Buy Pratibha Industries

PRATIBHA INDUSTRIES LTD.

Buy at Rs. 67.25                                                    Target at Rs. 88.00

INTRODUCTION

Pratibha Industries Limited (PIL), the flagship company of the Pratibha Group, was established in 1982, by a dynamic young entrepreneur Ajit B Kulkarni. The firm started its foray with manufacturing of SFRC manhole covers & frames, which were designed & introduced as a replacement to the conventional cast iron manholes cover & frames. Substantial saving on costs and elimination of theft vis-à-vis the conventional cast iron product ensured huge acceptability with practically all government clients throughout the country.

Till the early 90s the firm was focusing only on pre-cast products. In 1992, the firm decided to extend its presence in the civil construction industry and started participating in bids invited for such projects by government / semi- government departments. In-depth technical knowledge and sound management ethics ensured that the company received its first major mass-housing project (Rs125 million) from CIDCO of Maharashtra Limited in the same year.

In 1994, the company realized that water supply projects hold great potential. However, it did not possess any established expertise in execution of such projects. Inorganic route through formation of a joint venture with a competent fellow contractor was the only way out and therefore, the first strategic alliance with Coromandal Prescrete (P). Limited, a Hyderabad based Contractor was inked. The joint venture successfully bid and was awarded one package from the prestigious Hitawne Water Supply Scheme. Thus, started the journey of Pratibha in water supply projects, a segment from which the company derives more than 70% of its revenues.

The company took over Teknoworks (India), a Mumbai based firm engaged in manufacture of mechanical equipments and structures, in 1995. The company has a turnover of nearly INR 1000 million and derives 30% of its revenues from exports.

OVERVIEW

Till 2001, the operations of PIL were restricted to the state of Maharashtra alone. The next challenge for Pratibha was to consolidate and strengthen its engineering department to make its presence felt in more complex & integrated Water Supply projects, as also to form alliances with fellow contractors of repute to ensure fulfillment of this goal. The company started working towards this by establishing a design department and bidding for projects of complex nature, which also involved designing, in Joint Venture with reputed contractors like Petron Civil Engineering (P). Limited and Unity Infra-projects Limited. The efforts bore fruits in 2003, when the company was awarded multi-million projects by Mumbai Municipal Corporation, Gujarat Water Supply & Sewerage Board, and Delhi Jal Board, along with other Governmental Agencies. It was during this period that the company also expanded the segments of operation by entering and receiving work orders for intra-city road projects. Though, it saw opportunity in NHAI, it consciously decided to abstain from bidding in view of the heavy capital intensive nature of these projects. It maintained its presence in mass-housing & allied construction activities by building modern age railway stations, plant buildings and residential complexes on pure contractual basis.

By 2005, the company had established an inherent expertise in design, construction, operation & maintenance of reasonably sized complex water supply projects, water treatment plants and distribution systems, as also in the other segments in which it was operating. It was realized that there was shift in the government mindset and certain other project implementing agencies and there was determined focus to promote projects on PPP (Public Private Partnership) basis. Though the company was executing midsized projects on annuity & deferred payment models, the then net-worth and accessibility to debt funds was limited and could prove to be detrimental to the Company’s future growth. There were two paths available – either to maintain the then existing status and subsequently to act as a sub-contractor to bigger contractors or to strengthen its financial position in quest for a place amongst the top construction companies. The Management of the company opted for the latter. It was decided to approach the capital market to raise requisite funds through dilution of 30% of the company’s existing equity base. The company’s maiden issue hit the market in the first quarter of 2006 and received overwhelming response and was subscribed by over 24 times. The funds raised from the IPO were to be deployed for long term working capital requirements, equity funding for BOOT / PPP projects and setting up of an API accredited spiral pipe manufacturing plant. The company’s initial and established success in the water segment, due to the availability of proper back up, strengthened the belief that back up of an API accredited pipe manufacturing unit would add as a fillip to its future plans of foray into the lucrative oil and gas pipe transmission EPC projects.

In 2007 & 2008 Pratibha Industries strengthened its Buildings Division and bagged many unique and the best Buildings in India. Building Divison has been working with the top most clients and the most renowned Architects and Consultants. Today Pratibha Group has specialised themselves with methodology and the concept of Tall buildings. As on date Pratibha Industries are constructing more than 6 skyscrapers in Mumbai and one of them being the tallest Structural steel commercial building in India with a height more than 195 Mts.

In 2009 the company has set up its PPP Division (Public Private Partnership). “The Public-Private Partnership (PPP) Project would be a project based on contract or concession agreement between a Government or statutory entity on the one side and a private sector company on the other side, for delivering an infrastructure service on payment of user charges.”

The company is dedicated and committed to providing the society at large with quality infrastructure in its field of expertise which currently include design, engineering and execution/construction of complex & integrated water transmission & distribution projects, water treatment plants, elevated and underground reservoirs, mass housing projects, commercial complexes, pre-cast design & construction, road construction and real estate.

BUSINESS AREA OF THE COMPANY INCLUDES

• Infrastructure
• Helical Saw Pipes & Coatings

ACHIEVEMENTS/ RECOGNITION

• Quality Accreditations-ISO 9001.

