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Pratibha Ind.: Other income boosts profit - Views on News from Equitymaster
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Pratibha Ind.: Other income boosts profit
Oct 29, 2012

Pratibha Industries announced its results for the quarter ended September 2012. During 2QFY13, net sales and profits grew by 31% YoY each.

Performance summary
  • Income increases by 31% YoY during the quarter ended September 2012.
  • Operating profits rise by 30% YoY as margins contract by 0.1% YoY.
  • Profits rise by 31% YoY during 2QFY13. Profit growth would have been lower had it not been for the sharp increase in other income during the quarter.
  • During 1HFY13, company's revenues and profits increased by 44% YoY and 26% YoY respectively.

Consolidated financial snapshot
(Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
Income from operations 3,375 4,434 31.3% 6,989 10,050 43.8%
Expenditure 2,916 3,837 31.6% 6,040 8,634 42.9%
Operating profit (EBDITA) 460 597 29.8% 949 1,416 49.2%
Operating profit margin (%) 13.6% 13.5%   13.6% 14.1%  
Other income 14 123 759.4% 15 125 707.3%
Finance costs 206 327 58.5% 400 759 89.8%
Depreciation 54 86 59.4% 97 151 55.3%
Profit before tax 214 307 43.4% 468 631 34.9%
Tax 51 94 84.8% 118 190 60.8%
Profit after tax/(loss) 163 213 30.6% 350 441 26.2%
Net profit margin (%) 4.8% 4.8%   5.0% 4.4%  
No. of shares (m)         101.1  
Basic & diluted earnings per share (Rs)         8.9  
P/E ratio (x) *         5.8  
(*trailing twelve month earnings)

What has driven performance in 2QFY13?
  • Pratibha Industries (PIL) reported a growth of 31% YoY during the quarter ended September 2012. Compared to the preceding quarter i.e. the quarter ended June 2012 (1QFY13), the company's revenues are lower by 21% QoQ. It may be noted that the quarter ended September 2012 usually contributes the least to the full year revenues (for construction companies) on account of the monsoon season in India. As usual, the company's infrastructure and construction business led the revenue growth while its manufacturing business (pipes division) saw a substantial decrease in revenues on a year on year basis. While the former's revenues increased by 71% YoY, the latter's revenues decreased by 88% YoY (not adjusted for intersegment revenues).

  • At the operating level, PIL's performance remained stable as operating margins were lower by only 0.1% YoY as compared to last year, thereby leading to a 30% YoY increase in operating profits. As compared to the preceding quarter, margins came in lower by 0.9%.

  • PIL's profits rose by 31% YoY. While depreciation and finance costs increased at a much sharper pace as compared to the increase in sales, a 760% YoY rise in other income helped in maintaining the company's profit growth. During the conference call, the company's management clarified that the other income is almost entirely made up of forex gains, which are notional in nature. Further, PIL's tax payout ratio was higher this quarter as compared to the corresponding quarter last year.

What to expect?
At the current price of Rs 52, the stock trades at a multiple of 5.8 times its trailing 12-month EPS. While the company continues to operate amidst difficult times of slowdown and high interest rates, it has been able to get new business (although none in this quarter) and grow at a decent pace.

Regarding the debt levels, the company has taken on additional debt to fund its equipment purchases. However, over the medium term, it is looking at rationalizing the same. It plans on doing so by divesting its pipes business as we all by raising money through securitizing of the leased area in its multilevel car park project. As per the management this would help the company raise about Rs 2.5 to 3 bn.

While the company did not win any order in the quarter gone by, it is in L1 position for orders worth Rs 15 bn. The company's order book to sales ratio indicates good growth for the future, provided execution remains strong.

Notwithstanding the high debt on books, we believe the broader concerns are priced in the company's stock price and as such remain positive from a long term perspective.

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