| Summary of Contents STOCK UPDATE Pratibha Industries
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs450
Current market price: Rs326
Fair Q3; better times ahead Result highlights -
Pratibha Industries? Q3FY2010 top line grew by 23% year on year (yoy) to Rs236.5 crore supported by good performance from both the infrastructure and manufacturing divisions. -
The earnings before interest, tax, depreciation and amortisation (EBITDA) margin expanded by 90 basis points yoy and 130 basis points quarter on quarter (qoq) to 14.9%. The margin improved primarily due to a lower (300-basis-point decline) construction costs as percentage of revenues. This was on account of benefits arising from the backward integration into manufacturing of horizontal submerged arc welded (HSAW) pipes?the main ingredient for water projects. The water projects form about 63% of the company?s order book. -
The profit after tax (PAT) went up by mere 6% yoy to Rs11 crore in the quarter. The interest cost increased by 28% yoy whereas the depreciation expenses surged by 151%, which impacted the profit during the quarter. The company had securitised Rs130 crore in FY2008 which was due from one of its debtors, Nagpur Municipal Corporation, at an internal rate of return (IRR) of 14%. This loan had a larger bearing on this quarter, which led to a surge in the interest cost. However, the company has repaid this amount completely and from the next quarter the company?s interest cost would come down. -
The order book position stood at around Rs3,345 crore as of Q3FY2010, which is 4.2x its FY2010E revenues. Of the current order book, 63% of the orders come from water supply related works, 32% are from urban infrastructure and the remaining are from road-related works. -
The board of directors has approved raising upto Rs200 crore by further issue of securities by the company subject to approval by the shareholders. The company plans to use the proceeds for meeting its working capital requirement and investment in its special purpose vehicle (SPV), which has been formed to take up built-operate-transfer (BOT) projects. -
We continue to like Pratibha Industries given its major presence in the water segment and the strong impetus by the government on the same. We expect the company to post strong earnings growth in Q4FY2010 on account of revenue booking from few big ongoing projects. As a corollary, we maintain our earnings estimates. However, any delay in the execution of projects will be a key risk to our earnings estimates. At current market price, the stock is trading at 9.4x and 6.7x its FY2010 and FY2011 earnings. We maintain our Buy recommendation on the stock with a price target of Rs450.
SHAREKHAN SPECIAL Q3FY2010 FMCG earnings review As anticipated it was yet another quarter when almost all fast moving consumer goods (FMCG) companies (except Tata Tea) saw their bottom line growth far outpacing their top line growth on account of a year-on-year (y-o-y) deflation in product prices and a lower raw material cost. The top line growth of Sharekhan universe of FMCG companies stood at 13.7% year on year (yoy), largely driven by volume growth, as the y-o-y pricing growth was negligible (except for Tata Tea). Though the volume growth of the FMCG companies was robust, for some it was slightly lower as compared with that in Q2FY2010.
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