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Patel Engineering
Building on power & real estate…
Patel Engineering Ltd (PEL) reported a strong set of Q2FY11 results with
revenues witnessing 26% YoY growth to | 766 crore. The EBITDA
margin declined by ~350 bps YoY and ~170 bps QoQ to 15.2% due to
lower share of revenues from the hydro segment. PAT grew at 7.2%
YoY to | 44 crore. Despite subdued order inflows, order book of | 10,500
crore provides robust revenue visibility. The company’s strong focus on
the power and real estate segments ensures consolidated revenues
CAGR of 14.7%. We recommend STRONG BUY on the stock.
Q2FY11 results above expectations; topline estimates upgraded
PEL reported a solid revenue growth of 26% in Q2FY11, above our
estimates while EBITDA margins were in line at 15.2%. The company
reported a net margin of 5.7% due to lower depreciation and interest
charges.
Shifting focus on power and real estate verticals
With the subdued external order inflows, PEL is focussing on driving
revenues from executing its captive orders, mainly in the power and
real estate verticals. The company expects to secure ~| 3,000-4,000
crore of orders from the captive thermal and hydro power projects in
FY11E.
Valuation
We have fine-tuned our earning estimates to incorporate H1FY11 in our
estimates. At the CMP, PEL is trading at the adjusted P/E of 10x in
FY11E and 8.3x in FY12E. With the strong performance in H1FY11,
healthy order book and pick-up in execution of captive orders ensuring
a strong earnings growth in FY10-12E, we recommend STRONG BUY,
on the stock with a target price of | 454/share.
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