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PATEL ENGINEERING LTD (PEL)
PRICE: RS.87 RECOMMENDATION: REDUCE
TARGET PRICE: RS.92 FY13E P/E: 9.1X
q Revenue growth was marginally better than our estimates and stood at
13% YoY for Q2FY12.
q Operating margins stayed strong at 15.5% due to higher margin projects
executed during Q2FY12.
q Net profit was impacted by higher interest outgo and higher borrowings
and registered a growth of just 1% YoY.
q Borrowings and working capital of the company have witnessed a sharp
increase during FY11 and H1FY12. Along with higher interest rates, concerns
continue to remain regarding lack of order inflow as well as financial
closure of its power projects. Revenue visibility continues to remain
low and profitability is under pressure due to low margin international
projects.
q We maintain our estimates and roll forward our valuations to FY13. We
continue to remain negative on company's outlook and maintain REDUCE
on Patel Engineering with a one year price target of Rs 92 (Rs 118 earlier).
We believe that stock would continue to underperform till the time order
inflow ramps up or interest rates comes down.
Revenue growth better than our estimates
n Revenue growth was marginally better than our estimates and stood at 13% YoY
for Q2FY12.
n Current order book of company remains stagnant at Rs 95 bn on a consolidated
basis including L1 of Rs 20 bn worth of orders. International order book has increased
to nearly $150 mn while Michigan order book stands at nearly Rs 3 bn.
Order book is diversified across hydro power (34%), irrigation (42%) and others
(24%).
n Order inflow from the domestic segment has continued to remain weak and L1
status of Rs 20 bn has still not materialized. Out of the current order book, slow
moving orders include Pranahita lift irrigation project of Rs 15 bn, KotliBhel
project of Rs 15 bn and Rs 3 bn from Tanjania project. Thus executable order
book in the next two years stands at Rs 62 bn including L1 of Rs 20 bn.
n During the quarter consolidated revenues reported a healthy growth of 24% YoY
primarily led by international segment. However margins were impacted adversely
since international orders have very low margins. Revenue recognition
from the real estate projects stood at Rs 0.6 bn while Phase 2 and Phase 3
projects in Bangalore have still not reached revenue recognition stage.
n Financial closure of Phase 1 of 1200 MW thermal power project in Tamil Nadu is
still delayed due to pending clearances as well as issues related to coal. Financial
closure of hydro power project in Arunachal Pradesh is expected by Dec, 2011.
And company expects the construction work on this project to commence from
March 2012 or Q1FY13.
n We thus continue to remain cautious and maintain our estimate of 10% growth
in revenues in FY12. We expect revenues to grow at a CAGR of 8% between
FY11-FY13.
Operating margins stayed strong on standalone basis while declined
on consolidated basis
n Operating margins stayed strong at 15.5% due to higher margin projects executed
during Q2FY12. On consolidated basis, margins declined to 11.8% in
Q2FY12 from 15.2% in Q2FY11.
n We maintain our estimates and expect margins to be 12.5% for the company
going ahead on a standalone basis.
Net profit growth remain impacted by high interest outgo
n Net profit was impacted by higher interest outgo and higher borrowings and registered
a growth of just 1% YoY.
n Borrowings have increased quite sharply for the company in past two years primarily
due to steep increase in working capital cycle. Working capital as a percentage
of sales stood at 95% in FY11 and has increased further due to increase
in inventories. Since Bangalore real estate projects in Phase 2 and phase 3 have
not reached revenue recognition stage, it is being reflected in the inventories.
Company expects working capital cycle to reduce going forward once revenue
recognition commences from Bangalore projects. Receivables may come down
once NTPC pays the company proceeds related to Lohari Nagpala project.
n We maintain our estimates and expect net profits to be Rs 759 mn and Rs 665
mn for FY12 and FY13 respectively.
