Scrip
Code: 532178 / ENGINERSIN
CMP:
Rs. 123.95; Buy at Rs. 124 levels.
Short term Target: Rs. 150; Medium to Long term Target: Rs. 225; STOP LOSS – Rs. 114.08; Market
Cap: Rs. 4,176.32 Cr; 52 Week High/Low: Rs. 257.25 / Rs. 121.70.
Total
Shares: 33,69,36,600 shares; Promoters : 27,09,00,540 shares –80.40 %; Total
Public holding : 6,60,36,060 shares – 19.60 %; Book Value: Rs. 66.41; Face Value: Rs. 5.00; EPS: Rs. 18.66;
Dividend: 120.00 % ; P/E: 6.64 times; Ind. P/E: 7.32; EV/EBITDA: 4.83.
Total
Debt: NIL; Enterprise Value: Rs. 4,163.94 Cr.
ENGINEERS INDIA LIMITED: ENGINERSIN was founded
in 1965 and is headquartered in New Delhi, India. Engineers
India Limited, an engineering consultancy company, providing designs,
engineering, procurement, construction, and integrated project management services
principally for the oil and gas, petrochemicals, fertilizer, and LNG industry
segments in India and internationally. The company operates in two segments - Consultancy
and Engineering Services, And Turnkey Projects. It offers pre project services,
such as feasibility studies, environment impact assessment, technology and
process licensor selection, and cost estimation services; and project
implementation services, including project management, process design, detailed
engineering, procurement, construction management, and commissioning and plant
start-up assistance services. The company also provides project management
consultancy services; and specialist services comprising heat and mass transfer
equipment design, environment engineering, information technology, specialist
materials and maintenance, plant operations and safety, refinery optimization
studies, and yield and energy optimization studies. In process design services it provides
conceptual designs and feasibility reports; design packages for open art
process units for gas-processing and refineries and integrated utilities and
offsite facilities, and offers a portfolio of more than 30 process technologies
for application in oil and gas processing sector. Construction management
services include services at site, including warehouse management, quality
control and assurance, Health Safety and Environment (HSE), progress monitoring
and scheduling. In addition, the company offers
engineering, procurement, and construction and commissioning services; services
related to certification, re-certification, safety audit, and onshore oil and
gas facilities; and third party inspection for equipment and installations in
the hydrocarbon and other sectors. It also serves non-ferrous mining and
metallurgy, power, and infrastructure industries, as well as the Government of India.
The company is locally compared with Mukand Engineers Ltd, RJ Shah &
Company Ltd, Reliance Industrial Infrastructure Ltd, Shriram EPC Ltd, SPML
INFRA Ltd, HOV Services Ltd, Hindustan Dorr-Oliver ltd, AIA Engineering Ltd and
Sunil Hitech and Globally compared with Samsung Engineering from South Korea,
Hyundai Engineering & Construction of South Korea, Petrofac from Middle
East, Saipem from Abu Dhabhi, National Petroleum Construction Company of Middle
East, Technip from French, Technicas Reunidas from Spain, Jacobs Engineering
from California, Watabe Wedding Corporation of Japan, central Security Patrols
Company Limited of Japan, Mortice Ltd of Singapore.
Investment Rationale:
EIL is a consultancy company
& EPC contractor in the fields of petroleum refining, petrochemicals,
pipelines, oil & gas terminals & storages, fertilisers, mining and
metallurgy and infrastructure projects. The company is also working in
diversified areas of water & waste management and has made inroads into the
areas of nuclear, solar and thermal power. It has also expanded its operations
internationally, and has provided a wide range of engineering consultancy
services in the Middle East, North Africa and South East Asia. Management believes that the company will
benefit from several pending orders from various PSU refineries over the next
few years. Company believes that HPCL Ratnagiri refinery and petrochemical project
which is estimated to cost Rs. 35,000 Cr might flow in Q4FY14 or FY15. Management
believes that this PSU project could entail consultancy opportunity to EIL of
nearly Rs. 1500 Cr to Rs. 2000 Cr. Engineers India (EIL) posted a YoY sales de growth, the fifth one in a
row. Its Sales declined by 38.4 % YoY, mainly on account of a 66 % de-growth in
Lump Sum Turnkey (LSTK) projects. EBITDA margins improved on account of higher
share of consultancy revenues and better margins there. Other Income also de
grew by 7.1 % YoY AT Rs. 68.03 Cr, PAT stood at Rs. 129.34 Cr, down 16.2 % YoY. Capital employed increased by 18.4 % YoY at Rs. 2340 cr. Company’s Consultancy
EBIT margins in Q1FY14 stood at 39.2 % down by 2.40 % YoY and LSTK projects
experienced a 3.30 % decline YoY to 7.1 %. The share of Consultancy in overall
sales was 67.5 % as against 40.2 % in Q1FY13. EIL’s current order book stands
at around Rs. 2960 Cr and the order inflow for Q1FY14 stood at Rs.110 Cr. EIL
has meaningful investment in XII year plan in Hydrocarbon space which offers
immense business opportunity. Company’s consultancy business enjoys strong
margins and will continue for coming quarters also. Company’s current order
backlog is around Rs. 2100 Cr in consultancy business. EIL has limited exposure
of around 8% in overseas geographies which is expected to increase over a
period of time.
