MOSL: ENGINEERS INDIA (Buy)-Beat on all fronts; superior execution in Consultancy
ENGINEERS INDIA: Beat on all fronts; superior execution in Consultancy
(ENGR IN, Mkt Cap USD0.9b, CMP INR103, TP INR145, 41% Upside, Buy)
- Robust operating performance…: Sales grew 30% YoY to INR7.4b, ahead of our estimate of INR6.3b, supported by better-than-expected execution in Consultancy segment. EBITDA was up 63% YoY to INR1.4b (ahead of our estimate of INR973m), with the margin of 19% ahead of our estimate of 15.4%. PAT of INR1.3b exceeded our estimate of INR960m.
- …led by Consultancy segment: In Consulting, sales of INR4.5b (+30% YoY) and EBIT of INR1.8b were ahead of our estimate of INR3.5b and INR1.0b, respectively. Consultancy margin of 39% was supported by a variation order of INR900m and impacted by an INR260m impairment loss, excluding which the margin stood at 25%. EPC/Turnkey project sales grew 16% YoY to INR2.9b, in line with our estimate. However, Turnkey EBIT margin of 2.7% (-310bp YoY) was below our estimate of 6.0%. Management expects the Turnkey EBIT margin to bounce back to 5-6% for the full year FY20E, whereas consultancy segment margin is expected to be in the range of 25-30%.
- Order book provides robust revenue visibility: Order inflow was robust at INR9.5b, supported by order finalization in Consulting. Order book of INR115b is healthy and provides revenue visibility of 4.4x its TTM revenue.
- Valuation and view: ENGR is a market leader in the hydrocarbon segment, where it provides consultancy and turnkey solutions. OMCs' strong cash flow position post diesel price deregulation, the necessity to upgrade to BS-VI-complaint facilities, and the need to put up additional capacities (given 100% utilization of existing facilities) augur well for the company. We forecast net profit to grow at 13% CAGR over FY19-21E. We maintain our Buy rating on the stock, given its asset light business model, strong return ratios and leadership position. We assign a target price of INR145 - assigning INR101 to the core business (20x FY21E core EPS), to which we add INR44 for cash on book.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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