Orders pipeline remains robust…
About the stock: Engineers India (EIL), established in 1965, is an Indian public sector Navratna company, primarily present into two segments – Engineering Consultancy and LSTK (Lump Sum Turnkey). EIL’s business operations span the hydrocarbon value chain as well as diversified areas of Metallurgy, Infrastructure, Bio Fuels & Green Hydrogen. The company is also present in international markets such as Middle East, Africa, South Asia & Central Asia
• In FY23, Turnkey and consultancy segments contributed 57% & 43% to total revenues. Order backlog as of Dec-2023 stood at ₹ 7991 crore (2.4x TTM revenue), of which ~59% is contributed by consultancy contract
Investment Rationale:
• Healthy order book position with solid track record: EIL’s order backlog stood at ₹ 7991 crore as of Dec-23 end (2.4x TTM revenues), giving strong revenue growth visibility in the coming period. Order inflows remains strong at ~₹ 3046 crore in 9MFY24 (Turnkey/Consultancy: 54%/46%), mainly driven by hydrocarbons segment (62% of total inflows) with balance from chemicals, fertilizers, metals, power and infra. Hydrocarbons, where the company has solid track record of executing many projects, continues to be the core focus area and expected to drive order inflows in medium-term led by strong traction visible through tenders floated in refinery, petrochemical segments. For FY24E, management is confident of achieving order inflows of ₹ 4700-5000 crore in FY24E with revenue growth of ~10% (vs 1% YoY in 9MFY24)
• Recovery in consultancy segment with focus on foraying into newer growth segments provide strong visibility: Order Consultancy segment, which contributes ~43% to total revenues, drives the overall profitability of the company (as EBIT margin in consultancy is at ~27% vs. 3-5% in turnkey segment). We believe that this segment is expected to witness significant recovery led by execution of existing contracts and healthy orders pipeline in domestic & international markets. Apart from the existing core areas, company is looking for newer growth segments like green hydrogen, ammonia, bio-fuels, coal gasification, defence etc in margin-accretive consultancy segment. These new segments provide huge orders opportunity for EIL over the next 3-5 years. Moreover, focus is also on gaining orders from international markets (which contribute ~30% to the total consultancy orders) like South America, Middle-East, Africa
Rating and Target Price
• We believe that company’s financial performance to improve significantly over FY23-25E (as compared to muted performance during FY20-23), led by improvement in execution of healthy order-book, strong order inflow opportunity and recovery in high-margin consultancy business
• Valuation at 18.8x P/E on FY26E basis looks attractive given the strong visibility on earnings growth in the coming period. We recommend BUY on EIL with target price of ₹ 240 per share (based on 23x FY26E EPS)
Click here to download IDirect Engineers India Update Mar 24
Leave a Reply