Pratibha Industries Ltd

We recommend a BUY on Pratibha Industries Ltd (PIL), one of the large players in water segments. As a diversification strategy and to reduce its dependence on water segment PIL is exploring various options to expand the base of activities  and therefore in the recent past ventured into relatively new segments i.e. building and modernization of airports, tunneling, construction of high rise, shopping malls, development of urban infra etc. PIL has commissioned its HSAW pipe division with capacity of 92000 TPA (API certified) in FY08 and by October 2008 it is planning to commence commercial operation of its coating plant (capacity of 1.8 mn sq mtrs). The recently commissioned pipes division of the company will ensure the company to tap the tremendous opportunities which lies in the pipes segment. As per the planning commission estimates, about USD 581 billion needs to be spent on Infrastructures over the 11th Five Plan, which would augur good times for construction companies in terms of healthy order book growth and better revenues. We expect PIL to record 54% CAGR in topline in next two years (FY08-FY10E) with bottom line likely to grow by 45% CAGR in the same period largely on the back of a confirmed order book which gives stronger revenue visibility to its business.

Looking at the positive outlook for the Indian infrastructure sector in the long term and PIL's focus on water segment which is a high margin segment along with its pipes business, we believe PIL is well placed for stronger growth in near future. We recommend a Buy on PIL with a 12 month price target of Rs. 340. At the current market price of Rs. 236 stock trades at 7x and 5x of its FY10E EPS and EV/EBITDA respectively which looks attractively. We have valued PIL at Rs. 340 based on 6x EV/EBITDA multiple on FY10E.

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