Steady show; Awaiting Order inflows ahead…
About the stock: Patel Engineering is an EPC player which specialises in technology-intensive areas like hydro, tunnelling, irrigation, water supply, urban infrastructure, and transport.
• The company enjoys an order book of ₹ 17260 crore as of Q2FY25, implying 3.8x book to bill
Q2 FY25 Performance: Patel reported consolidated revenue of ₹1174 crore, up 15% YoY owing to healthy execution despite monsoon period. Operating EBITDA was reported at ₹162.2 crore, up 15.8% YoY. EBITDA margin at 13.8% was up 10 bps YoY. PAT was reported at ₹73.4 crore, up 93% YoY owing to healthy growth in total income and lower interest cost.
Investment Rationale:
• Ordering to kick in ahead; Heathy Revenue growth likely: The order book stood at ₹ 17,260 crore as of Q2FY25, implying 3.8x book to bill. Around 64% of order book comprises of hydropower projects, ~21% from irrigation sector, ~10% from tunnelling sector, and remaining from roads and others. The company expects the order momentum to pick up through H2FY25 with huge tailwind from Hydro/PsP and irrigation ordering ahead. The company has bid for projects worth ~₹10,000 crore and has identified projects worth ₹40,000 crore which are expected to be available for bidding soon. Given the ordering opportunity, the company expects inflows of ₹10,000-12,000 crore for FY25. It has guided for topline growth of 10- 15% in FY25 and 15-20%, in FY26. Given the robust inflow potential, we expect revenue CAGR of ~14.7% over FY24-27E to ₹ 6857 crore.
• Strong earnings growth ahead amid stable margins and interest costs: The company expects similar levels of margins at 13-14%, going ahead. With strong execution, stabilised raw material prices, we expect margins to remain stable at 14%/14%/14.5% in FY25/FY26/FY27, respectively. Strong topline growth coupled with stable margins and stable interest expense is likely to drive 18% earnings CAGR over FY24-27E.
Rating and Target Price
• Given the strong opportunity from the key segment coupled with stable balance sheet, we maintain our BUY rating on the stock. Order inflows will be the key near term trigger for the stock
• We assign a target price of ₹ 70, thereby valuing it at 14x on the average of FY26 and FY27 EPS
Leave a Reply