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Visibility continues to remain low…
Patel Engineering’s (PEL) Q2FY12 results were better-than-expected
largely on account of better revenue growth and lower-than-expected
depreciation & interest expenses. However, PEL’s debt position (net debt
to equity at 1.65x) and WC (305 days or 83% of revenues) continue to
remain at elevated levels, which would take a toll on the bottomline,
going ahead. Furthermore, the order inflow and order book continues to
remain sluggish. We maintain our HOLD recommendation on the stock.
ƒ Results beats expectation, WC & debt position still remain high
PEL’s Q2FY12 revenues grew 23.8% YoY to | 948.5 crore, which can be
attributed to revenue contribution from the real estate division and
international revenue growth. However, the EBITDA margin declined 340
bps to 11.8% and interest expenses grew 73% YoY to | 51.1 crore in
Q1FY12. Consequently, the net profit declined 26% YoY to | 30.1 crore.
Nonetheless, the results were above our expectation largely on account
of better-than-expected topline growth and lower depreciation & interest
expenses. Sequentially, interest expenses declined to | 51.4 crore in
Q2FY12 from | 63.4 crore in Q1FY12 despite the rise in debt position. The
debt position has increased to | 2843 crore in H1FY12 from | 2474 crore
in FY11 taking net debt to equity to 1.65x in H1FY12 from 1.55x in FY11.
In terms of WC, it remains at 305 days (83% of revenues).
ƒ Visibility low on construction order book
The company has failed to bag any major orders since the last couple of
quarters and the order book stands at | 9,500 crore, 2.7x book to bill ratio.
However, adjusting for Andhra Pradesh (| 1,500 crore) and contentious
orders (| 1,500 crore –Kotlibel, | 300 crore from Tanzania), the order book
to bill ratio stands at 1.7x, providing low revenue visibility of less than two
years. With no clarity on the Telangana issue and uncertainty on Kotlibel
project, we do not see any traction on these orders in the near term.
V a l u a t i o n
At the CMP, PEL is trading at a P/E of 6.0x FY13E earnings. Considering
execution delays in construction segment, concerns over margins, lower
visibility on the current order book, high debt level and lack of clarity over
tax raids, we recommend HOLD with an SOTP price target of | 80. We
now value the construction business using EV/EBITDA multiple in order to
capture the rising debt level.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Visibility continues to remain low…
Patel Engineering’s (PEL) Q2FY12 results were better-than-expected
largely on account of better revenue growth and lower-than-expected
depreciation & interest expenses. However, PEL’s debt position (net debt
to equity at 1.65x) and WC (305 days or 83% of revenues) continue to
remain at elevated levels, which would take a toll on the bottomline,
going ahead. Furthermore, the order inflow and order book continues to
remain sluggish. We maintain our HOLD recommendation on the stock.
ƒ Results beats expectation, WC & debt position still remain high
PEL’s Q2FY12 revenues grew 23.8% YoY to | 948.5 crore, which can be
attributed to revenue contribution from the real estate division and
international revenue growth. However, the EBITDA margin declined 340
bps to 11.8% and interest expenses grew 73% YoY to | 51.1 crore in
Q1FY12. Consequently, the net profit declined 26% YoY to | 30.1 crore.
Nonetheless, the results were above our expectation largely on account
of better-than-expected topline growth and lower depreciation & interest
expenses. Sequentially, interest expenses declined to | 51.4 crore in
Q2FY12 from | 63.4 crore in Q1FY12 despite the rise in debt position. The
debt position has increased to | 2843 crore in H1FY12 from | 2474 crore
in FY11 taking net debt to equity to 1.65x in H1FY12 from 1.55x in FY11.
In terms of WC, it remains at 305 days (83% of revenues).
ƒ Visibility low on construction order book
The company has failed to bag any major orders since the last couple of
quarters and the order book stands at | 9,500 crore, 2.7x book to bill ratio.
However, adjusting for Andhra Pradesh (| 1,500 crore) and contentious
orders (| 1,500 crore –Kotlibel, | 300 crore from Tanzania), the order book
to bill ratio stands at 1.7x, providing low revenue visibility of less than two
years. With no clarity on the Telangana issue and uncertainty on Kotlibel
project, we do not see any traction on these orders in the near term.
V a l u a t i o n
At the CMP, PEL is trading at a P/E of 6.0x FY13E earnings. Considering
execution delays in construction segment, concerns over margins, lower
visibility on the current order book, high debt level and lack of clarity over
tax raids, we recommend HOLD with an SOTP price target of | 80. We
now value the construction business using EV/EBITDA multiple in order to
capture the rising debt level.
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