IDFC Securities - Engineers India Ltd. (ENGINERSIN) Engineers Indias Q2FY19 results (Outperformer) - Strong execution

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IDFC Securities

Bhoomika Nair

Engineers India's Q2FY19 results (Outperformer) - Strong execution

Q2FY19 result highlights

Adj. PAT fell 19.5% yoy to Rs959m: led by high base (Rs370m write back in 2Q18). Reported PAT at Rs978mn on prior period write back.
Revenues +59% yoy: to Rs6.8bn led by 3.6x yoy in LSTK to Rs3.5bn. PMC revenues flat at Rs3.3bn as meaningful execution yet to pick up.
Margins fell 1900bps yoy to 13.4%: due to Rs370mn write back in LSTK in 2Q18 (high base). Moreover, higher share of LSTK revenues (51% vs 22% in 2Q18) and projects are in initial phase of execution, wherein margins are lower. PMC margins fell 280bps yoy to 29%. EBITDA -34% yoy to Rs915mn.
Strong order intake at Rs56bn: led by Rs55bn HPCL, Barmer order win (Rs43bn LSTK, Rs12bn PMC). Order backlog +29% yoy to Rs114.6bn (Rs65.7bn LSTK, Rs48.9bn PMC; 4.6x FY20E revenues).
Other income +32% yoy: to Rs614mn due to higher cash as well as higher interest rates. Cash balance at Rs23bn.
Order outlook remains strong for FY20E: from brownfield expansion of BPCL Numaligarh refinery (6mmtpa), CPCL, IOCL (Panipat, Paradip, etc), MRPL expansion and orders related to petchem projects. In addition, other projects like strategic reserves and uptick in international market will drive order wins over the medium term.
Robust execution to continue: Mgmt expects revenue growth of 30%+ for FY19E led by robust growth in LSTK (strong backlog), while PMC revenue growth is likely to be muted in FY19 on the back of pick up in execution & high base. Margins are likely to be stable for PMC at 25-30% and for LSTK at 5-7%.

Key positives: Robust execution in LSTK

Key negatives: Weak execution in PMC

Impact on financials: FY19E/ 20E EPS cut by 5% each to Rs6/7.6

Valuations & view

EIL has seen a strong uptick in order intake and backlog led by capacity expansions by PSU OMCs considering high utilisation levels. We expect the trend to continue over the next 2-3 years as companies continue to invest towards capacity expansion. The improved momentum in order inflows is driving higher revenue visibility for EIL. While near term earnings are impacted by delayed execution in PMC and higher LSTK revenues, we believe earnings will see sharp momentum in FY20E (27% growth). Accordingly, we believe valuations of 16x FY20E earnings are attractive given the uptick in order inflows and superior return ratios. Outperformer.

27/11/2018 6 EN

Underlying

Engineers India Ltd.

Engineers India Limited (EIL) is an engineering consultancy, and engineering, procurement and construction (EPC) company in the hydrocarbons and petrochemicals industry. The Company's segments are Consultancy & Engineering Projects, and Turnkey Projects. Its services include technologies, pre-Front End Engineering Design (FEED) and FEED, project management, procurement services, construction services and specialized services. The Company focuses on various sectors, including fertilizer and liquefied natural gas (LNG), non-ferrous metallurgy, infrastructure, strategic crude oil storage, nuclear and solar energy, and exploration and production. It offers various technologies for petroleum refining, oil and gas processing, and aromatics. The Company's projects include Guru Gobind Singh Refinery Project, Bina Refinery Project, Panipat Naphtha Cracker Project, Dabhol Bangalore Pipeline Project, Phase II Expansion of Alumina Refinery and Deen Dayal Field Development Project.

See profile

INE510A01028 National Stock Exchange of India India

Provider

IDFC Securities

IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.

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Analysts

Bhoomika Nair

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Engineers India's Q2FY19 results (Outperformer) - Strong execution

ENGINEERS INDIA suffers a double requalification, which weighs heavily on its rating, now at Neutral.

MOSL: ENGINEERS INDIA (Buy)-Revenue misses our estimate; order inflows robust

Engineers India's Q3FY20 results (Outperformer) - Strong execution but margins fall

GMR Infrastructure's Q3FY20 results (Outperformer) - Air traffic growth improved at the airports; deleveraging process gains momentum

Ambuja Cement's Q4CY19 results (Outperformer) - In line; cost efficiencies at play

Event update: Aurobindo Pharma (Outperformer) - Unit IV receives EIR; positive outcome

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