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Pratibha Ind.: Depreciation, interest charges upset profits - Views on News from Equitymaster

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  • Jun 5, 2012 - Pratibha Ind.: Depreciation, interest charges upset profits

Pratibha Ind.: Depreciation, interest charges upset profits
Jun 5, 2012

Pratibha Industries announced its results for the quarter and full year ended March 2012. During 4QFY12, net sales grew by 49% YoY, while profits increased by 7%.

Performance summary
  • Revenues grow by 49% YoY, led by a 72% YoY increase in the company's 'infrastructure & construction' business.
  • Operating profits grow at a slower pace of 24% YoY as margins contract by 2.5% YoY to 12%.
  • Profits increase at a relatively slower pace of 7% YoY on the back of higher depreciation and interest charges.
  • During full year FY12, company's standalone revenues grew by 28% YoY, while profits increased by 17% YoY.
  • Board recommends dividend of Rs 0.6 per share (dividend yield of about 1.5%).

Standalone financial snapshot
(Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
Income from operations 3,462 5,166 49.2% 11,727 15,034 28.2%
Expenditure 2,960 4,546 53.6% 10,025 12,948 29.1%
Operating profit (EBDITA) 502 621 23.6% 1,701 2,087 22.7%
Operating profit margin (%) 14.5% 12.0%   14.5% 13.9%  
Other income 11 3 -75.1% 12 53 323.6%
Finance costs 118 186 57.9% 612 839 37.1%
Depreciation 37 50 36.0% 143 188 31.4%
Profit before tax 359 387 7.9% 958 1,111 16.0%
Tax 84 95 12.6% 244 279 14.5%
Profit after tax/(loss) 274 292 6.5% 714 832 16.5%
Net profit margin (%) 7.9% 5.6%   6.1% 5.5%  
No. of shares (m)         101.1  
Basic & diluted earnings per share (Rs)         8.2  
P/E ratio (x) *         4.6  
(*On a trailing 12-month basis)

What has driven performance in 4QFY12?
  • Pratibha Industries' (PIL) net sales increased 49.2% YoY in 4QFY12 led by a 72% YoY increase in I&C (infrastructure & construction) segment. However, revenues from the manufacturing segment declined 48% YoY. It must be noted that while I&C segment contributes 95% to the total gross revenues, the net revenue growth is not in the same proportion due to the inter-segmental adjustments.


    Segmental Break up
    (Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
    Infrastructure & Construction
    Revenue 2,963 5,089 72% 10,577 14,570 38%
    % share 84% 95%   89% 94%  
    PBIT margin 15.6% 12.0%   14.3% 13.1%  
    Manufacturing
    Revenue 538 257 -48% 1,337 903 -32%
    % share 15% 5%   11% 6%  
    PBIT margin 1.8% 4.5%   7.2% 6.8%  
    Others
    Revenue 11 3 -48% 12 53 324%
    % share 0% 0%   0% 0%  
    PBIT margin 100.0% 100.0%   100.0% 100.0%  
    Total 3,513 5,349 52% 11,927 15,526 30%
    Less: Inter-segment revenue 39 180 -48% 188 439 -48%
    Total
    Revenue 3,474 5,169 49% 11,739 15,087 29%
    PBIT margin 14.2% 12.1%   13.8% 13.4%  

  • PIL's operating profits increased by 24% YoY, a slower pace as compared to the increase in net revenues. This was on the back of a 54% YoY rise in costs. Operating margins during the quarter declined by 2.5% YoY to 12%. This was on the back of higher manufacturing, construction and operating expenses coupled with higher other expenditure.

  • PIL's net profits grew by 7% YoY during 4QFY12. As compared to the increase in operating profits, the performance at the net level is poor due to higher interest and depreciation costs. Also a relatively higher effective tax rate brought down the profitability figure.

What to expect?
At the current price of Rs 38.1, the stock is trading at a multiple of about 4.7 times it trailing twelve month EPS. At the end of the year, PIL had an order book of Rs about 56 bn. This provides strong visibility in terms of revenue growth going forward. But it must be noted that the company is very much dependent on a couple of large sized orders. While this is the strategy taken upon by the company, it could go either ways. Any delay in certain projects could impact profitability and health of the balance sheet substantially. However, the company's management is confident some of the major projects will not face significant problems in the future. The company has bid for some large size Delhi Metro projects. Total bidding in this segment itself is Rs 70 bn. Even if company wins one order it will expand its order book substantially.

However, one point that needs to be noted is that the company has a debt to equity ratio of about 1.6 times, which is quite high. If and when company bags any large projects, its working capital requirements are likely to get stretched, there by stretching its balance sheet. As such, this is one aspect that needs to be gauged carefully.

The company has recently passed a resolution for allowing it to make a rights issue. As per the management, it is just an enabling resolution, and that the company has no plans for the same in the near future.

All said and done, the company's stock is available at attractive valuations. And given the strong growth visibility, we maintain a positive view on the stock.

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