Engineers India Ltd - Another Weak Quarter; Result Update Q3FY15:: Edelweiss

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Engineers India Ltd. (EIL) has once again reported disappointing results, with Q3FY15 sales declining by 5.2% YoY. The  EBITDA margins continue to disappoint coming in at a low of 9% due to negligible margin in the LSTK segment and also lower margins in the Consultancy segment (PBIT at 20.1 %) led by execution of small size orders. The company has an order book of INR 3879 cr, which is executable over the next 2-3 years. In the quarter, the company added INR 309 cr of new orders. In the next 3 months, the management expects mid-size orders(INR 200 to INR 300 cr) from international markets while large-sized order inflows from the domestic market are expected to be delayed due to pending  government approvals. JV with NFL for setting up a fertilizer plant will enable EIL to re-enter domestic fertilizer consultancy business where 10-12 projects are expected to be awarded.

Sales below expectations; Guidance for FY16 muted

The company’s net sales for Q3FY15 at INR 398 cr fell by 5% YoY and were below our estimate of INR 422 cr. The decline in quarterly sales was driven by a 18% YoY drop in consultancy segment (Contributes 59% to revenues). International markets contributed 14% to Q3FY15 sales, which is expected to rise further on account of strong build-up of international orders (33.5% of the current order book of INR 3879 cr). Fall in oil prices may impact new orders from international market. The EIL management expects FY16 sales to grow by 5% YoY due to delay in finalization of new large orders. However, if the HPCL Balmer project in Rajasthan is initiated in FY16 the revenue growth could be higher. Q4FY15 sales are expected to be at similar levels at Q3FY15 sales.

Steep fall in margins due to cost overruns in turnkey projects

Q3FY15 EBITDA margins fell sharply to 9% (Vs 23% in Q3FY14) due to 1) 0% margins on LSTK contracts because of  cost overrun in one of the contracts (CPCL- INR 500 cr order) and 2) lower margins in the consultancy segment (20.1% vs 36.8% in Q3FY14) led by execution of small brown field orders. EBITDA margins are expected to be under pressure for the next two quarters and improvement is likely from H2FY16E as higher execution leads to significant operating leverage.

Order inflow for 9MFY15 at 1990 cr; Awaiting large consultancy orders

EIL witnessed 4% QoQ increase in order backlog to INR 3879 cr, as large sized consultancy orders from the domestic market are getting delayed due to pending regulatory/statutory approvals. The order inflows for the quarter were at INR 309 cr, which includes consultancy orders from Angola (INR 30.7 cr ) and Oman(INR 18.5 cr). The company expects medium sized consultancy orders totaling 200-300 cr in Q4FY15. The management expects order inflow to increase handsomely in FY16 if the Balmer refinery project in Rajasthan finally takes off else the order inflow will be around INR 2000 cr in FY16.

LINK

https://www.edelweiss.in/research/Engineers-India-Ltd--Another-Weak-Quarter;-Result-Update-Q3FY15/10005536.html