Outlook and Valuation:
EIL, one of the leading designs, engineering consultancy and EPC companies
of the country secured a Lump-Sum Turnkey Contact (LSTK) worth over Rs. 670 Cr
from Chennai Petroleum Corp Ltd for construction of residuary up gradation
project of Coker Block unit that will convert residual oil in the refinery into
fuel. A coker or coker unit is an oil refinery processing
unit that converts the residual oil into low molecular weight hydrocarbon
gases, naphtha, light and heavy gas oils, and petroleum coke. The CPCL project comprises
of delayed Coker Unit and LPG CFC Treating Unit. EIL's scope of work involves
project management, residual process design, detailed engineering, procurement,
inspection & expediting, tendering, construction management &
supervision including quality assurance, assistance in start-up,
pre-commissioning, commissioning & guarantee test runs for units and
facilities of plant. The company statement says that the company won this job
against competition from national and international companies in this field. EIL has envisaged a strategy of entering
into joint ventures and strategic alliances with the appropriate players in India
and abroad in order to widen the spectrum of offerings/ opportunities and to
reduce systematic risk associated with various industries and geographies. The company
currently has nearly ten such alliances including three overseas JVs. Company
continues to win orders in international geographies mainly Middle East and
expects further momentum through FY14. Management has stated that the company
enjoys margins similar to domestic jobs in the international projects.
Currently company derives nearly 10-12 % of revenues from international jobs
and expects it to maintain going ahead. EIL has recently won the order from
CPCL which will start contributing towards the end of this year. Orders in consultancy
may provide some cushion to the margins, going forward. However, inflow
continues to remain weak. Execution cycle for the current order book is
stretched at two years. Thus, a revenue de-growth is expected in FY14E too. The
stock is currently trading at 8.6x FY15E EPS with a negative bias in case the
order inflow scenario slumps. The company’s FPO is planned in Q2FY14E. However
in the turning O&G scenario the company will turnaround faster thus one can
buy into this stock. At current price
of Rs. 123.95, the stock is trading at P/E of 7.55 x for FY14E and 7.94 x the
FY15E. EIL could post EPS of Rs. 16.40 for FY14E and Rs. 15.60 for FY15E. EIL stock has
corrected significantly in the past few trading sessions partly on anticipation
of probable equity dilution through FPO and possible delays in key refinery projects
that would likely defer earning accretion in the current year. The stock is
attractively valued at the current price but would likely underperform the
broader market until clarity on anticipated equity dilution/FPO is received. However,
the business of EIL continues to remain positive on the long term. One can 'BUY'
on to EIL with an Short term price target of Rs 150 and for
Medium to Long term investment it would be for Rs. 250.
| KEY FINANCIALS | FY12 | FY13 | FY14E | FY15E |
|---|---|---|---|---|
| SALES (₹ Crs) | 3,698.80 | 2,505.90 | 2,405.70 | 2,598.10 |
| NET PROFIT (₹ Cr) | 636.50 | 618.10 | 551.80 | 524.10 |
| EPS (₹) | 18.90 | 18.30 | 16.40 | 15.60 |
| PE (x) | 7.10 | 7.30 | 8.10 | 8.60 |
| P/BV (x) | 2.40 | 2.00 | 1.80 | 1.60 |
| EV/EBITDA (x) | 4.10 | 4.30 | 3.80 | 3.40 |
| ROE (%) | 38.70 | 30.30 | 23.10 | 19.50 |
| ROCE (%) | 38.70 | 30.20 | 23.10 | 19.50 |
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