Nitin Fire Protection Industries Ltd ( BUY, T.P. Rs 100)
Nitin Fire Protection Industries Ltd (NFPIL) is one among the top five companies engaged in providing end-to-end solutions in fire protection and solution in India. The business has expanded by 33% during FY09-FY14 aided by capex in Oil & Gas, Telecom and IT sectors in India and ME. As India is in the cusp of getting back to a higher growth trajectory, NFPIL would be a proxy play benefitting from the revival in CAPEX. Further, NFPIL’s ME operation, composing 50% of consolidated top-line, has exhibited robust growth and is expected to do well post Dubai winning the bid to host EXPO 2020. We factor consolidated top-line to grow to Rs17,468mn by FY16E, representing growth of 31% CAGR post FY14. A recuperating domestic economy and NFPIL’s ability to sustain margins in its ME operation, makes case for margin to marginally improve in FY15E and FY16E. Given its unique model and liquidity premium, we believe NFPIL will continue to get high relative valuation in mid-cap space. We initiate with a BUY rating, valuing at P/E of 18x.
Prominent player… domestic revival to help…
NFPIL is one among the top five players in India. It has three decades of presence in Fire industry and served marquee clients across Oil & Gas, IT and Telecom sectors. Over FY09-FY14, standalone business grew by 49% CAGR. Though top-line expanded, margins were lower due to domestic slowdown and compiling the standalone financials to A.S 7. We believe, from here on there is a case for margins to improve at the standalone level, as Indian economy gets back to its high growth trajectory. We factor standalone revenues to grow by 27% CAGR and margin to improve by 10bps and 20bps in FY15E and FY16E respectively from FY14 levels, consequently taking standalone PAT to improve by 25% and 36% to Rs192mn and Rs261mn, in FY15E and FY16E.
Middle East operations to gain momentum…
Middle-East (ME), contributing 50% to the top-line, has posted robust business growth of 37% CAGR over the last three years. Further, Dubai’s win to host EXPO 2020 and the injection of +$30bn in to the economy for associated preparation are expected to add further impetus to fire protection demand until 2019. We have factored 37% CAGR over FY14-FY16. Average PBT margins are expected to be in the vicinity of 10-11%. As ME, being a tax-free zone, any improvements at the PBT level would be highly beneficial to NFPIL’s bottom-line.
Valuations
At CMP of Rs73.5, NFPIL trades at P/E of 18x and 13x on FY15E and FY16E earnings. Given its unique model and liquidity premium, we believe NFPIL will continue to get high relative valuation in mid-cap space. We value the stock at P/E of 18x its FY16E EPS and rate the stock BUY.