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Friday, July 09, 2010

Fw: Investor's Eye: Update - Pratibha Industries (First BOT project from NHAI ); Retail (Consumption demand remains upbeat)

harekhan Investor's Eye
 
Investor's Eye
[July 09, 2010] 
Summary of Contents

STOCK UPDATE 

Pratibha Industries
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs508
Current market price: Rs410

First BOT project from NHAI
 

  • Pratibha Industries has secured a built-operate-transfer (BOT) project on annuity basis from National Highway Authority of India (NHAI). The project involves two laning with paved shoulders of Bhopal?Sanchi section of national highway (NH)-86 for 53.7km under National Highway Development Programme (NHDP) phase III. The project is in joint venture with Abhyudaya Housing and Construction Pvt Ltd. The construction period is two years and the payment shall be through semi-annual annuities of Rs12.95 crore for 13 years totaling to Rs336.7 crore. This is the first BOT project bagged by the company from NHAI. Though a small-ticket project, it will help the company bid for bigger projects in future. Further, the project-win fits in well with the company?s strategy of diversifying its business model. 
  • The company has also bagged three projects worth Rs210 crore for the construction of residential and commercial complexes. These include: a) Construction of residential building at Navi Mumbai for Piramal Suntech Realty. The project is to be completed in 19 months? time. b) Construction of five residential buildings at Gurgaon, Haryana for IREO Ltd. The project is to be completed in 31 months? time and c) Construction of commercial building at Mulund West, Mumbai for Runwal Developers. The project is to be completed in 24 months? time.
  • We project the company?s Q1FY2011 revenue to grow by 19.3% year on year (yoy) to Rs315 crore on revenue booking from some big-ticket projects bagged in FY2010. We anticipate the quarterly operating profit margin (OPM) to expand to 14.5% from 11.9% in Q1FY2010, mainly due the company?s backward integration into manufacturing SAW pipes, a key raw material for water-related projects. This is likely to improve the bottom line by strong 33.6% yoy to Rs18.7 crore.
  • We continue to like Pratibha Industries given its major presence in the water and irrigation vertical, and the government?s strong thrust on improving the same. We expect the company to post a strong earnings growth in Q1FY2011 on account of revenue booking from few big on-going projects. As a corollary, we maintain our earnings estimates, though any delay in execution of projects will be a key risk to the estimates. At the current market price, the stock is trading at 8.7x and 6.5x its FY2011E and FY2012E earnings respectively. We maintain our Buy recommendation on the stock with a price target of Rs508.

SECTOR UPDATE

Retail

Consumption demand remains upbeat

  • Continuing the upbeat trend of the last quarter, consumer sentiment and consumption demand remained buoyant during the current quarter as well. More so, as the recovery has been more pronounced and stable during the quarter, which is visible from increasing footfalls and rising conversions. The revival is broad-based with strong demand coming from both urban as well as rural India. Fear of holding back spend has already receded. Further, strong buying has resumed in fashion and discretionary categories.
  • Strong revenue growth coupled with realistic cost structure (occupation as well as employee cost), deleveraging of balance sheet would lead to reduction of interest cost, further closures of unviable specialty formats would pave way for higher earnings growth for the quarter. We expect a strong 57% y-o-y earnings growth for our universe. Shoppers? Stop is expected to report the highest earnings growth, followed by Pantaloon Retail.
  • Strong demand, players? approach towards profitable growth coupled with benign competitive environment augur well for the retail sector. Hence we maintain a positive stance on the sector. Among the retail universe, we have a Buy recommendation on Provogue India.

 
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Regards,
The Sharekhan Research Team
myaccount@sharekhan.com 

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