Pratibha Industries - Stable performance; Buy - Anand Rathi

Restrained revenue performance. For 3QFY14, Pratibha Industries' revenue, we expect, would have grown 7.8% yoy (up 6% qoq) following a pickup in revenue growth in its contracts division. We expect revenue of the contracts division to have grown 6% yoy following its strong order book and billing of revenue from the DMRC project. And the pipes division is likely to have continued its dismal performance as in the previous quarter.

Stable margins. We expect the EBIT margin of the construction division to come in at 16.5%, vs 15% in the prior quarter and 17% in the year-ago quarter. However, the manufacturing division is likely to post a minor EBIT loss as it is almost non-operational. The company is likely to post a 5.6% net profit margin at the aggregate level.

Robust order book. The order book exceeds Rs. 79bn (5.2x TTM revenue), dominated by water (40%), buildings (30%) and urban infra (30%). During 1HFY14, the company secured orders of Rs. 19bn. During the quarter, order inflows would be the key monitorable.

Pipes to be the laggard. The manufacturing division is likely to post a minor EBIT loss given that it was non-operational for most of the quarter. Capital employed in the pipes division was Rs. 1.34bn, of the total Rs. 6.6bn.

Our take. Execution is likely to pick up on the DMRC project as the tunnelling work starts from Nov'13. We expect a 16.5% EBITDA margin and a 5.6% net profit margin. Key monitorables are the company's orderbook and the status of its L1 projects. Our target is based on 5x FY14e earnings, a 30% discount to other midcap construction companies' target multiples. Risks. Slowdown in order inflows and margin squeeze.

Source : Equity Bulls

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