Pratibha Industries – a good medium term investment

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Will you invest in Pratibha Industries at the current price of Rs.41.20?

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Reputation of Pratibha Industries is High


Q2 not good

Pratibha Industries has not produced good results for the quarter ended 30.09.11 as compared to the quarter ended 30.06.11. Revenue has dropped from Rs.302.31 crore to Rs.290.97 crore. Revenue for the full year 2010-11 was at Rs.1175.13 crore. Net profit dropped from Rs.18.64 crore to Rs.16.35 crore. Net profit for the whole year 2010-11 was at Rs.71.43 crore. Operating profit margin dropped from 15.68% to 14.77%. Net profit margin dropped from 6.16% to 5.62%. Pratibha Industries is operating in construction and engineering segment. The shares of Pratibha Industries are traded in the Indian stock markets at Rs.41.20 now (Bombay Stock Exchange, 11.11.11). The highest price recorded by the shares in the last one year was at Rs.78.65 (10.11.10) and the lowest price at Rs.39.80 (19.08.11). In other words, the present share price is close to its lowest price in the last one year. This gives a temptation for the investors to invest in the shares of the company at the current price level. Is the expectation justified? Let us analyse.

Spreading its wings to southern region and abroad

Pratibha Industries is the flagship company of the Pratibha group of companies. It is hoping to benefit from the fast growth in urban infrastructure in India. The company has significant presence in sectors like sewage and waste management including environmental engineering, water supply and distribution. So far the company has operated only in the western and NCR region. Now it wants to spread its wings throughout India. The company is scouting for opportunities in the lucrative southern markets by setting up an office in Hyderabad. The company is also exploring foreign markets and especially in the Middle East and the neighbouring countries like Sri Lanka, Bhutan, Nepal and Bangladesh.

Largest single order

The company bagged a significant order worth Rs.380 crore from Dubai Electricity and Water Authority. The company has also bid for orders worth Rs.1000 crore in countries like Saudi Arabia, Abu Dhabi, Bangladesh and Sri Lanka. Pratibha Industries has its order book swelled at Rs.5500 crore. Pratibha Industries bagged an order worth Rs.1250 crore from Delhi Jal Board Projects along with its joint venture partner Mosinzhstroi Open Joint Stock Company. This is the largest single order bagged by the company so far. The project was awarded to the company for abatement of pollution in the Yamuna river.

Water gives high margin to the company

The company is in a better position compared to the companies in the same industry because of its diversified order books, its presence in the high margin water front and a better working capital management. Water segment constitutes around 55% of its order books. Building construction forms 31% and roads 2% of the company’s order books. The remaining comes from tunnelling. Water projects give the company highest margins of around 15% whereas other projects give a margin from 10% to 12.5%.

Capital expenditure

Pratibha Industries has targeted a revenue growth of 25% in the next financial year. This seems to be achievable target as the company will be booking its revenue when the projects come to the execution stage next year. For the Yamuna river pollution project, Pratibha Industries has planned a capital expenditure of around Rs.100 crore which will be financed through internal accrual and debt. The company has a debt of little over Rs.500 crore and a debt equity ratio of 1.05.

Orders from Delhi Metro

Pratibha CRFG has secured the Rs.467 crore orders from Delhi Metro Rail Corporation (DMRC) for two sectors of the underground metro. Pratibha CRFG is a joint venture between Pratibha Industries and China Rail First Group of China. The project is scheduled to be completed by May 2014. The scope of work includes engineering, designing and construction of 2 sectors of underground twin tunnels for the phase 3 of DMRC’s MRTS project.

Invest for medium term

At the current price level of Rs.41, one can invest in Pratibha Industries for medium to long term for the following reasons:

  • The company is in the high margin water segment
  • The company’s order book is increasing and is at a strong level
  • The company is scouting for opportunities throughout India as against confining itself to the western region so far
  • The company is also scouting for opportunities abroad and has made a good beginning in this regard.
  • Construction and engineering fall under the infrastructure sector which has a good future in India

The share price close to its lowest price in the last one year

Latest Results

(in Cr.)
Sep-11
Jun-11
FY10-11
Revenue
290.97
302.31
1,175.13
Net Profit
16.35
18.64
71.43
EPS
1.64
1.87
7.91
Cash EPS
2.1
2.3
4.92
OPM %
14.77
15.68
14.63
NPM %
5.62
6.16
6.08

Share Price Highlights

 
 
 
Weekly H/L
44.8
41
Monthly H/L
48.3
41
52 Weeks H/L
78.65
39.8
 
( 10 Nov 10 )
( 19 Aug 11 )
Delivery / Var+ELM %
79.5
12.5
Ex Date
 
 

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