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Pratibha Ind.: Finance costs dampen performance

Aug 17, 2012

Pratibha Industries announced its results for the quarter ended June 2012. During 1QFY13, net sales grew by 49% YoY, while profits increased by 30% YoY.

Performance summary
  • Revenues surge by 49% YoY.
  • Operating profits rise at a faster pace of 63% YoY as operating margins expand to 17.2% from 15.7% during the corresponding quarter last year.
  • Profits grow by 30% YoY. Higher finance cost is the key reason for the slower rise in profits as compared to the growth in operating profits.
  • Order book stands at Rs 66.1 bn at the end of the quarter, which stands at about 4.4 times its FY12 standalone revenues.

Standalone financial snapshot
(Rs m) 1QFY12 1QFY13 Change
Income from operations 3,023 4,498 48.8%
Expenditure 2,549 3,727 46.2%
Operating profit (EBDITA) 474 772 62.8%
Operating profit margin (%) 15.7% 17.2%  
Other income - 2  
Finance costs 182 375 105.7%
Depreciation 42 61 44.0%
Profit before tax 249 337 35.3%
Tax 63 96 52.2%
Profit after tax/(loss) 186 242 29.6%
Net profit margin (%) 6.2% 5.4%  
No. of shares (m)   101.1  
Basic & diluted earnings per share (Rs)   8.8  
P/E ratio (x) *   5.5  
* On a trailing 12-months basis

What has driven performance in 1QFY13?
  • Pratibha Industries (PIL) reported a revenue growth of 49% YoY during the quarter ended June 2012. The company continued its strong revenue growth (49% YoY during 4QFY12) this quarter, with its infrastructure and construction (I&C) business growing by 58% YoY. However, the company's manufacturing business' revenues declined by about 48% YoY. The latter contributed to about 2% of revenues (8% during 1QFY12), with the balance contributed by its I&C division.

    Segmental Break up
    (Rs m) 1QFY12 1QFY13 Change
    Infrastructure & Construction
    Revenue 2,817 4,454 58%
    % share 92% 98%  
    PBIT margin 14.9% 16.0%  
    Revenue 251 107 -48%
    % share 8% 2%  
    PBIT margin 9% 12%  
    Revenue - 2 -48%
    % share 0% 0%  
    PBIT margin - 100%  
    Total 3,068 4,564 49%
    Less: Inter-segment revenue 45 63 -48%
    Revenue 3,023 4,500 49%
    PBIT margin 16.3% 13.9%  
    *Excluding inter-segment revenues

  • PIL reported a good operating performance during the quarter ended June 2012. Operating profits increased at a faster pace of 63% YoY on the back of relatively slower increase in costs. Operating margins expanded by 1.5% YoY to 17.2% during 1QFY13, led by lower other expenses (as a percentage of sales). As for the two main costs heads - cost of materials and manufacturing, construction & operating expenses - the same rose by 48% YoY and 55% YoY respectively. In absolute terms, employee expenses increased at the fastest pace of 74% YoY, thereby increasing by almost a percentage point of sales of the quarter.

  • PIL's net profits increased by 30% YoY on the back of higher finance costs (up by 106% YoY in absolute terms), higher depreciation and tax charges.

What to expect?
At the current price of Rs 48.1, the stock trades at a multiple of 5.6 times its trailing 12-month EPS. The past quarter was a good one in terms of revenue growth (strong execution) and order inflow (Rs 15 bn during 1QFY13). Similar to what we had written during the preceding quarter, we believe PIL will be able to grow at a strong pace on the back of a healthy order book to sales ratio, provided execution remains strong. In fact, during the quarter ended June 2012, the order book to sales ratio has risen all the more.

A key reason for the operating margins to expand was the revenue recognition of some large projects, whose costs were incurred earlier. As such, management expects margins to stabilize to levels of 13.5% to 14% on account of execution of new projects (therefore higher expenses). Apart from this, profit growth was a bit subdued during the quarter on the back of higher finance costs. However, the same include mark to market losses of about Rs 116.5 m on account foreign currency debt exposure (about US$ 22 m).

The company's high debt levels continue to be an area of concern. As per the management, the debt has been taken on to fund its capex for the year, given that some financial infusion would be required in certain large scale projects; including spends towards certain machinery. At the end of last year, i.e. FY12, the company had a debt to equity ratio of about 1.6 times. It must however be noted that the management has ruled out any equity dilution in the near term. The cost of debt is a bit shy of 12%.

While the company's balance sheet is not in its best of health, we believe the current valuation already prices in this concern. We maintain a positive view on the stock at current levels.

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