Stock Review: Pratibha Industries

The recent projects bagged by Pratibha Industries should give a boost to its stock price, which has underperformed compared to Index in the past one year. The company is in a better position against its peers in the construction business due to strong contribution from the high-margin water segment, a better working capital management and a diversified order book.

The company's current order book stands at . 5,335 crore which is nearly four times its FY11 revenues. The water segment forms 55% of the order book while building construction contributes 31%, roads 2% and the rest comes from tunneling. Its EBIDTA margins in water pipeline and sewage projects are the highest at 15%, whereas margins in the rest of the projects range between 10% and 13%.

In the quarter ended June '11, the company added orders worth . 2,000 crore which includes a single order of . 1,249 crore from Delhi Jal Board for abatement of pollution in the Yamuna river. This is the singlelargest project bagged by Pratibha Industries so far.

Pratibha Industries' June '11 quarter revenues grew 10% YoY since various projects were under initial stages of execution on which revenues were not booked. Despite higher interest cost and performance guarantee money paid towards new projects secured during the June' 11 quarter, higher operating efficiency helped the company post a 15% growth in net profit.

Considering its poor show in the first quarter, the company will have to scale up in the next three quarters to achieve its 25% revenue growth target for FY12. It aims to end the year with a 14% EBIDTA margin, which again is higher than 13.6% it could achieve in the first quarter. Although somewhat ambitious, these targets appear achievable considering its strong pile of orders to be executed in FY12.

For the Delhi Jal Board project, the company has lined up a capex of . 100 crore in FY12, which is to be financed through internal accruals and borrowings. The company ended the June 2011 quarter with a gross debt of . 514 crore and debt-toequity ratio of 1.03, which is in line with its peers. Investors need to watch for the company's ability in curtailing its growing interest burden that will substantially boost its bottomline.