide end to end solutions including engineering, fabrication, instal-

lation of complex structural steel structures for various sectors such as high rise buildings, power

plants, oil & gas, infrastructure projects, etc. This strong expertise of the company enables construc-

tion division i.e. PIL to execute complex projects involving structural steel. Historically it has been ob-

served that major portion of the PPSL’s revenue has been contributed by PIL.

Figure 20: PIL contribution to PPSL revenue

Particulars (Rs in mn) FY2008 FY2009 FY2010 FY2011 PPSL Revenue 1,762 2,400 1,525 2,154 PIL contribution to the revenue 1,065 688 998 632 % of contribution 60% 29% 65% 29% Source: Company, BP Equities Research

100% subsidiary of Pratibha Industries Ltd.

The value of Saw pipe division identified by the management is ~Rs. 1.1 to 1.2 bn

Promoter group entity

One of the largest exporters of Pontoons to Dredging com-pany worldwide




It is registered with all major

clients in India & abroad

Going forward expected EBITDA and PAT margins to be around 12% to 13% and 5% to 6% respectively

Swap ratio at 6:1 valuing PPSL at Rs. 676 per share and PIL at Rs. 110 per share as informed by the management

Post merger into PIL demerger will take place of Saw pipe division & PPSL from PIL into a new company - a 100% sub-sidiary of PIL.

Each company will focus on their own growth strategy

Scheme would create a value for PIL’s minority shareholders

Key Clients

The division is servicing both government as-well-as private clients from across the country and

abroad. Major domestic clients include L&T, CIDCO, Shapoorji Pallonji & Co. Ltd., Airport Authority of

India, etc and clients from abroad includes Saipem, Qatar Dredging Company, Van Oord, Boskalis,

etc.

Order book & Financials

As informed by the management the current order book position of the company stands at 18,000

tonnes of custom build structures which is around 4 months of production and add up to the revenue

to the extent of ~Rs. 600 to 700 mn. During FY11 the topline stood at Rs. 2,150 mn while PAT was

around Rs. 80 mn. For H1FY12 topline stood at Rs. 1,050 mn. Going forward the management has

guided that due to the scheme of arrangement & support from the parent company the EBITDA and

PAT margins is expected to be around 12% to 13% and 5% to 6% respectively. The debt in the books

as on 30th Sep,2011 stood at around Rs. 880 mn borrowed at the rate of 12.5%, while its networth

was around Rs. 570 mn. We have not considered the financials in our valuation.

Scheme of arrangement - to achieve synergy

Scheme

Under the proposed Scheme, PPSL would be merged into PIL and than the manufacturing undertak-

ing would be hived off from PIL into a New Company - Pratibha Heavy Engineering Limited (PHEL-

a 100% subsidiary of the Company to be incorporated under the Companies Act, 1956 ), by way of

slump sale with effect from April 01, 2012, which is the Appointed Date under the Scheme. This new

company is a merger of PPSL and Saw Pipe Division. The board has approved the swap ratio of 6

(Six) fully paid up equity shares of Rs. 2 each of PIL shall be issued and allotted for every 1 (One)

equity shares of Rs. 10 each held in the PPSL. The Scheme is subject to consent, approval of requi-

site majority of shareholders of the Company, PPSL and New Company; sanction of the High Court of

Judicature at Bombay and all other regulatory approvals as may be necessary for the implementation

of the Scheme.

Objective

The objective of the scheme is to achieve synergies on the back of heavy engineering capabilities of

the new company for generating newer source of revenues. Both PIL and PHEL will focus on their

own growth strategy. We can see that both the Saw pipe division & PPSL are in the similar line of

business of manufacturing of heavy engineering structures & pipes. Through separation of pipe divi-

sion into a new company we believe PIL can focus on its core infrastructure business which is justifi-

able. The new company can focus on its strategy to divest its stake from Saw pipe division as it has

remained a drag for quiet some time due to excess capacity in the country along with reduction in

demand which has made the unit unviable.

