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Pratibha Industries: Margin expansion on the cards - Views on News from Equitymaster
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  • Jul 30, 2010 - Pratibha Industries: Margin expansion on the cards

Pratibha Industries: Margin expansion on the cards
Jul 30, 2010

Pratibha Industries announced 1QFY11 results recently. Both top-line and bottom line registered strong growth of 25% YoY and 16% YoY, respectively. Here is our analysis of the results.

Performance summary
  • Topline grew by 25% YoY during 1QFY11.
  • Operating profits increased 35% YoY during 1QFY11, on the back of strong top line growth. Operating margins too expanded by 1% during the quarter. This was mainly due to decline in the overall expenditure as a percentage of sales.
  • Despite strong growth in operating profits, net profits grew 16% YoY in 1QFY11 due to increase in depreciation and interest expenses.


Consolidated financial snapshot
(Rs m) 1QFY10 1QFY11 Change
Sales 2,638 3,285 24.5%
Expenditure 2,326 2,863 23.1%
Operating profit (EBDITA) 312 422 35.2%
Operating profit margin (%) 11.8% 12.8%  
Other income 0 1 234.1%
Interest 99 155 56.5%
Depreciation 22 40 82.6%
Profit before tax 191 227 19.0%
Tax 51 65 26.2%
Profit after tax/(loss) 140 162 16.3%
Net profit margin (%) 5.3% 4.9%  
No. of shares (m)   16.7  
Basic earnings per share (Rs) *   9.74  
P/E ratio (x) *   12.0  
* On a trailing 12-months basis

What has driven performance in 1QFY11?
  • Net sales registered a healthy growth of 25% YoY in 1QFY11. Growth in the top line was led by strong execution during the quarter. The company continues to maintain its supremacy in the water supply and irrigation segment. Current order book stands at approximately Rs 38 bn implying revenue visibility for the next 3-4 years. Management is confident of achieving revenues in excess of Rs 15 bn for FY11 and this should not be a difficult proposition considering the recent uptick in macro environment.

  • Operating profits registered strong growth of 35% YoY in 1QFY11. Operating margins expanded due to decline in overall cost as percentage of revenues. Total cost as a percentage of revenues declined from 88% in 1QFY10 to 87% in 1QFY11.

  • Despite strong growth in operating profits, bottom line registered 16% YoY growth due to increase in depreciation and interest expenses. Increase in effective tax rate from 27% in 1QFY10 to 29% in 1QFY11 did not help the cause either.

What to expect?
Overall 1QFY11 results were above our estimates. Strong order book and new project wins provides revenue visibility for the next couple of years. Further, margins are also likely to remain healthy and move in a tight band of 12-13%, due to selective bidding. RoE’s are likely to remain firm due to improved profitability.

At current levels we maintain our view on the stock.

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