Valuation and recommendation
n At current price of Rs 87, stock is trading at 8.0x and 9.1x P/E and 7.2x and 7.1x
EV/EBITDA multiples for FY12 and FY13 respectively.
n We maintain our estimates and roll forward our valuations to FY13. We continue
to remain negative on company's outlook and maintain REDUCE on Patel Engineering
with a one year price target of Rs 92 (Rs 118 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.87 RECOMMENDATION: REDUCE
TARGET PRICE: RS.92 FY13E P/E: 9.1X
q Revenue growth was marginally better than our estimates and stood at
13% YoY for Q2FY12.
q Operating margins stayed strong at 15.5% due to higher margin projects
executed during Q2FY12.
q Net profit was impacted by higher interest outgo and higher borrowings
and registered a growth of just 1% YoY.
q Borrowings and working capital of the company have witnessed a sharp
increase during FY11 and H1FY12. Along with higher interest rates, concerns
continue to remain regarding lack of order inflow as well as financial
closure of its power projects. Revenue visibility continues to remain
low and profitability is under pressure due to low margin international
projects.
q We maintain our estimates and roll forward our valuations to FY13. We
continue to remain negative on company's outlook and maintain REDUCE
on Patel Engineering with a one year price target of Rs 92 (Rs 118 earlier).
We believe that stock would continue to underperform till the time order
inflow ramps up or interest rates comes down.
Revenue growth better than our estimates
n Revenue growth was marginally better than our estimates and stood at 13% YoY
for Q2FY12.
n Current order book of company remains stagnant at Rs 95 bn on a consolidated
basis including L1 of Rs 20 bn worth of orders. International order book has increased
to nearly $150 mn while Michigan order book stands at nearly Rs 3 bn.
Order book is diversified across hydro power (34%), irrigation (42%) and others
(24%).
n Order inflow from the domestic segment has continued to remain weak and L1
status of Rs 20 bn has still not materialized. Out of the current order book, slow
moving orders include Pranahita lift irrigation project of Rs 15 bn, KotliBhel
project of Rs 15 bn and Rs 3 bn from Tanjania project. Thus executable order
book in the next two years stands at Rs 62 bn including L1 of Rs 20 bn.
n During the quarter consolidated revenues reported a healthy growth of 24% YoY
primarily led by international segment. However margins were impacted adversely
since international orders have very low margins. Revenue recognition
from the real estate projects stood at Rs 0.6 bn while Phase 2 and Phase 3
projects in Bangalore have still not reached revenue recognition stage.
n Financial closure of Phase 1 of 1200 MW thermal power project in Tamil Nadu is
still delayed due to pending clearances as well as issues related to coal. Financial
closure of hydro power project in Arunachal Pradesh is expected by Dec, 2011.
And company expects the construction work on this project to commence from
March 2012 or Q1FY13.
n We thus continue to remain cautious and maintain our estimate of 10% growth
in revenues in FY12. We expect revenues to grow at a CAGR of 8% between
FY11-FY13.
Operating margins stayed strong on standalone basis while declined
on consolidated basis
n Operating margins stayed strong at 15.5% due to higher margin projects executed
during Q2FY12. On consolidated basis, margins declined to 11.8% in
Q2FY12 from 15.2% in Q2FY11.
n We maintain our estimates and expect margins to be 12.5% for the company
going ahead on a standalone basis.
Net profit growth remain impacted by high interest outgo
n Net profit was impacted by higher interest outgo and higher borrowings and registered
a growth of just 1% YoY.
n Borrowings have increased quite sharply for the company in past two years primarily
due to steep increase in working capital cycle. Working capital as a percentage
of sales stood at 95% in FY11 and has increased further due to increase
in inventories. Since Bangalore real estate projects in Phase 2 and phase 3 have
not reached revenue recognition stage, it is being reflected in the inventories.
Company expects working capital cycle to reduce going forward once revenue
recognition commences from Bangalore projects. Receivables may come down
once NTPC pays the company proceeds related to Lohari Nagpala project.
n We maintain our estimates and expect net profits to be Rs 759 mn and Rs 665
mn for FY12 and FY13 respectively.
Valuation and recommendation
n At current price of Rs 87, stock is trading at 8.0x and 9.1x P/E and 7.2x and 7.1x
EV/EBITDA multiples for FY12 and FY13 respectively.
n We maintain our estimates and roll forward our valuations to FY13. We continue
to remain negative on company's outlook and maintain REDUCE on Patel Engineering
with a one year price target of Rs 92 (Rs 118 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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