Outlook

Management expects that going forward the scheme would be EPS accretive and they expect that the

consolidated EPS to move by around 35 to 40 paise in the forthcoming financial year. We believe that

PIL’s focus on infrastructure & construction segment would create a value for minority shareholders

post separation of saw pipe division but due to lack of information on PPSL we are unable to asses

the impact of the scheme at consolidated level resulting in our outlook to be EPS neutral.




.Figure 21: Structure of the company pre & post scheme of arrangement (No. of shares in mn)


Pre-Merger Share Holding Pattern of PIL Name No. of Shares % of Holding Promoter 52.1 52.4% Others 47 .3 47.6% Total 99 .4 100%

Share Holding Pattern of PIL post conversion of CCPPS

Name No. of Shares % of Holding Promoter 52.1 51.6% Strategic Investor 1.6 1.6%

Total 101.1 100% Others 47.3 46.8%

Pre-Merger Share Holding Pattern of PPSL Name No. of Shares % of Holding Promoter 1.8 84% Strategic Investor 0.3 16% Total 2.1 100%

Post-merger Share Holding Pattern of PIL Name No. of Shares % of Holding Promoter 62.7 55.2% Strategic Investor 3.6 3.2% Others 47.3 41.6% Total 113.6 100%

Number of shares to be issued to share holders of PPSL

Name No. of Shares Swap Ratio No. of shares No. of shares to be

issued of PIL Promoter 1.8 6 10.6 10.6 Strategic Investor 0.3 6 2.0 2.0 Total 2.1 12.60 12.60

Swap Ratio (6 shares of PIL to be issued to every 1

shareholder of PPSL) PIL PPSL 6 1

Pre - Merger

Post- Merger

De- Merger

New Company

CCPPS con-version in June 2012




List of key projects executed under different segment

List of new initiatives undertaken by the company

Water Supply & Environmental Engineering Key Projects Executed Rs in mn

Construction of Integrated Water Supply Scheme at Nagaur, Rajasthan on turnkey basis 3,316

Providing & Laying 3,000 mm dia Water Transmission Pipe Line near Mumbai 2,737

Design & Construction of 24 x 7 Water Supply Scheme in Navi Mumbai 2.009

Providing & Laying 3,000 mm dia Water Transmission Pipe Liner near Mumbai 1,610

Providing & Laying 3,000 mm dia Water Transmission Pipe Line in Mumbai 1,237

Design & Construction of Storm Water Pumping Station in Mumbai 75

Urban Infrastructure & Undergroung Works

Key Projects Executed Rs in mn

Construction of 6.8 km long Modak Sagar Tunnel near Mumbai 2,225

Construction of 3.6 km long Tunnel from Malabar Hill to Cross Maidan in Mumbai 1,566

Construction of New International Terminal Building, Ahmedabad, India 1,220

Modular Expansion of Amritsar Airport, India 1,060

Modular Expansion of Delhi Airport-Arrival Terminal, India 550

Buildings Key Projects Executed Rs in mn

Construction of 22 Storeys Commercial Tower with 6 Basements (1,400 Car Parks) at Bandra-Kurla Complex, Mumbai

1,650

Construction of Twin High Rise Residential Complex (50 Storeys) with Aluminum Shutter-ing (6 Day, Slab (50 Storeys) with Aluminum Shuttering (6 Day, Slab

900

India’s Tallest Structural Steel Commercial Building (192 Mtrs) in Mumbai 600

Construction of Institutional Building in Navi Mumbai 400


OIL & GAS Environment Renewable Energy

•Recent foray into Oil & Gas •Relatively Nascent sector in India •Focus on Solar and Wind Energy

•Immense potential in view of revamp on ex-isting players and creation of new assets by new players

•Tremendous untapped potential in Municipal Waste Segment

•Natural fit for Wind Energy given our heavy engineering capabilities

•Intent to leverage in house heavy engineering & pipe manufacturing capabilities

•Tremendous potential in treatment of sewage, waster water and effluents

•Plenty of opportunities in PPP domain

•Strategic alliances formed with key players for onshore and offshore segments

•Scouting for cutting edge technology in the above segments

•Government policies promoter renewable energy initiatives in a big way

•Have put in bids for mega projects •Strategic alliances formed with key players for Municipal Solid Waste Management

