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Patel Engineering: Lower visibility to weigh on core business…
Patel Engineering (PEL) reported a disappointing set of Q3FY11 results
with revenues witnessing a 31.3% YoY fall to | 435 crore on the back of
i) flash floods affecting two hydropower project (Teesta and Parvati), ii)
heavy snowfall affecting US projects, iii) delay in execution of Pranahita
and Kotlibel projects and iv) cancellation of the Loharinagpala hydro
project. Considering the slower topline growth due to execution delays
and muted order book growth, high debt level leading to higher interest
outgo and lack of clarity over tax liability on account of raids in Q3FY11,
we have assigned an ADD rating to the stock.
Q3FY11 results below our expectations
PEL has reported a revenue decline of 31.3% YoY to | 435 crore (| 385
crore post adjustment for one-time claim included in WIP) in Q3FY11 on
account of the above-mentioned multiple factors, which led to
execution delays across projects. The EBITDA margin was at 24.9%
(adjusted EBITDA margin was at 15.1% based on adjusted sales). The
net profit at | 8.8 crore was significantly below our expectation due to
muted execution and rising interest expenses.
Lowest revenue visibility among our coverage companies
PEL’s order book stands at ~| 10,000 crore (including L-1 bids), 3.2x
order book to bill ratio (on TTM basis). However, adjusting for AP (|
1800 crore)and contentious orders (| 1,500 crore – Kotlibel), the order
book to bill ratio stands at 2.2x, the lowest in our stock coverage
providing the lowest revenue visibility over the next two years.
Valuation
We have cut our FY11/FY12 estimates sharply in order to account for
multiple issues highlighted above. At the CMP, PEL is trading at the
adjusted P/E of 5.9x in FY12E. While valuations appear to be cheap, we
remain concerned over multiple issues such as lowest revenue visibility
and execution delays, lack of clarity over tax liability due to raids in
Q3FY11 and rising debt level leading to higher interest outgo. Hence,
we recommend an ADD rating on PEL with SOTP price target of | 191.
Execution delays impact Q3FY11results
PEL has reported a revenue decline of 31.3% YoY to | 435 crore (|
385 crore post adjustment for one-time claim included in WIP) in
Q3FY11 on account of i) flash floods affecting two hydropower
project (Teesta and Parvati), ii) heavy snowfall affecting US projects,
iii) delay in execution of Pranahita and Kotlibel projects and iv)
cancellation of Loharinagpala hydro project. These multiple factors
led to execution delays across projects
The EBITDA margin stood at 24.9% However, the EBITDA margin
came to 15.1% on adjusted sales (adjusting for forex hedge loss
claim of | 50 crore included in sales and interest expenses)
The PAT margin at 2% was also much lower than our expectation of
5% on account of topline slippages and rising interest expenses
Lowest revenue visibility among our coverage
PEL’s order book stands at ~| 10,000 crore (including L-1 orders
worth | 1,000 crore) in Q3FY11 from | 10,500 crore in Q3FY11. PEL
also expects to receive orders worth | 5,000 crore from its captive
power projects in FY12E
However, adjusting for AP (| 1800 crore) and contentious orders (|
1,500 crore – Kotlibel), the order book to bill ratio stands at 2.2x, the
lowest in our stock coverage providing the lowest revenue visibility
over the next two years
The slow moving AP region accounts for ~18% of the company’s
order book with the biggest contribution from Pranahita lift irrigation
project worth | 1,500 crore in the Telangana region. The company
also has | 150 crore worth of receivables from AP
The hydro segment accounts for the largest share (45%) of the
order book, followed by irrigation (~40%) and others (~15%)
segments
Power
PEL has invested ~| 250 crore equity in its power projects and is
awaiting final clearance from the Tamil Nadu government.
Construction is expected to start in Q2FY12E.
Real estate update
Integrated township at Bangalore:
PEL has sold all the 1,123 apartments in Smondoville phase I (~1
million sq ft)
For Smondoville phase II and III (~0.5 million sq ft each), the
company has sold ~80%
PEL has also launched Smondoville phase IV and sold 70 units out
of 126
Commercial property at Jogeshwari, Mumbai:
Construction work on the commercial tower (1 million sq ft) was
slow during Q3FY11 due to sand scarcity issues. However, PEL
expects to complete the commercial tower in the next two years
The company has tied up with the anchor tenant for 1.5 lakh sq ft
at | 125 psf
Pan Realty, Noida:
PEL has sold all units in the Noida project
Valuations
Given the multiple headwinds discussed above, we have cut our
FY11/FY12 EPS sharply by 28.2%/41%, respectively. Our revised
FY11/FY12 EPS now stands at | 18.5/share each.
