Engineers India's Q4FY19 results (Outperformer) - Earnings trajectory to be strong

Q4FY19 result highlights

• Adj. PAT +22.4% yoy to Rs908m: led by higher revenues and margins.
• Revenues +20% yoy: to Rs6.13bn led by uptick in execution in LSTK (+51% yoy to Rs3.5bn) PMC revs were muted at +4.4% yoy to Rs3.5bn.
• Margins expand 400bps yoy to 15.2%: led by higher margins in PMC (+210bps yoy to 28.7%; low base) despite adverse revenue mix towards LSTK (43% in 4Q19 vs 34% in 4Q18). LSTK margins fell 80bps to 6.3%. Hence, EBITDA grew 62% yoy to Rs933m.
• FY19 order intake at Rs58.9bn: up 175% yoy led by LSTK (+9x yoy to Rs43bn), while PMC was muted at Rs15.8bn (-4.5% yoy, high base). Accordingly, FY19 backlog +42% yoy at Rs112bn (PMC: 43.1bn, LSTK: Rs68.8bn; 4.5x FY19 revenues). 4Q19 intake at Rs1.04bn (+40% yoy).
• Other income +24% yoy: to Rs596m on higher cash (Rs27bn) and yields.
• FY19 performance: Revenues +36% yoy to Rs24.4bn led by LSTK (+168% yoy to Rs11bn) while PMC revenues were muted (-2% yoy to Rs13.5bn) as execution of recently won orders is yet to pick up. OPM contracted 806bps to 15% on high base (Rs650mn variation in FY18) resulting in 11% yoy drop in EBITDA to Rs3.7bn. Adj. PAT declined 5% yoy at Rs3.6bn.
• FY20E guidance: 15%+ revenue growth with stable margins (PMC at ~30% and for LSTK at 5-7%).
• Order outlook strong for FY20E/21E: Order intake guidance of Rs18bn for FY20 to be driven by the recently won Mangolia order (Rs5.5bn), phase I orders of IOCL Panipat and BPCL Mumbai expansions, BPCL Numaligarh refinery expansion, variation orders from Dangote and Bangladesh, and mid-range orders from ADNOC and other regular orders. (see page 2 for details).

Impact on financials: FY20E EPS cut by 3.8% to Rs7; FY21 at Rs8.4

Valuations & view

EIL has a strong revenue visibility led by its robust order backlog (Rs112bn, 4.5x FY19 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 21% earnings CAGR over FY19-21E. Considering the earnings traction, sustained inflows and superior return ratios, we believe valuations of 13x FY21E earnings are attractive. Outperformer.