Appreciation Certificates from

• SMERA-SME Rating Agency of India Ltd.
• Latur Nagar Parishad
• CIDCO
• Indian Railway Welfare Organisation (WZ)CIDCO 

FUTURE PLANS

The company over the next few years (2010-2011) on standalone basis or through Joint Ventures, strategic alliances & acquisitions (if a suitable opportunity arises) proposes to have strong presence in road, retail, urban, oil and gas transmission and power segments of the infrastructure sector, apart from water supply segment. It also proposes to be global player in pipe segment and market spill over capacities after accounting for in-house consumption. The said projects will be executed on both, EPC & PPP basis.

FINANCIAL PERFORMANCE

                                                                                                                                                                                                                                                                                                                                                                      

PARTICULARS	DEC-2010	SEP-2010	JUN-2010	MAR-2010
Revenue	275.26	245.72	306.49	271.92
Other Income	--	--	0.10	--
Total Income	275.26	245.72	306.58	271.92
Expenditure	-233.06	-208.62	-266.35	-225.85
Interest	-19.50	-14.41	-15.02	-14.11
PBDT	22.70	22.69	25.21	31.95
Depreciation	-3.68	-3.59	-3.37	-3.04
PBT	19.02	19.10	21.84	28.92
Tax	-4.85	-5.49	-5.60	-7.99
Net Profit	14.17	13.61	16.25	20.92
Equity	19.88	16.69	16.69	16.69
EPS	1.62	1.63	9.74	12.54
CEPS	1.80	2.06	11.76	14.36
OPM %	15.33	15.10	13.13	16.94
NPM %	5.15	5.54	5.30	7.69

KEY FINANCIAL RATIO  

                                                                                                                                                                        

PARTICULARS	MAR-2010	MAR-2009	MAR-2008	MAR-2007	MAR-2006
Debt-Equity Ratio	1.54	1.05	0.72	1.40	0.56
Current Ratio	2.36	2.22	1.44	4.00	2.45
Fixed Assets	4.15	5.86	7.80	14.73	12.33
Inventory	3.98	4.51	5.36	10.21	5.49
Debtors	5.96	7.54	4.23	2.93	3.91
Interest Cover	2.41	2.46	2.88	2.71	3.02
PBIDTM (%)	15.16	13.18	13.60	13.03	13.48
CPM (%)	7.21	6.76	7.93	7.30	8.25
ROCE (%)	22.58	23.92	22.54	21.38	25.10

CONCLUSION

On quarter on quarter company has report strong number both in top line as well as bottom line.  Revenue grew from 245.72 Cr to 275.26 Cr and net profit grew from 13.61 Cr to 14.17 Cr. We expect company to post strong numbers in coming quarters and on back of that recommend to accumulate the stock at current market price with a time horizon of twelve months for a target price of Rs. 88.  

 

Buy ANSAL PROPERTIES & INFRASTRUCTURE LTD

Buy at Rs. 37.50                           Target at Rs. 49    

INTRODUCTION

Ansal Properties & Infrastructure (API) incorporated in the year 1967 was vision of Shri Surendra Kumar Saigal and Late Lala Chiranjiv Lal Ansal.

Its business activities include property development for commercial, housing, retail, hospitality, IT SEZ, IT parks and Industrial parks.

Its client list includes big companies like Apple, Big Bazar, Cadbury, KFC, Mc Donalds, Deutsche Bank, Pizza Hut, Reliance Infocom, Walt Disney Sahara Airlines are amongst others.

BUSINESS AREAS

Commercial- It has developed many real estate projects such as Aerodrome (Amritsar), Galary Court (Panipat), Times Square (Gurgoan), Sushant Plaza (Jaipur) etc.

Housing- Under this, it has successfully developed housing properties namely Valley View Estate (Gurgaon), Aquapolis (Ghaziabad), Sushant Taj City (Agra) etc.

Retail- In this segment it has constructed properties and has built various shopping complex such as The Boulevard, Courtyard, Ansal Plaza and many others.

It has also developed Industrial Park like Pioneer, Hotel like Palms and IT parks like Netcity and The Campus.

In International markets it has successfully developed project in Bangkok, Iraq, Thailand, Russia and Bangladesh.

OUTLOOK

API has launched ‘Megapolis’ is India’s largest green hi-tech park located in Greater Noida spread across 2500 acres of land. The project cost is Rs.13000 crore.

OPPORTUNITIES

The Real Estate Sector in India has assumed growing importance with the globalization of the economy. Developments in the real estate sector as a whole are being driven by demand for:

i. Due to growing urbanization of Indian population, easy availability of housing finance at cheaper rates and tax incentives more housing units in cities and towns;

ii. shopping malls and commercial space by growing retail segment;

iii. commercial space by rapidly growing entertainment and hospitality sectors;

iv. office premises by growing IT/ITES;

v. hotels/resorts by growing tourism industry and international sporting events;

vi. better infrastructure by the growing Indian Economy through all its sectors; and

vii. SEZs by various sectors.