Though the stock is currently trading at a P/E of 5.9x in FY12E (after
adjusting for the subsidiaries valuation), we remain concerned over
multiple issues such as lowest revenues visibility, lack of clarity over tax
liability on account of raids in Q3FY11, rising debt levels leading to higher
interest outgo. Hence, we recommend an ADD rating on the stock with a
price target of |191/share despite attractive valuation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Patel Engineering: Lower visibility to weigh on core business…
Patel Engineering (PEL) reported a disappointing set of Q3FY11 results
with revenues witnessing a 31.3% YoY fall to | 435 crore on the back of
i) flash floods affecting two hydropower project (Teesta and Parvati), ii)
heavy snowfall affecting US projects, iii) delay in execution of Pranahita
and Kotlibel projects and iv) cancellation of the Loharinagpala hydro
project. Considering the slower topline growth due to execution delays
and muted order book growth, high debt level leading to higher interest
outgo and lack of clarity over tax liability on account of raids in Q3FY11,
we have assigned an ADD rating to the stock.
Q3FY11 results below our expectations
PEL has reported a revenue decline of 31.3% YoY to | 435 crore (| 385
crore post adjustment for one-time claim included in WIP) in Q3FY11 on
account of the above-mentioned multiple factors, which led to
execution delays across projects. The EBITDA margin was at 24.9%
(adjusted EBITDA margin was at 15.1% based on adjusted sales). The
net profit at | 8.8 crore was significantly below our expectation due to
muted execution and rising interest expenses.
Lowest revenue visibility among our coverage companies
PEL’s order book stands at ~| 10,000 crore (including L-1 bids), 3.2x
order book to bill ratio (on TTM basis). However, adjusting for AP (|
1800 crore)and contentious orders (| 1,500 crore – Kotlibel), the order
book to bill ratio stands at 2.2x, the lowest in our stock coverage
providing the lowest revenue visibility over the next two years.
Valuation
We have cut our FY11/FY12 estimates sharply in order to account for
multiple issues highlighted above. At the CMP, PEL is trading at the
adjusted P/E of 5.9x in FY12E. While valuations appear to be cheap, we
remain concerned over multiple issues such as lowest revenue visibility
and execution delays, lack of clarity over tax liability due to raids in
Q3FY11 and rising debt level leading to higher interest outgo. Hence,
we recommend an ADD rating on PEL with SOTP price target of | 191.
Execution delays impact Q3FY11results
PEL has reported a revenue decline of 31.3% YoY to | 435 crore (|
385 crore post adjustment for one-time claim included in WIP) in
Q3FY11 on account of i) flash floods affecting two hydropower
project (Teesta and Parvati), ii) heavy snowfall affecting US projects,
iii) delay in execution of Pranahita and Kotlibel projects and iv)
cancellation of Loharinagpala hydro project. These multiple factors
led to execution delays across projects
The EBITDA margin stood at 24.9% However, the EBITDA margin
came to 15.1% on adjusted sales (adjusting for forex hedge loss
claim of | 50 crore included in sales and interest expenses)
The PAT margin at 2% was also much lower than our expectation of
5% on account of topline slippages and rising interest expenses
Lowest revenue visibility among our coverage
PEL’s order book stands at ~| 10,000 crore (including L-1 orders
worth | 1,000 crore) in Q3FY11 from | 10,500 crore in Q3FY11. PEL
also expects to receive orders worth | 5,000 crore from its captive
power projects in FY12E
However, adjusting for AP (| 1800 crore) and contentious orders (|
1,500 crore – Kotlibel), the order book to bill ratio stands at 2.2x, the
lowest in our stock coverage providing the lowest revenue visibility
over the next two years
The slow moving AP region accounts for ~18% of the company’s
order book with the biggest contribution from Pranahita lift irrigation
project worth | 1,500 crore in the Telangana region. The company
also has | 150 crore worth of receivables from AP
The hydro segment accounts for the largest share (45%) of the
order book, followed by irrigation (~40%) and others (~15%)
segments
Power
PEL has invested ~| 250 crore equity in its power projects and is
awaiting final clearance from the Tamil Nadu government.
Construction is expected to start in Q2FY12E.
Real estate update
Integrated township at Bangalore:
PEL has sold all the 1,123 apartments in Smondoville phase I (~1
million sq ft)
For Smondoville phase II and III (~0.5 million sq ft each), the
company has sold ~80%
PEL has also launched Smondoville phase IV and sold 70 units out
of 126
Commercial property at Jogeshwari, Mumbai:
Construction work on the commercial tower (1 million sq ft) was
slow during Q3FY11 due to sand scarcity issues. However, PEL
expects to complete the commercial tower in the next two years
The company has tied up with the anchor tenant for 1.5 lakh sq ft
at | 125 psf
Pan Realty, Noida:
PEL has sold all units in the Noida project
Valuations
Given the multiple headwinds discussed above, we have cut our
FY11/FY12 EPS sharply by 28.2%/41%, respectively. Our revised
FY11/FY12 EPS now stands at | 18.5/share each.
Though the stock is currently trading at a P/E of 5.9x in FY12E (after
adjusting for the subsidiaries valuation), we remain concerned over
multiple issues such as lowest revenues visibility, lack of clarity over tax
liability on account of raids in Q3FY11, rising debt levels leading to higher
interest outgo. Hence, we recommend an ADD rating on the stock with a
price target of |191/share despite attractive valuation.
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