The rating agency, Crisil, while giving a ‘good’ rating to Pratibha Industries has said the company’s “internal management information system needs to be strengthened.”

Crisil Research has assigned a CRISIL IER (independent equity research) fundamental grade of ‘3/5’ (pronounced ‘three on five’), indicating that that the company’s fundamentals are ‘good’ relative to other listed equity securities in India. CRISIL Research has cautioned that the grade is by no means a stock recommendation.

The grade is constrained by an increase in Pratibha’s working capital, which has resulted in negative cash flows from operations over the past four years. The company has resorted to equity dilution to fund higher capital requirement, notes Crisil Research.

Moreover, the gearing (net debt-to-equity) is very high at 1.8x. “We have also factored in the susceptibility of water supply projects (about half of the current order book) to execution hurdles. Further, Pratibha’s internal management information system needs to be strengthened.

However, Crisil finds Pratibha well positioned to capture the growing business opportunities for its main businesses of water supply and urban infrastructure. The agency notes that the Government would invest Rs 2.5 lakh crore over the next five years to improve water supply and sanitation, which “translates into a construction opportunity of Rs 1.5 lakh crore. Another Rs 2.6 lakh crore will be spent on the Mass Rapid Transit Systems in various cities.

Pratibha Industries today has an order book of Rs 7,170 crore, which provides revenue visibility for the next three-four years. Further, the order book is not only diversified across regions, but also not more than 17 per cent of the book is from any sector, indicating low concentration risk, says Crisil.

In 2011-12, Pratibha Industries achieved a turnover of Rs 1,503 crore, on which it made a net profit of Rs 83 crore. Each share earned Rs 8.36.

On the BSE today, the Pratibha Industries share closed at Rs 46.45, at the same level as the previous close.

(This article was published on August 3, 2012)
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