•Bidding for Projects in the above sector

•Expect significant headway in the coming financial years

•Have put in bids in the above sector •Scouting for strategic technology partner with a long term perspective

•Recently bagged the first of its kind Sewage to Power Project in Rajasthan, India





$1025 bn investment in infra-structure is expected in the 12th Five year plan

Industry Overview

Government emphasis on Infrastructure growth

The Government of India has given importance to infrastructure spending, which has widened the

growth opportunity for players in EPC segment. The Panning Commission has envisaged an outlay of

about $500bn during the 11th five year plan for infrastructure development in the country. In the 12th

five year plan the infrastructure spending is going to get doubled to touch at $1025 bn, which is 10%

of GDP compared to average yield of 7.55% of GDP in 11th plan and 5% of GDP 10th plan.

Figure 22: Infrastructure Investment as percentage of GDP

Figure 23: Projected Investment in Infrastructure during 12th 5 year plan

Union Budget 2012-13: Positive for infrastructure and construction sector

The govertment has doubled the issue size of infrastructure bonds to Rs. 60,000 from earlier Rs.

30,000 for financing infrastructure projects.

During the 12th fiver year plan investment in infrastructure to go up to Rs. 50 lakh crore.

The allocation of funds to Ministry of Road Transport and Highways enhanced by 14% to Rs.

25,360 crore during 2012-13. Along with this the government has announced that they have set

the target of 8,800 km for the highways to be constructed under the NHDP during 2012-13.

More sectors added as eligible sectors for Viability Gap Funding under the scheme “Support to

PPP in infrastructure” this includes sector such as irrigation (dams, tunnels, embankments), ter-

minals markets, common infrastructure in agriculture markets and others.

Allocation of funds under RIDF enhanced to Rs. 20,000 crore, Rs. 5,000 crore earmarked exclu-

sively for creating warehousing facilities and Rs. 3,168 crore equity investment in Metro Rail Pro-

jects

Full exemption from import duty on certain categories of specified equipment needed for road

construction, tunnel boring machines and parts of their assembly.

5.0%

7.6%

10.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

0

200

400

600

800

1000

1200

10th 5yr plan 11th 5yr plan 12th 5yr plan

Investment ($ in bn) % of GDP

Source: Planning Commission

Year (@ Rs 50/$) Base Year (2011-12)

2012-13 2013-14 2014-15 2015-16 2016-17 Total 12th Plan

GDP at market price (Rs cr) 7,892,831 8,603,187 9,377,472 10,221,446 11,141,376 12,144,100 51,487,580

Rate of growth of GDP (%) 9.00 9.00 9.00 9.00 9.00 9.00 9.00

Infrastructure investment as % of GDP 8.37 9 9.5 9.9 10.3 10.7 9.95

Infrastructure investment (Rs cr) 660,396 774,287 890,860 1,011,922 1,147,561 1,299,419 5,124,049

Infrastructure investment (US billion) 132.08 154.86 178.17 202.38 229.51 259.88 1,025 Source: Planning Commission




ECB has been allowed for capital expenditure on the maintenance and operations of toll systems

for roads and highways, if they are part of original project and also withholding tax on ECB re-

duced from 20% to 5% for 3 years.

The provisions under the Rural Housing Fund are to be enhanced from Rs. 3000 crore to Rs.

4000 crore.

Allowing ECB for low cost affordable housing projects and setting up of a credit guarantee trust

fund.

Budgeted spending under various scheme for fiscal year 2012-13

The union budget for fiscal year 2012-13 has been positive for the infrastructure sector. The govert-

ment outlay into the sector is substantial which would benefit the company as it is one of the leading

player in the construction and infrastructure space.

