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Patel Engineering (PEL)
Lower construction costs and lower interest outgo resulted in PEL’s PAT improving 128.1% Y-o-Y
in Q3FY12 aided by a sharp 42.5% rise in sales at `6,193mn. The company was able to book
lot of sales from old projects, which got delayed in Q2FY12 due to flash floods and adverse
weather conditions.
Key Highlights:
◊ PEL posted one of its highest EBITDA margin of 18.3% in recent quarters. This was largely
due to it being able to book sales from some of its old projects, which had got stalled in
earlier quarters due to flash floods (happened in December 2010 as well as in Q2FY12) &
adverse weather conditions. The corresponding EBITDA margins of Q2FY12 & Q1FY12
were 11.8% and 15.8% respectively.
◊ Construction and raw material expense declined 1004bps aiding achieving higher EBITDA
margin.
◊ Q3FY12 EBITDA was `1,136mn, up 3% Y-o-Y and flat Q-o-Q.
◊ Interest outgoing declined 31.4% due to nil provision of MTM loss in the quarter. This resulted
in PAT margin rising 121bps Y-o-Y to 3.2% (2.0% in Q3FY11).
◊ PEL was expected to achieve financial closure and environmental clearance for its 144 MW
hydro power project located at Arunachal Pradesh and 1050 MW thermal power project
located in Tamil Nadu by the end of Q3FY12 but could not do so due to continued political
uncertainty in both the states.
◊ In the last nine months PEL has not been able to grab a single order in its core segments
like hydropower, irrigation and urban infrastructure. There is lack of clarity of fresh flow of
orders in these segments as well, going forward.
◊ We have marginally increased our PAT estimates for FY12 & FY13 as we have reduced
interest outgoings marginally.
◊ We further believe that execution would play a vital role in Q4FY12E just like it did in
Q3FY12. Since its power projects are likely to remain stalled a lot will depend on how it
executes its existing, old projects the way it did in Q3FY12.
Outlook & Valuations:
We upgrade our rating to HOLD from Sell on PEL with 12 month price target of `107
due to better results posted by the company in Q3FY12. As stock is currently available at a
cheap valuation, so we believe any new order flow would provide positive trigger which may
further improve the rating going forward. So we believe The stock is trading at 5.6x and 4.8x
FY12E and FY13E EPS of `18 and `21 respectively & 5.5x and 5.2x FY12E and FY13E EV/
EBITDA respectively. We value PEL on sum of parts methodology to arrive at a target of `107
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Patel Engineering (PEL)
Lower construction costs and lower interest outgo resulted in PEL’s PAT improving 128.1% Y-o-Y
in Q3FY12 aided by a sharp 42.5% rise in sales at `6,193mn. The company was able to book
lot of sales from old projects, which got delayed in Q2FY12 due to flash floods and adverse
weather conditions.
Key Highlights:
◊ PEL posted one of its highest EBITDA margin of 18.3% in recent quarters. This was largely
due to it being able to book sales from some of its old projects, which had got stalled in
earlier quarters due to flash floods (happened in December 2010 as well as in Q2FY12) &
adverse weather conditions. The corresponding EBITDA margins of Q2FY12 & Q1FY12
were 11.8% and 15.8% respectively.
◊ Construction and raw material expense declined 1004bps aiding achieving higher EBITDA
margin.
◊ Q3FY12 EBITDA was `1,136mn, up 3% Y-o-Y and flat Q-o-Q.
◊ Interest outgoing declined 31.4% due to nil provision of MTM loss in the quarter. This resulted
in PAT margin rising 121bps Y-o-Y to 3.2% (2.0% in Q3FY11).
◊ PEL was expected to achieve financial closure and environmental clearance for its 144 MW
hydro power project located at Arunachal Pradesh and 1050 MW thermal power project
located in Tamil Nadu by the end of Q3FY12 but could not do so due to continued political
uncertainty in both the states.
◊ In the last nine months PEL has not been able to grab a single order in its core segments
like hydropower, irrigation and urban infrastructure. There is lack of clarity of fresh flow of
orders in these segments as well, going forward.
◊ We have marginally increased our PAT estimates for FY12 & FY13 as we have reduced
interest outgoings marginally.
◊ We further believe that execution would play a vital role in Q4FY12E just like it did in
Q3FY12. Since its power projects are likely to remain stalled a lot will depend on how it
executes its existing, old projects the way it did in Q3FY12.
Outlook & Valuations:
We upgrade our rating to HOLD from Sell on PEL with 12 month price target of `107
due to better results posted by the company in Q3FY12. As stock is currently available at a
cheap valuation, so we believe any new order flow would provide positive trigger which may
further improve the rating going forward. So we believe The stock is trading at 5.6x and 4.8x
FY12E and FY13E EPS of `18 and `21 respectively & 5.5x and 5.2x FY12E and FY13E EV/
EBITDA respectively. We value PEL on sum of parts methodology to arrive at a target of `107
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