Pratibha Industries - Weak quarter; 2HFY14 to be better; Buy - Anand Rathi

Revenue down, margin stable. In 1QFY14, Pratibha Industries' revenue declined 21.2% yoy (down 5% qoq), following yoy contraction of 21% in the contract division (down 3% qoq) and 94% in manufacturing. Execution has slowed as most tunnel boring machines (TBMs) are being shifted to the new project. Management is confident of a strong revenue growth in 2HFY14 (when all TBMs will be in place). The construction division's EBIT margin dipped 20bps yoy, to 15.8%, taking the overall EBITDA margin to 17% (down 10bps yoy). Interest expenses included forex loss of Rs. 147.1m due to which PAT came in at Rs. 49m, lower than our estimates.

Order book position healthy. The order book stands at over Rs. 74bn (4.8x TTM revenue), dominated by urban infra, water and buildings. During the quarter, the company bagged orders of Rs. 9.9bn. Major orders came in from Rajasthan and Noida. Construction on the Bhopal-Sanchi road BOT project is progressing well.

Pipe division remains laggard. The manufacturing division posted an EBIT loss of Rs. 17m. The pipes division disappointed for the fourth consecutive quarter, owing to oversupply in the industry. The management is looking to exit this business.

Our take. For 1QFY14, revenue dipped 21% and net profit slid 80%, yoy. EBITDA margin stood at 17% versus 16% in FY13. On the back of lowerthan-expected results, we have lowered our revenue and PAT estimates. We retain Buy, with price target of Rs. 53. Our target is based on 5x FY14e earnings, a 25% discount to other midcap construction companies' target multiples.

Risks. Slow down in order inflows, squeeze in operating margin.

Source : Equity Bulls

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