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For 2QFY2012, Patel Engineering’s (PEL) numbers came in above our and street
estimates. PEL posted strong revenue growth during the quarter, mainly on account
of its international subsidiaries. However, we are not revising our numbers on the
basis of this quarter’s performance, as we believe recovery to the growth path for
PEL will take time as order inflow concerns loom large and as the current order
book is plagued with delays. Also, the company is yet to provide for the hedging
loss incurred due to project cancellations, which we believe would materialize and
impact the company’s financials. Hence, we maintain our negative stance on the
company and a Neutral rating on the stock.
Numbers surprise positively due to lower depreciation and interest cost: For
2QFY2012, on a consolidated basis, PEL posted net sales growth of 23.8% yoy
primarily due to good performance of its international subsidiaries. EBITDA margin
came lower at 11.8%, as international subsidiaries enjoy lower margins. Reported
PAT for the quarter declined by mere 30.9% yoy despite a 73.2% yoy increase in
interest cost, which was offset by lower depreciation cost. Also, it is pertinent to note
that the interest cost itself has declined on a qoq basis, unlike the general trend in
the industry.
Outlook and valuation: PEL’s core C&EPC business is currently facing headwinds
with its large projects facing delays and a disappointing order inflow. Further, the
longer gestation nature of its order book, macro headwinds and increasing debt
levels put the company’s growth visibility for the next few quarters under doubt.
Hence, we maintain our Neutral rating with a revised fair value of `110/share.
Key risks to our recommendation are 1) pick-up in order inflow from the power
segment in the near term; 2) earlier-than-expected execution from its slow-moving
orders; and 3) raising of capital and the resultant decline in debt levels
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
For 2QFY2012, Patel Engineering’s (PEL) numbers came in above our and street
estimates. PEL posted strong revenue growth during the quarter, mainly on account
of its international subsidiaries. However, we are not revising our numbers on the
basis of this quarter’s performance, as we believe recovery to the growth path for
PEL will take time as order inflow concerns loom large and as the current order
book is plagued with delays. Also, the company is yet to provide for the hedging
loss incurred due to project cancellations, which we believe would materialize and
impact the company’s financials. Hence, we maintain our negative stance on the
company and a Neutral rating on the stock.
Numbers surprise positively due to lower depreciation and interest cost: For
2QFY2012, on a consolidated basis, PEL posted net sales growth of 23.8% yoy
primarily due to good performance of its international subsidiaries. EBITDA margin
came lower at 11.8%, as international subsidiaries enjoy lower margins. Reported
PAT for the quarter declined by mere 30.9% yoy despite a 73.2% yoy increase in
interest cost, which was offset by lower depreciation cost. Also, it is pertinent to note
that the interest cost itself has declined on a qoq basis, unlike the general trend in
the industry.
Outlook and valuation: PEL’s core C&EPC business is currently facing headwinds
with its large projects facing delays and a disappointing order inflow. Further, the
longer gestation nature of its order book, macro headwinds and increasing debt
levels put the company’s growth visibility for the next few quarters under doubt.
Hence, we maintain our Neutral rating with a revised fair value of `110/share.
Key risks to our recommendation are 1) pick-up in order inflow from the power
segment in the near term; 2) earlier-than-expected execution from its slow-moving
orders; and 3) raising of capital and the resultant decline in debt levels
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