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PATEL ENGINEERING LTD (PEL)
PRICE: RS.102 RECOMMENDATION: REDUCE
TARGET PRICE: RS.118 FY12E P/E: 9.5X
q Revenue growth was in line with our estimates and stood at 11% YoY
for Q1FY12
q Operating margins stayed strong due to higher margin projects executed
during Q1FY12
q Net profit was impacted by higher interest outgo and registered a decline
of 60% YoY. Net profit margins declined sharply and stood at just
1.9% as compared to 5.3% in Q1FY11.
q For Patel Engineering, along with higher interest rates, concerns continue
to remain regarding lack of order inflow as well as financial closure
of its power projects. Though there is visibility in terms revenue
growth for FY12 but corresponding increase in working capital requirements
and high interest as well as visibility for FY13 and beyond continue
to remain key areas of concern.
q We thus reduce our estimates for the company and arrive at a revised
price target of Rs 118 (Rs 186 earlier). Due to lack of order inflow for
Patel engineering in the hydro power segment, we change our recommendation
to REDUCE from ACCUMULATE earlier. We believe that stock
would continue to underperform till the time order inflow ramps up or
interest rates comes down.
Revenue growth led by improved execution
n Revenue growth was in line with our estimates and stood at 11% YoY for
Q1FY12.
n Current order book of company stands at Rs 95 bn on a consolidated basis including
L1 orders. International order book stands at nearly $75 mn while Michigan
order book stands at nearly Rs 3.5 bn. Order book is diversified across hydro
power (45%), irrigation (40%) and others (15%).
n Financial closure of Phase 1 of 1200 MW thermal power project in Tamil Nadu
has further delayed. Clearances are still pending and it may be delayed till the
end of Q2FY12. Financial closure of hydro power project in Arunachal Pradesh is
expected by Dec, 2011. So till the company achieves financial closure on these
projects, order inflow from internal segment would remain muted.
n Due to lack of order inflow, company has refrained from giving any revenue
guidance.
n We thus continue to remain cautious and maintain our estimate of 10% growth
in revenues in FY12.
Operating margins in line with estimates
n Operating margins stayed strong due to higher margin projects executed during
Q1FY12
n We maintain our estimates and expect margins to be 12.5% for the company
going ahead on a standalone basis.
Net profit growth impacted adversely by higher interest rates
n Net profit was impacted by higher interest outgo and registered a decline of
60% YoY. Net profit margins declined sharply and stood at just 1.9% as compared
to 5.3% in Q1FY11.
n We increase our interest rate assumptions for the company going forward and
expect net profits to witness a decline in comparison with last year. We now
expect net profits of Rs 755 mn as against our earlier estimate of Rs 1.04 bn earlier.
Valuation and recommendation
n At current price of Rs 102, stock is trading at 9.5x P/E and 5.8x EV/EBITDA multiples
for FY12.
n Along with higher interest rates, concerns continue to remain regarding lack of
order inflow as well as financial closure of its power projects. Though there is visibility
in terms revenue growth for FY12 but corresponding increase in working
capital requirements and high interest as well as visibility for FY13 continue to
remain key areas of concern.
n We thus reduce our estimates for the company and arrive at a revised price target
of Rs 118 (Rs 186 earlier) on FY12 estimates. We take into account lower
valuation multiples for valuing core business due to lack of order inflow for Patel
engineering and also reduced valuations from real estate division since higher interest
rates would impact NPV as well as offtake from real estate division. We
thus change our recommendation to REDUCE from ACCUMULATE earlier.
n We believe that stock would continue to underperform till the time order inflow
ramps up or interest rates comes down.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
PATEL ENGINEERING LTD (PEL)
PRICE: RS.102 RECOMMENDATION: REDUCE
TARGET PRICE: RS.118 FY12E P/E: 9.5X
q Revenue growth was in line with our estimates and stood at 11% YoY
for Q1FY12
q Operating margins stayed strong due to higher margin projects executed
during Q1FY12
q Net profit was impacted by higher interest outgo and registered a decline
of 60% YoY. Net profit margins declined sharply and stood at just
1.9% as compared to 5.3% in Q1FY11.
q For Patel Engineering, along with higher interest rates, concerns continue
to remain regarding lack of order inflow as well as financial closure
of its power projects. Though there is visibility in terms revenue
growth for FY12 but corresponding increase in working capital requirements
and high interest as well as visibility for FY13 and beyond continue
to remain key areas of concern.
q We thus reduce our estimates for the company and arrive at a revised
price target of Rs 118 (Rs 186 earlier). Due to lack of order inflow for
Patel engineering in the hydro power segment, we change our recommendation
to REDUCE from ACCUMULATE earlier. We believe that stock
would continue to underperform till the time order inflow ramps up or
interest rates comes down.
Revenue growth led by improved execution
n Revenue growth was in line with our estimates and stood at 11% YoY for
Q1FY12.
n Current order book of company stands at Rs 95 bn on a consolidated basis including
L1 orders. International order book stands at nearly $75 mn while Michigan
order book stands at nearly Rs 3.5 bn. Order book is diversified across hydro
power (45%), irrigation (40%) and others (15%).
n Financial closure of Phase 1 of 1200 MW thermal power project in Tamil Nadu
has further delayed. Clearances are still pending and it may be delayed till the
end of Q2FY12. Financial closure of hydro power project in Arunachal Pradesh is
expected by Dec, 2011. So till the company achieves financial closure on these
projects, order inflow from internal segment would remain muted.
n Due to lack of order inflow, company has refrained from giving any revenue
guidance.
n We thus continue to remain cautious and maintain our estimate of 10% growth
in revenues in FY12.
Operating margins in line with estimates
n Operating margins stayed strong due to higher margin projects executed during
Q1FY12
n We maintain our estimates and expect margins to be 12.5% for the company
going ahead on a standalone basis.
Net profit growth impacted adversely by higher interest rates
n Net profit was impacted by higher interest outgo and registered a decline of
60% YoY. Net profit margins declined sharply and stood at just 1.9% as compared
to 5.3% in Q1FY11.
n We increase our interest rate assumptions for the company going forward and
expect net profits to witness a decline in comparison with last year. We now
expect net profits of Rs 755 mn as against our earlier estimate of Rs 1.04 bn earlier.
Valuation and recommendation
n At current price of Rs 102, stock is trading at 9.5x P/E and 5.8x EV/EBITDA multiples
for FY12.
n Along with higher interest rates, concerns continue to remain regarding lack of
order inflow as well as financial closure of its power projects. Though there is visibility
in terms revenue growth for FY12 but corresponding increase in working
capital requirements and high interest as well as visibility for FY13 continue to
remain key areas of concern.
n We thus reduce our estimates for the company and arrive at a revised price target
of Rs 118 (Rs 186 earlier) on FY12 estimates. We take into account lower
valuation multiples for valuing core business due to lack of order inflow for Patel
engineering and also reduced valuations from real estate division since higher interest
rates would impact NPV as well as offtake from real estate division. We
thus change our recommendation to REDUCE from ACCUMULATE earlier.
n We believe that stock would continue to underperform till the time order inflow
ramps up or interest rates comes down.
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