Pratibha Industries: Profits Increased, Margins Under Pressure

Pratibha Industries (PIL), the flagship company of Pratibha Group, posted its results on Friday post market. The company has two business segments – infrastructure & construction and manufacturing & coating. The first segment has showed good results for the December quarter of FY13, while the other segment (manufacturing & coating) remained under pressure, which is slashing down the overall growth of the company.

On a consolidated basis, the company posted 35.5% growth in its revenues to Rs 620.2 crore in the December quarter on a YoY basis. The reason for an increase in revenues is attributed to the increase in infrastructure and construction business activities during this period. The other income has declined to Rs 1.95 crore from Rs 5.04 crore. PIL’s bottomline grew by 6.5% in this quarter, to stand at Rs 20.31 crore against December quarter FY12.

In the third quarter of FY13, the company’s expenses increased by 41.9% to Rs 554.2 crore on a YoY basis mainly due to an increase in raw material consumption by 125.6% to Rs 407.24 crore. This added a sum of Rs 226.74 crore to the total expenses. Further, the employee costs and other expenses escalated by 32.4% and 18.29% respectively thanks to a hike in the salary & wages of employees, advertising, rent etc. While the manufacturing, construction and operating expenses showed a decline of 41.3% to Rs 95.6 crore, the expenses like Repairs & Maintenance of machinery, power & fuel, labour charges, and site mobilisation expenses have been reduced by the company.

PIL reported an operating profit growth of 18.68% to Rs 63.99 crore in Q3FY13 on a YoY basis. Although the company's PBT reported a 13.4% growth, its net profit got affected and grew by 6.5%, due to an increase in tax expenses, which rose by 31% in the quarter. On a QoQ basis, the company's net profit declined by 4.74% in the December 2012 quarter. Further, the margins remained under pressure, with the operating profit margin declining by 133 basis points to 10.32% and net profit margin declining by 94 basis point to 3.27%. The margins were impacted due to higher raw material costs and higher borrowing costs.

The company's EPS stood at Rs 2.01 for the quarter, while it was Rs 1.92 for the same period in FY12. Currently, the counter is trading at TTM 4.88x of EPS.

PIL was initially in the business of construction and pipe segment, while in CY12, it entered the infrastructure segment such as oil, natural gas etc. There is a huge growth aspect in this segment in the near future, and hence investors can look forward to holding the stock from a long-term perspective.