Segment / Scheme Purpose Rs in Mn

RURAL DEVELOPMENT - Pradhan Mantri Gram Sadak Yojana

Providing connectivity to eligible unconnected rural habitations through good all-weather roads

240,000

DRINKING WATER SUPPLY Supplementing the States in their effort to provide safe and adequate drinking water to all rural habitations

105,000

DRINKING WATER SUPPLY Rural sanitation

35,000

LAND RESOURCES Integrated Watershed Management Programme 30,500

URBAN DEVELOPMENT Equity investment in Metro Rail Projects 31,680

HIGHWAYS Investment in National Highways Authority of India 114,720

HIGHWAYS Special Programme for development of road connectivity to Naxal affected areas

15,000

HIGHWAYS Capital outlay on National Highways 78,810

DEVELOPMENT OF NORTH EASTERN RE-GION

North Eastern States Road Investment Programme 450

RURAL HOUSING - Indira Awaas Yojana Providing assistance to rural BPL households for construction of houses and upgradation of kutcha houses

110,750

FINANCE Equity support to IIFCL to increase its paid up capital 4,000

TOTAL OUTLAY 765,910

Source: Union Budget Document 2012-13 , BP Equities Research




Key Concerns

Rise in Competition

The massive growth in infrastructure and various reformation in this segment has encouraged more

private players into the segment. These opportunities have brought in competition into the segment.

Raw material volatility may hit profitability

The major raw materials are aggregates, cement, sand ,steel and bitumen which are required by the

construction companies. The company has mitigated the risk by escalation clause but a sharp spike in

commodity cost will impact the margins of the company because the company cannot pass it on the

entire hike to the customers.

Rise in Interest Cost

Any change in the interest cost would lead to increase in cost of borrowing and would result in decline

in margins.

Concentrated Order Book

The company's order books comes majorly form Delhi & Maharashtra and it stands at ~65%. Any

slowdown in order book flow form theses states may impact the order flows of the company.

Risk of liquidity

To a large extent, cash flow is dependent on credit terms extended to clients and the effective recov-

ery of dues from them. Delays in the recovery of dues have a direct impact on liquidity, which could

affect operations and earnings.




Peer Comparison

Figure 24: Peer comparison sheet

P/E band and P/Bv band Chart

Source: Capitaline, BP Equities Research

Source: Bloomberg Estimates, BP Equity Research

Com-pany Market

Cap (Rs Mn)

Sales Growth

%

EBITDA Growth

%

Net Profit Growth

%

EBITDA Margin %

EPS Rs P/E P/BV EV/EBITDA RoE %

(Rs mn)

FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E

Pratibha 4513 16,347 20,244 23.8% 2,228 2,691 20.8% 782 964 23.3% 13.6% 13.3% 7.7 9.5 5.8 4.8 0.8 0.7 5.1 4.5 16% 17%

IVRCL 16033 73,469 83,603 13.8% 8,258 9,579 16.0% 662 1,075 62.5% 11.2% 11.5% 2.5 4.0 22.7 15.1 0.5 0.5 7.9 6.8 1% 1%

NCC 12030 62,073 69,019 11.2% 5,843 6,866 17.5% 823 1,241 50.7% 9.4% 9.9% 3.2 4.8 16.6 9.7 0.5 0.5 10.4 8.8 3% 4%

HCC 14801 41,346 45,990 11.2% 4,910 5,811 18.4% -730 -79 -

11.9% 12.6% -1.1 -0.1 -

-

1.2 1.2 11.6 9.8 -5% -1%

Patel 7120 34,886 36,696 5.2% 4,816 5,055 5.0% 987 978 -0.9% 13.8% 13.8% 15.5 15.6 7.2 6.5 0.5 0.5 6.4 6.1 7% 6%

CCCL 3057 23,155 26,132 12.9% 1,006 1,536 52.7% -133 368 -

4.3% 5.9% -0.9 1.9 -

8.5 0.6 0.5 6.8 4.5 1% 6%

Simplex Infra

11554 57,724 66,086 14.5% 5,296 6,228 17.6% 980 1,321 34.8% 9.2% 9.4% 19.8 26.7 11.4 8.8 1.0 0.9 5.1 4.3 9% 11%

Ramky Infra

12247 33,017 40,713 23.3% 3,586 4,389 22.4% 1,640 2,033 24.0% 10.9% 10.8% 28.7 35.5 7.3 6.0 1.2 1.0 4.0 3.3 17% 18%

