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  • Sep 9, 2008 - Pratibha Industries: Excerpts from the annual report

Pratibha Industries: Excerpts from the annual report
Sep 9, 2008

FY08 was an important year for Pratibha Industries (PIL). During the year, the company commissioned its SAW pipe division, with an installed capacity of 92,000 tonnes per annum (TPA). After restructuring the company into two broad divisions – infrastructure and pipe manufacturing, PIL demerged its SAW pipes division into a new company called Pratibha Pipes & Structural Limited (PPSL). As such this move would help the company to focus on its two divisions separately. PIL published its annual report recently. In this article, we will highlight the key excerpts of the report.

View on the industry
With a strong focus on urbanisation along with strong foreign investment, the infrastructure sector has grown at a fast pace in recent times. In addition, the need for quality infrastructure has increased. As per the annual report, the infrastructure and construction sector is expected to contribute to nearly 17% of India’s GDP by 2012, citing good growth prospects for companies in this space.

Opportunities
To meet the needs of a developing nation, the strong investment scenario in India is likely to remain sustained for the next two decades. On a macro level, the rapid growth in urbanisation is likely to keep the demand for housing and commercial space robust, considering the wide demand supply gap. As per the management, the opportunities from this space are likely to cross US$ 1 trillion in the medium term. As mentioned earlier, opportunities in the other infrastructure segments are also expected to drive the company’s growth going forward.

Focus on segments such as roads, housing infrastructure, urban water supply and sanitation and airports has increased in recent times. The Planning Commission of India has estimated that nearly US$ 500 bn needs to be invested across the infrastructure sector till the year 2012, creating strong prospects and opportunities for a construction company like PIL in the future. As per the company’s management, CRISIL Research estimates suggest that these allocations would translate into construction investments of around Rs 291 bn in the segments of roads, urban infrastructure and irrigation (including water).

There is a huge demand for pipelines, be it in the water or the oil and gas sector. The recently commissioned pipe manufacturing unit will not only help PIL to embark on the opportunities from these spaces but is also likely to benefit the company in maintaining or improving its margins going forward. As many PSUs are opting for transportation of oil and gas through pipelines, considering the fact that there are few quality pipe manufacturers in the country, PIL is slated to benefit from these large investments going forward.

  • Also read – Opportunities in infrastructure

    Concerns
    Being a manufacturing company (pipes), the issue of the volatile commodity prices will remain the major concern leading to an impact in its profitability going forward. However, in its other segment i.e. the infrastructure segment, the company profitability will be cushioned due to price variation clauses.

    Like the other construction firms, PIL also faces issues related to execution and manpower issues. Further, the slowdown in the economy could also hamper the company’s order book in the medium term.

    What to expect?
    At the current price of Rs 282, the stock of Pratibha Industries is trading at a multiple of 11.8 times its trailing twelve months earnings. In the recent past, the company had ventured into relatively new segments viz. building and modernisation of airports, tunneling, construction of high rises, shopping malls, development of urban infrastructure etc. As per the management, PIL is further exploring various options to expand the base of activities. Accordingly, the company is executing two major airport projects viz., Amritsar Airport and Ahmedabad Airport and two tunnel projects for the Brihanmumbai Municipal Corporation (BMC), Mumbai. This move by the company is in line with its strategy to become a full-fledged infrastructure development company. These efforts will not only help the company to de-risk its product portfolio but also will benefit the company to improve its capabilities by handling more complex projects. However, the water segment will continue to remain its forte. In addition, PIL further plans to diversify and embark upon highway construction projects of NHAI, hydrocarbon, civil work for power generation and waste water treatment in the near future.

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