Pratibha Industries Ltd is a mid size construction company with operations across 10 states and 4 business verticals, namely - Water & Irrigation, Urban Infrastructure, Surface transportation and Hydrocarbons. In addition, the company also manufactures saw pipes which are used for transportation of water and oil & gas.
We hereby do a SWOT analysis of the company and analyze what potential and risks lie ahead of the company.
Diversified order book: Pratibha Industries has a diversified order book with presence across multiple verticals. This provides a unique hedge to the company in case of slowdown in orders from any particular segment.
Backward Integration: Majority of the order book comprises of the water & irrigation segment. As a result, the company underwent backward integration by entering into the saw pipe manufacturing business. Manufacturing saw pipes enables the company to bid competitively for pipe line related projects.
Healthy share of private contracts: Higher share of private contracts ensue higher margins as they are bagged on a negotiated basis. Private contracts also allow better working capital management.
Working capital cycle: Construction is a working capital intensive industry. It should be noted that Pratibha has one of the best working capital cycle in the industry. In FY09, the working capital cycle of the company stood at 87 days.
High leverage: The company's debt/equity ratio stood at 1.1x as of FY09. Apart from resulting in higher interest outgo, highly leveraged businesses are the ones which get hurt the most during a crisis.
Price volatility risk: Although construction companies typically enter into price variability clause with regards to fluctuation in the prices of key raw materials, it does not fully hedge the company from wild swings in raw material prices.
New Divisions: New division - Hydrocarbon - presents a great opportunity for the company to cash in on the incremental business.
Geographical diversification: Historically, the company's operations focused more or less in the state of Maharashtra. However, over time the company has diversified into other states as well.
Competition: The industry operates at wafer thin margins. Unviable bidding by competitors in order to just gain an entry into the business can impact the top-line of the company.
Weak government finances: Weak government finances can impact the order inflows of the company.