MBL INRA

3098 12,431 17,039 37.1% 1,718 2,368 37.8% 760 1,060 39.5% 13.8% 13.9% 43.4 60.6 4.1 2.9 0.9 0.7 3.8 3.1 25% 27%

Su-preme Infra

4526 14,367 17,835 24.1% 2,396 2,941 22.7% 856 1,067 24.6% 16.7% 16.5% 51.1 63.8 4.4 4.2 1.1 0.8 4.2 3.9 27% 27%

Unity INRA

3463 19,023 22,884 20.3% 2,738 3,261 19.1% 964 1,164 20.7% 14.4% 14.3% 13.0 15.7 3.8 3.0 0.5 0.4 3.8 3.4 14% 15%

6.5 0.7 5.4 Average

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

Apr-

06

Jul-0

6

Oct

-06

Jan-

07

Apr-

07

Jul-0

7

Oct

-07

Jan-

08

Apr-

08

Jul-0

8

Oct

-08

Jan-

09

Apr-

09

Jul-0

9

Oct

-09

Jan-

10

Apr-

10

Jul-1

0

Oct

-10

Jan-

11

Apr-

11

Jul-1

1

Oct

-11

Jan-

12

Apr-

12

Market Price 0.5 X 1.0 X 1.5 X 2.0 X 2.5 X

Source: Capitaline, BP Equities Research

P/Bv band

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

100.00

Apr-

06

Jul-0

6

Oct

-06

Jan-

07

Apr-

07

Jul-0

7

Oct

-07

Jan-

08

Apr-

08

Jul-0

8

Oct

-08

Jan-

09

Apr-

09

Jul-0

9

Oct

-09

Jan-

10

Apr-

10

Jul-1

0

Oct

-10

Jan-

11

Apr-

11

Jul-1

1

Oct

-11

Jan-

12

Apr-

12

Close -Unit Curr 2.0 X 4.0 X 6.0 X 8.0 X 10.0 X

P/E band




Valuation & Outlook

The fair value of the company stands at Rs.57 per share using the relative valuation method. We have

valued the business on P/E basis.

We have valued the business on relative valuation basis by assigning P/E multiple to its consolidated

business. Based on the robust order book position, in-house fleet of equipments, focus towards higher

margins segment which will enable the company to maintain better margins. We expect the company

to grow at CAGR of ~26% from FY11 to FY14E on the back of strong execution track record. The

company is well poised to tap the growing opportunities from the urban and rural infra space sup-

ported by the government spending. We expect PIL’s foray into the BOT space will start generating

steady cashflow by end of FY13. We expect the valuation gap to narrow in the medium term and the

company will trade at a valuation in comparison to its peers. At the CMP of Rs. 45.4, the stock is trad-

ing at P/E of 4.7x & P/Bv of 0.7x to its FY13E EPS of Rs. 9.5 & BV of Rs. 63.8. We recommend

‘BUY’ and assign a P/E multiple of 6x (10% discount to avg. of peers) to its FY13E EPS of Rs. 9.5

and arrive at a target price of Rs. 57 which provides potential upside of 26%(Pre initiating coverage

dated 20th March: Market Price was Rs. 44 with Target of Rs. 55 ).




Income Statement (consolidated) Balance Sheet (consolidated)

Cash Flow Analysis (consolidated)

Key Ratios


Valuation Ratios

YE March (Rs. mn) FY10 FY11 FY12E FY13E FY14E

Net Sales 10,072 12,681 16,347 20,244 25,192

Growth % 32.9% 25.9% 28.9% 23.8% 24.4%

Total Revenue 10,072 12,681 16,347 20,244 25,192

Less:

Cost of Work Done 7,197 9,099 11,443 14,271 17,759

Personnel Expenses 539 685 988 1,223 1,548

Other Expenses 970 1,176 1,688 2,059 2,600

EBIDTA 1,366 1,720 2,228 2,691 3,285

Growth % 49.1% 25.9% 29.5% 20.8% 22.1%

Less: Depreciation 140 170 205 245 295

Operating Profit 1,226 1,550 2,023 2,446 2,991

Growth % 45.1% 26.5% 30.5% 20.9% 22.3%

Less: Interest Paid 522 641 1,080 1,223 1,399

Non-operating Income 63 59 100 80 70

Extraordinary Income 0 0 0 0 0

Extraordinary Expense 0 0 0 0 0

Profit Before tax 767 968 1,043 1,303 1,662

Tax 201 254 261 339 432

Minority Interest 0 0 0 0 0

Net Profit 565 714 782 964 1,230

Adjusted Profit 565 714 782 964 1,230

Reported Diluted EPS (Rs )

