An engineering behemoth
Patel Engineering (PEC) founded in 1949, is into construction of complex civil infra work like hydro power plant, tunnelling, Urban Infra, irrigation and others. It has seen multiple capex cycle in India, and currently has an order book of Rs191bn (which is 4x TTM revenue). Up-cycle in its order inflow has started post Covid and in FY23 it has received highest ever annual order inflow of Rs78bn. Company is one the major beneficiary of Infra capex for hydro plant & it expect bidding opportunity of 30GW+ in sector. After reporting revenue CAGR in double digit at 18% over FY20-23, its YTDFY24 revenue increased by 20% YoY. Leverage in PEC has tapered off to 0.6x in 9MFY24 vs ~1x before covid. This is led by internal accrual, non-core asset sale & equity raise in the last 4 years.
Key Highlights and Investment Rationale
7+ decade of experience: Headquartered in Mumbai, company has successfully completed 250 projects, including 85+ dams, 300kms+ tunnels, 12000+mwh hydroelectric projects & 1200kms+ roads. It currently has market share of 45% in under-construction hydro plant in India.
Order book and margin: PEC order book of Rs191bn is from sector like hydro, irrigation, tunnel work, which contributes 90% to its book. It’s presence in construction of complex infra which is technology and machinery heavy, has enabled it to get EBITDA margin of 14% (9MFY24).
Balance sheet, +ve OCF: PEC has reported positive OCF in the last 4 years and its working capital days is 100 with large part coming from sticky arbitration claims and land. Out of Rs12bn arbitration awards it expects recovery of Rs2- 3bn in the next 1 year & receive Rs2-3bn from sale of land in the next 2 years. Both will enable it to reduce leverage & provide funds for working capital.
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