Recommendation from Engineering Sector

This section gives a recommendation of a stock having a stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

ENGINEERS INDIA: STRUCTURING WEALTH FOR INVESTORS

HERE IS WHY
✓Execution capability for huge orders
✓Expertise in consultancy for global projects
✓Healthy three-year average ROE and ROCE

I ncorporated in 1965, Engineers India Ltd. (EIL) is a governmentowned consultancy and engineering company and has played a significant role in shaping India’s national energy infrastructure for over six decades. EIL provides a comprehensive range of services from project conceptualisation and planning to design, engineering, procurement, construction and commissioning. The company also offers post-execution services for maintenance and monitoring of plant operations in various industries, including petroleum refining, petrochemicals, pipelines, and oil and gas, among others. 

EIL has implemented several mega projects in the oil and gas sector, including the Vizag Refinery Modernisation Project of HPCL. EIL has also completed one of the biggest petrochemical integration projects of HPCL Mittal Energy Limited (HMEL) with a capital cost of around USD 3 billion. In the petrochemical sector, EIL is implementing India’s first-of-its-kind propane dehydrogenation-polypropylene unit for GAIL. These multi-billion dollar projects demonstrate EIL’s strong domestic presence in the oil and gas sector. 

EIL has also played a pivotal role in executing the nationwide natural gas pipeline network under the Urja Ganga Pipeline Project of the Government of India. This project is aimed at increasing the share of natural gas in the nation’s energy mix from currently around 6 per cent to 15 per cent by the year 2030. In addition to its domestic operations.

The company is also providing project management consultancy services for the 1.5 MMTPA Mongol Refinery Project in Mongolia. As on September 30, 2023, the company’s order book stood at ₹8,188.3 crore. Out of this order book 59 per cent is contributed by the consultancy segment and the rest by turnkey projects. During the September quarter, the company secured business worth ₹1,144.2 crore of which ₹835.5 crore was secured from the turnkey segment and ₹308.7 crore from the consultancy segment. The company secured nine new orders in Q2FY24 which includes one large order from ONGC worth ₹814.9 crore.

In Q2FY24, the company posted consolidated revenue of ₹789.81 crore, which remained flat compared to ₹793.06 crore from the previous year’s corresponding quarter. Its EBITDA rose by 29.41 per cent YoY and stood at ₹142.32 crore from ₹109.98 crore. Net profit stood at ₹101.43 crore compared to ₹85.27 crore, a YoY growth of 18.95 per cent. The EBITDA margin fell by 415 bps YoY to 18 per cent. Net profit margin improved by 209 bps YoY to 12.8 per cent. On a trailing 12-month basis, EIL is trading at a PE of 16.2 times which is lower compared to its three-year median PE of 19.4 times and also cheaper compared to its industry PE of 28.4 times.

The company has a healthy three-year average ROE and ROCE of 16.8 per cent and 22.3 per cent, respectively. The company is virtually debt-free with an interest coverage ratio of 232 times over debt to equity of 0.01 times. Furthermore, the company has a strong order book of ₹8,188.3 crore which is 2.45 times its TTM revenue. EIL enjoys Navratna status, which is a status aimed at facilitating the expansion of central public sector enterprises (CPSEs) in both domestic and international markets. The development of infrastructure assets in the oil and gas and petrochemicals sector is of national importance, and EIL plays an important role as an engineering partner. Considering these factors, we recommend BUY.