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Pratibha Ind.: Poor quarter, dull year - Views on News from Equitymaster
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Pratibha Ind.: Poor quarter, dull year
Jun 19, 2013

Pratibha Industries announced its results for the quarter and year ended March 2013. During FY13, net sales grew by 30% YoY while profits increased by 2% YoY.

Performance summary
  • Revenues grow by 5% YoY during 4QFY13.
  • However, as operating expenses rise at a faster pace, operating profit growth comes in at over 3% YoY.
  • Higher finance charges however lead to a 30% YoY decline in profits before tax. Net profits decline by 32% YoY during 4QFY13.
  • During full year FY13, company's revenues and profits increased by 30% YoY and 2% YoY respectively.
  • Company's board recommends a final dividend of Rs 0.60 per share (dividend yield of about 1.8%).

Consolidated financial snapshot
(Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
Income from operations 5,186 5,460 5.3% 16,701 21,692 29.9%
Expenditure 4,473 4,724 5.6% 14,465 18,734 29.5%
Operating profit (EBDITA) 714 735 3.1% 2,235 2,958 32.4%
Operating profit margin (%) 13.8% 13.5%   13.4% 13.6%  
Other income 9 57 565.0% 60 129 116.9%
Finance costs 274 466 69.9%  961 1,583 64.8%
Depreciation 76 65 -14.3%  228 310 36.0%
Profit before tax 372 262 -29.7% 1,106 1,195 8.0%
Tax 102 79 -22.6% 295 368 24.6%
Profit after tax/(loss) 270 183 -32.3% 811 827 2.0%
Net profit margin (%) 5.2% 3.4%   4.9% 3.8%  
No. of shares (m)         101.1
Basic & diluted earnings per share (Rs)         8.18  
P/E ratio (x) *         3.9  
* On a trailing 12-months basis

What has driven performance in FY13?
  • Pratibha Industries (PIL) reported a 5% YoY growth in consolidated revenues during the quarter ended March 2013. On a quarter on quarter basis, the company's revenues decreased by 12%. The company's operating profits came in higher by 3% on a YoY basis and flat on a QoQ basis. While raw material and construction expenses decreased on a YoY level (combined; as a percentage of sales), the company's employee expenses increased by 2% YoY as a percentage of sales during 4QFY13 as compared to last year.

  • PIL's profit before tax performance was impacted by higher interest costs (up 70% YoY in absolute terms). On a QoQ basis, interest costs are up by 30%. What is alarming now is that the company's interest coverage ratio has been on a declining trend over the past three quarters. During 4QFY13, the same stood at 1.56 times. In 2QFY13, it was at 1.94 times. A year ago, the same stood at 2.36 times. PIL's profits declined by 32% YoY during the quarter.

  • During full year FY13, PIL's revenues and profits grew by 30% YoY and 2% YoY respectively. While the company performed well at the operating level, its profit before tax numbers grew at a slower pace on the back of higher interest costs. The interest coverage ratio stood at 1.75x for the full year. The same stood at 2.15x during FY12. Profit growth came in at 2% YoY on the back a higher effective tax rate for the full year.

What we expect?
At the current price of Rs 32, the stock trades at a low multiple of 3.9 times its trailing 12-month earning per share. Notwithstanding the seemingly cheap valuations (current PBV of 0.5), we cannot help but be worried about the risk associated to PIL's balance sheet. PIL's debt to equity ratio is way above comfort levels (over 2 times at the end of FY13). The dwindling interest coverage ratio is also an area of concern. PIL's order book stands at about Rs 55-60 bn at the end of the year, which is about 2.8 times its FY13 consolidated revenues. As such, there is enough growth visibility in the future. While the company continues to report strong growth on a YoY basis, the larger portion of capital getting blocked towards meeting its working capital requirements has been taking a toll on its books, and hurting the company's financial performance in the form of higher interest costs. We do not see the scenario improving anytime soon.

The stock PIL has been beaten black and blue over time. But given the very low valuations it is currently trading at, we believe the overall pessimism surrounding the infrastructure stocks has dragged it lower than required. In any case, we believe investors would be better of focusing on better opportunities and so we recommend a 'SELL' on PIL.

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