Pratibha Industries - Q2FY13 Result Review - Edelweiss

Pratibha Industries Ltd's (PRIL) topline of INR 444 crs was marginally above our estimates of INR 437 crs due to better execution. The bottom-line came in at INR 22 crs, which was above our estimate of INR 18 crs, largely on account of higher other income of INR 12 crore driven by forex gain. In the quarter operating margin was at 13.5%, little below our expectation of 14.2%. The order book at the end of the quarter was INR 6150 cr. In the quarter the company did not announce any new order, but currently they are L1 in INR 1500 cr of contracts. The management has indicated that it may exceed its full year revenue growth guidance of 20% with operating margins between 13.5-14% for FY13E. We continue to maintain our "BUY" recommendation with a revised target price target of INR 66.

Execution remained strong in Q2FY13

Q2FY13 consolidated net revenue grew at 32% yoy to INR 444 cr and was above our expectation of INR 437 cr. The company witnessed strong execution in water and building segment which contributed 42.5% and 38% respectively to the consolidated topline, while balance was contributed by urban infra (which includes DMRC tunneling work). In the quarter, DMRC tunneling and Delhi Jal Board order contributed INR 65 cr and INR 11 crore respectively. The execution of Delhi Jal Board's micro tunneling project is expected to ramp up from Q3FY13. The management expects to exceed its revenue growth guidance of 20% in FY13E as it expects the execution to remain strong in H2FY13.

Guided to maintain operating margins in 13.5-14%

In Q2FY13 the consolidated EBITDA margin declined marginally by 20 bps yoy to 13.5%. The management has guided to maintain margin in the range of 13.5-14% on the existing orders. The EBITDA for the quarter grew at 30% yoy to INR 60 cr while PAT grew by 33% yoy to INR 22 cr. higher growth in PAT was supported by INR 12 crore of other income driven by forex gain. The consolidated gross debt at the end of the quarter increased to INR 1183 cr, primarily to fund capex of INR 150 crore in H1FY13. The company has bought 2 tunnel boring machines and ancillary equipment for executing DMRC tunneling orders and would be buying 2 more in H2FY13. The management has guided for a capex of INR 300 cr in FY13. It plans to fund the additional capex through borrowings.

Strong order backlog of INR 6150 cr, L1 in INR 1500 cr order

The order book at the end of Q2FY13 was INR 6150 cr which excludes INR 1500 cr of L1 orders. In the quarter the company did not announce any new orders. The L1 order includes one more order from DMRC for the tunneling work. The management is optimistic on new order inflows from domestic as well as international market.

Withdrawal of PPSL merger

The company has withdrawn the scheme of merger of PPSL with Pratibha Industries Ltd. Now it plans to sell off the pipe division separately. The withdrawal of scheme of merger would be positive for the shareholders of Pratibha Industries and it would not result into an equity dilution of 1.26 shares.

Valuations

We have revised our estimates to factor in the impact of higher capex funded through debt. We have also increased our FY14 revenues by 4% due to superior execution and current order backlog. We continue to believe in the long-term story of the stock. We roll our multiple to FY14 and assign a target PE of 6x FY14E EPS of INR 11 and derive a target price of INR 66 which leaves an upside potential of 30% from the current market price.

Source : Equity Bulls

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