THREATS

Following one or more of the perceived threats could negatively affect the business of the Company:­> The ability to sell the Company's products will be adversely affected by the availability of finances at reasonable cost to potential customers, especially buyers of residential properties.

i. Delay in payment of installments by the customers may result in delay in completion of the project and consequent legal hassles.

ii. Fluctuations in market conditions may affect capacity of the Company to sell projects at expected prices, which could unfavorably affect our revenues and earnings.

iii. The growth of the Company requires further capital, which may not be available on terms acceptable to it.

iv. Covenants with institutional lenders and other contractual commitments may restrict operations and ability to expand which may hurt the business and results of operations and financial condition.

v. Considerable increases in prices or shortage of building materials could harm the Company's delivery schedules, results of operations and financial condition.

vi. The projects in the real estate business involve purchasing small parcels of lands within a large area and failure to purchase any strategically located parcels may lead to failure of the entire project.

vii. Potential limitations on the supply of land could reduce revenues of the Company or negatively impact the results of its operations.

viii. Sanctioning process through the authorities is sluggish and time consuming.

ix. The business is subject to extensive statutory or governmental regulations.

x. Change in the business policies of the Government.

xi. The Company undertakes projects jointly with third parties, which involve certain risks of third parties slowing down the speed of implementation and abandoning the projects mid way.

xi. The Company is reliant on its directors and senior management team and the loss of key members or failure to attract skilled personnel may adversely affect the business.

xii. The Company conducts due diligence and assessment exercises prior to undertaking a project, but may not be able to assess or identify certain risks and liabilities.

xiii. Work stoppages and other labour problems could adversely affect the business.

xiv. The Company is dependent on various sub-contractors or specialist agencies to construct and develop projects.

STRATEGIES

The key elements of the Company's business strategy are as follows:

i. Continue to focus on affordable housing projects that have lower capital costs, shorter development periods, high demand, and for which commercial financing is readily available.

ii. Consolidate the Company's position in the real estate industry across northern India.

iii. Pursue a balanced mix of land acquisition strategies to lower the average acquisition costs.

iv. Enhance execution capabilities.

v. Attract and retain senior managerial personnel.

RISKS & CONCERNS:

Reward doesn't come without risk. Those who succeed embrace risk and master it. In any dynamic organization risk is everywhere - so is opportunity. To manage that risk and seize opportunity requires a sophisticated, systematic and comprehensive process that must be aligned with Company strategy and daily operations.

The Company's risk management practices, seek to sustain and enhance long-term competitive advantage of the Company. Risk management is integral to the Organization. Your Company's core values provide the platform for risk management practices. The following are the broad categories of risks identified by the Company:

i.                     Operational Risks

ii.                   Strategic Risks

      iii.   External Risks

      iv.   Finance Risks

      v.    Legal/ Compliance Risks

      vi.   Counterparty Risks

      vii.  Information Technology Risks

     viii.  Price risk

     ix.   Demand risk

FINANCIAL PERFORMANCE

                                                                                                                                                                                     

PARTICULARS	DEC-2010	SEP-2010	JUN-2010	DEC-2009
Revenue	278.29	274.98	221.61	204.49
Other Income	4.73	3.04	3.32	5.95
Total Income	283.02	278.02	224.93	210.44
Expenditure	-233.81	-230.68	-141.13	-147.40
Interest	-21.14	-22.05	-26.31	-31.21
PBDT	28.07	25.29	57.49	31.83
Depreciation	-2.32	-2.26	-2.04	-2.20
PBT	25.75	23.03	55.45	29.63
Tax	-9.50	-8.05	-18.64	-15.15
Net Profit	16.25	14.98	36.81	14.48
Equity	78.70	65.84	65.84	61.56
EPS	1.06	1.16	2.96	1.18
CEPS	1.18	1.31	2.95	1.35
OPM %	17.68	17.22	37.81	30.83
NPM %	5.84	5.45	16.61	7.08

KEY FINANCIAL RATIO  

                                                                                                                                                                        

PARTICULARS	MAR-2010	MAR-2009	MAR-2008	MAR-2007	MAR-2006
Debt-Equity Ratio	1.11	1.05	0.78	0.26	0.72
Current Ratio	2.89	2.95	3.11	2.87	1.47
Fixed Assets	4.97	4.18	7.89	15.91	8.83
Inventory	0.40	0.47	1.05	1.81	0.95
Debtors	1.50	1.59	3.25	7.52	5.52
Interest Cover	1.33	1.24	2.81	5.12	5.25
PBIDTM (%)	52.81	53.28	43.17	34.36	26.55
CPM (%)	10.44	9.63	20.33	18.65	16.23
ROCE (%)	15.45	16.01	22.89	35.03	36.63

CONCLUSION

On quarter on quarter company has report strong number both in top line as well as bottom line.  Revenue grew from 274.98 Cr to 278.29 Cr and net profit grew from 14.98 Cr to 16.25 Cr. We expect company to post strong numbers in coming quarters and on back of that recommend to accumulate the stock at current market price with a time horizon of twelve months for a target price of Rs.  49.  

Source :- SIHL