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Pratibha Industries: Management meet extracts - Views on News from Equitymaster

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Pratibha Industries: Management meet extracts

Jun 27, 2007

We recently met the management of Pratibha Industries Ltd. (PTL) to get a perspective of the various developments taking place within the company and gauge its future prospects. Following are the key extracts of the meeting. What is the company’s business?
PIL is engaged in the infrastructure business having a niche in the water segment with expertise in design and construction of complex & integrated water transmission & distribution projects, water treatment plants, elevated and underground reservoirs. Water projects currently accounts for 70% to 75% of the company’s revenues. Besides, the company also has presence in mass housing projects, commercial complexes, airport terminals, railway stations and road construction. PIL is setting up saw pipes manufacturing facility with an initial capacity of 90,000 tonnes p.a. and will be operational by July 2007. This will supplement its ongoing water related projects.

Order backlog position: The current order backlog of the company is around Rs 16.5 bn, which is nearly 5.5 times its FY07 sales. Besides, the company is L1 (lowest bidder) in projects aggregating more than Rs 5.5 bn. The company expects to execute these orders in the next 3 to 4 years.

New growth verticals: PIL has been primarily focused on water and related infrastructure projects. The company is now planning to enter new verticals like metro rail, urban infrastructure, oil and gas, and airports (the company has two airport projects in hand). To obtain pre-qualification, the company has entered into strategic alliances with various players who have proven track record in their respective fields.

Outlook on margins: PIL expects to maintain its operating margins in the range of 13%. Due to large numbers of projects, the company bids for only those projects, which are expected to generate an operating margin of about 13%.

Capital expenditure: The company has a committed capital expenditure of around Rs 1.1 bn, out of which Rs 800 m will be used towards setting up the saw pipes manufacturing facility, while the rest will be used towards acquisition of equipment.

Tax rate: PIL pays taxes on a MAT basis as it claims exemption under the Section 80 IA of the Income Tax Act. According to the company, since it does not take any sub-contracting work, it is eligible for the exemptions and expects its tax rate to be at the MAT rate going forward.

We are in the process of forming our view on the stock and shall soon come up with our recommendation on the same.

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