6.8 7.2 7.9 9.5 12.2

Growth % 26.3% 5.5% 9.5% 21.4% 27.5%

Adjusted EPS 6.8 7.2 7.9 9.5 12.2

Growth % 26.3% 5.5% 9.5% 21.4% 27.5%

YE March( Rs. mn) FY10 FY11 FY12E FY13E FY14E Liabilities Equity Capital 167 199 199 202 202 CCPPS 0 150 150 0 0 Reserves & Surplus 2,587 4,486 5,198 6,239 7,398 Equity 2,754 4,835 5,547 6,441 7,600

Preference Share Capital 0 0 0 0 0

Net Worth 2,754 4,685 5,547 6,441 7,600 Net Deferred tax liability/(Asset)

131 184 224 224 224

Total Loans 4,348 4,388 8,643 9,783 11,190 Capital Employed 7,233 9,407 14,413 16,448 19,013 Assets Gross Block 3,169 3,586 5,778 6,999 8,185 Less: Depreciation 278 427 632 877 1,171 Net Block 2,891 3,158 5,147 6,122 7,013 Capital WIP 114 545 1,540 938 375 Investments 51 1 33 33 33 Current Assets Inventories 3,237 3,792 6,769 8,272 10,203 Sundry Debtors 1,944 1,895 2,255 2,681 3,128 Cash and Bank Balance 658 1,281 1,782 2,271 2,786 Loans and Advances 2,441 4,201 6,586 7,747 9,387 Total Current Assets 8,279 11,169 17,392 20,971 25,504 Less: Current Liabilities & Provisions

Sundry Creditors 1,958 2,183 4,255 5,194 6,302 Provisions 459 665 1,145 1,184 1,264 Other Current Liabilities 1,686 2,618 4,299 5,238 6,346 Total Current Liabilities & Provisions

4,103 5,467 9,699 11,616 13,912

Miscellaneous Assets 1 0 0 0 0 Capital Applied 7,233 9,407 14,413 16,448 19,013

YE March (Rs. mn) FY10 FY11 FY12E FY13E FY14E Key Operating Ratios EBIDTA Margin (%) 13.6% 13.6% 13.6% 13.3% 13.0% Tax / PBT (%) 26.2% 26.2% 25.0% 26.0% 26.0% Net Profit Margin (%) 5.6% 5.6% 4.8% 4.8% 4.9% RoE (%) 22.3% 18.7% 15.0% 16.0% 17.4% RoCE (%) 15.7% 14.2% 13.3% 12.1% 12.7% Current Ratio (x) 2.0x 2.0x 1.8x 1.8x 1.8x Dividend Payout (%) 10.4% 9.9% 8.9% 7.3% 5.8% BV Per Share (Rs.) 27.3 47.9 54.9 63.8 75.2 Financial Leverage Ratios Debt/ Equity (x) 1.6x 0.9x 1.6x 1.5x 1.5x Interest Coverage (x) 2.6x 2.7x 2.1x 2.2x 2.3x Interest / Debt (%) 15.3% 14.7% 16.6% 13.3% 13.3% Growth Indicators Gross Block Growth (%)

88.3% 13.1% 61.2% 21.1% 16.9%

Sales Growth (%) 32.9% 25.9% 28.9% 23.8% 24.4% EBIDTA Growth (%) 49.1% 25.9% 29.5% 20.8% 22.1% Net Profit Growth (%) 26.3% 26.4% 9.5% 23.3% 27.5% Diluted EPS Growth (%)

26.3% 5.5% 9.5% 21.4% 27.5%

Debtors days 70 54 50 48 45 Inventory days 136 126 175 172 170 Creditors days 82 73 110 108 105

