Engineers India's Q2FY20 results (Outperformer) - Strong margins; visibility high
Q2FY20 result highlights
- Adj. PAT +56.2% yoy to Rs1.49bn: led by higher margins. However, reported PAT was down 31% yoy to Rs678mn due to tax provision.
- Revenues +6.2% yoy: to Rs7.24bn led by growth in both – consultancy (+6.5% yoy to Rs3.54bn) and LSTK (+6% yoy to Rs3.7bn) revenues.
- Margins expanded +135bps yoy to 14.8%: led by higher margins in LSTK (+270bps yoy to 7.7%) due to Rs90mn variation on closure of MRPL order. However, PMC margins fell 164bps yoy to 27.4% due to high base. Hence, overall EBITDA was up 17% yoy to Rs1.07bn.
- 2QFY20 order intake at Rs1.67bn: down sharply on yoy basis as 2QFY19 had order wins related to HPCL, Barmer project. Inflow in 2QFY20 was led by orders from GAIL, IOCL and BPCL. Accordingly, 2QFY20 backlog saw decline of 6.1% yoy to Rs107.6bn (PMC: 46.8bn, LSTK: Rs60.8bn; 3.7x FY20E revenues).
- Other income +6% yoy: to Rs655m on cash of ~Rs25bn.
- Reported PAT down 31% yoy to Rs678mn: due to one-time tax provision and re-measurement of deferred tax liabilities of Rs825mn.
- FY20E guidance: 15-20% revenue growth with stable margins (PMC at 25-30% and for LSTK at ~4-6%).
- Order outlook strong for FY20/21E: Intake guidance of Rs16-18bn for FY20E, which can be higher based upon finalisation of BPCL Numaligarh order (tenders being floated and can be awarded in 4Q20/1Q21). YTD inflow is at Rs11bn with further variation orders, IOCL Panipat and BPCL Mumbai expansions, petchem projects. In international markets, it expects mid-range orders from ADNOC and other Middle East markets. (see page 2 for details).
Impact on financials: Raise FY20E/21E EPS by 12/6% to Rs7.8/8.8
Valuations & view
EIL has a strong revenue visibility led by its robust order backlog (Rs108bn, 3.7x FY20E revenues). We believe the trend in order intake is likely to sustain led by capacity expansions by PSU OMCs. Further, diversification into international markets is likely to bode well for sustained inflows over the medium term. Accordingly, we believe earnings are likely to see 24% earnings CAGR over FY19-21E. Considering the earnings traction, sustained inflows and superior return ratios, we believe valuations of 12.6x FY21E earnings are attractive. Outperformer.
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.
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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