EUR 120.00 For Business Accounts Only

MOSL: ENGINEERS INDIA (Buy)-Adverse mix, higher provisions impact profitability

Engineers India: Adverse mix, higher provisions impact profitability

(ENGR IN, Mkt Cap USD0.8b, CMP INR95, TP INR130, 38% Upside, Buy)

 

Subdued operating performance

• Even though Turnkey revenue booking during the quarter led to a big surprise on the revenue front, the operating performance was weak as the same carried low margins of ~3% v/s 25% for Consultancy business. Overall, reported earnings were in line with our expectations.
• Order book declined 6% YoY to INR102b, marking the second consecutive quarter of downtrend. OB/Rev ratio stands at 3.4x. We increase our EPS estimate by 4% for FY20 (largely on account of higher other income), but broadly maintain it for FY21/22. We maintain our Buy rating with a TP of INR130 (prior: INR146) as we lower our target multiple to 16x from 18x to reflect the weak ordering outlook. 

Earnings below expectation owing to margin miss

• Revenue increased 54% YoY to INR8.9b on account of higher revenue from Turnkey segment.
• Revenue from Consultancy increased 7% YoY to INR3.6b, while Turnkey revenue was up 124% YoY at INR5.3b. Revenue mix stood at 59:41 in favor of Turnkey, which was exactly opposite in 3QFY19 in favor of Consultancy.
• EBITDA declined 10% YoY to INR856m – a 10% miss as the margin of 9.6% was below our estimate of 14.7% due to an adverse revenue mix and higher provisions done for recently acquired projects.
• PAT increased 19.7% YoY to INR1.1b (in-line) on account of higher other income and a lower tax rate (25.2% v/s 35.7% in 3QFY19)