Engineers India FPO Note
February 6, 2014, Thursday, 06:17 GMT | 02:17 EST | 10:47 IST | 13:17 SGT
Engineers India Ltd (EIL) is one of the leading design and engineering organizations in South Asia. The company provides engineering consultancy and EPC services, and is principally focused on the oil & gas and petrochemical industries.
Leadership position in project implementation in hydrocarbon business: EIL has developed indigenous technology and expertise for offshore platforms, oil & gas processing, oil refining, petrochemicals and pipeline projects over the last 48 years enabling it to provide a gamut of management services from project conception to commissioning in hydrocarbon business. EIL’s leadership in project implementation and long-term relationships with its clients gives it a competitive advantage over its peers.
Diversified operations across sectors and geographies: Over the years, the company has diversified across various segments such as LNG, fertilizer, power, mining and metallurgy and infrastructure to encash the untapped infra opportunity not only in Indian but globally (presence in Middle East, Africa, Asia and South-east Asia) as well and has an excellent track record of achieving the same. This will help the company to benefit from any recovery in the capex cycle both domestically and internationally.
Healthy order inflows over past couple of quarters: The company has secured orders worth Rs.1,800cr (up 39.5 % yoy) in 9MFY2014, taking the order backlog to Rs.3,820cr, implying an order backlog to sales ratio of 2.1x on a trailing basis. This includes a major order worth US$139mn bagged from Dangote Group in Nigeria for project management consultancy and EPC management.
Outlook and valuation: Although the company has reported weak revenues in 9MFY2014, the improvement in order inflows indicates recovery in revenue going forward. At the lower and upper limit of the price-band of Rs.145 and Rs.150, the stock is currently trading at valuations of 8.4x and 8.7x FY2015E Bloomberg EPS respectively which is lower than its 3-year average PE of 14.8x. Considering EIL’s dominance in the hydrocarbon business and attractive valuations, we recommend Subscribe on the stock.