The stock of construction company Pratibha Industries lost 9.8 per cent in trade today, and is still down by 4.7 per cent. The stock tumbled as rating agency Crisil downgraded the company’s long-term debt by one notch to BB+ (from BBB), and short-term debt to A4+ from A3+, both with a negative outlook.

The short-term rating indicates minimal degree of safety with respect to timely servicing of financial obligations and holds very high credit risk, susceptible to default. The longer term debt is slightly better, indicating moderate degree of risk in defaulting on timely debt servicing.

Soaring interest outgo

The company’s interest payments have been skyrocketing from the March 2013 quarter, when they jumped 70 per cent. Its consolidated debt to equity ratio rose from 1.6 times in the 2012 fiscal to 2.9 times in the 2014 fiscal. Interest costs accounted for 11 per cent of sales in the first half of this fiscal.

Pratibha has not faced an order book drought, unlike several peers. The company’s focus on water supply, tunnelling, and other urban infrastructure - segments which have not seen the degree of sluggishness that swamped projects in airports or roads – helped it keep up the order stream.

But delays in execution of the projects took a toll on revenues. For 2013-14, consolidated revenues grew just 5.8 per cent, down from the 29.6 per cent growth in 2012-13. The slower execution also led to longer working capital cycles. Inventories and trade receivables have surged in the past two years.

Pratibha has been working on monetising some of its assets to pay off debt. It is selling off its manufacturing SAW pipe division, land on which factories were set up and other commercial properties. Pratibha also has its debt rated by Brickwork Ratings, which, in October this year, reaffirmed long-term debt at BWR A- and short term debt at BWR A2+.

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