Turnover Ratios

YE March (Rs. mn) FY10 FY11 FY12E FY13E FY14E P/E (x) - 6.3x 5.8x 4.8x 3.7x P/BV (x) - 0.9x 0.8x 0.7x 0.6x EV/EBIDTA (x) - 4.2x 5.1x 4.5x 4.0x EV/Sales - 0.6x 0.7x 0.6x 0.5x Market Cap./ Sales (x) - 0.3x 0.3x 0.2x 0.2x Dividend Yield (%) - 1.5% 1.3% 1.3% 1.3%

YE March (Rs. mn) FY10 FY11 FY12E FY13E FY14E EBITA 1,226 1,550 2,023 2,446 2,991 Less: Adjusted Taxes 321 406 506 636 778 NOPLAT 904 1,144 1,517 1,810 2,213 Plus: Depreciation 140 170 205 245 295 Less: Increase in Working Capital

1,656 945 1,600 1,251 1,821

Operating Cash flow -611 369 122 804 686 Less: Net Capex 993 869 3,188 618 623 Less: Increase in Net Other Assets

-85 -44 -73 -1 0

FCF From Operation -1,519 -456 -2,993 187 63 Less: Inc./(Dec.) in Invest-ment

51 -50 32 0 0

FCF after Investment -1,570 -406 -3,025 187 63 Plus: Gain/(loss) on Ex-traordinary Items

0 0 0 0 0

Total Free Cash Flow -1,570 -406 -3,025 187 63 Financing Cash Flow Interest Exp/(inc) After Tax, Net

339 430 735 846 983

Inc/(dec) in Excess Cash and Marketable Securities

-104 571 425 411 416

Dec/(Inc) in Debt -1,863 -41 -4,254 -1,140 -1,407 Dividends 59 71 70 71 71 Share Repurchase/(Issues)

0 -1,437 0 0 -0

Total Financing Flow -1,570 -406 -3,025 187 63


Source: Company, BP Equities Research Source: Company, BP Equities Research


Research Desk Tel: +91 22 61596464

Disclaimer Appendix

General Disclaimer

This report has been prepared by the research department of BP WEALTH MANAGEMENT Pvt. Ltd. and BP EQUITIES Pvt. Ltd, is for information purposes only. This report is not construed as an offer to sell or the solicitation of an offer to buy or sell any security in any jurisdiction where such an offer or solicitation would be illegal.

BP WEALTH MANAGEMENT Pvt. Ltd. and BP EQUITIES Pvt. Ltd have exercised due diligence in checking the correctness and authen-ticity of the information contained herein, so far as it relates to current and historical information, but do not guarantee its accuracy or com-pleteness. The opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time. Prospective investors are cautioned that any forward looking statement are not predictions and are subject to change without prior notice.

Recipients of this material should rely on their own investigations and take their own professional advice. BP Wealth or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. BP Wealth Management Pvt. Ltd. or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations.

BP Wealth and/or its affiliates and/or employees may have interests/ positions, financial or otherwise in the securities mentioned in this report. Opinions expressed are our current opinions as of the date appearing on this material only. While we endeavor to update on a rea-sonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so.

This report is not directed to or intended for display, downloading, printing, reproducing or for distribution to or use by any person in any locality, state and country or other jurisdiction where such distribution, publication or use would be contrary to the law or regulation or would subject to BP Wealth or any of its affiliates to any registration or licensing requirement within such jurisdiction.

Corporate Office:

4th floor, Rustom Bldg, 29, Veer Nariman Road, Fort, Mumbai-400001

Phone- +91 22 6159 6464 Web- www.bpwealth.com

Institutional Sales Desk Tel: +91 22 61596403/04/05

Analyst (s) Certification:

We analysts and the authors of this report, hereby certify that all of the views expressed in this research report accurately reflect our per-sonal views about any and all of the subject issuer (s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation (s) or view (s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the BP Equities Pvt. Ltd. (Institutional Equities).

Analyst (s) holding in the Stock : Nil

road construction tunnels reservoirs …breport.myiris.com/bpepl/praindu3_20120329.pdf · design...

Documents