MOSL: ENGINEERS INDIA (Buy)-Consultancy segment disappoints-impacts overall operational performance
Engineers India: Consultancy segment disappoints; impacts overall operational performance
(ENGR IN, Mkt Cap USD1.8b, CMP INR140, TP INR180, 33% Upside, Buy)
- Operational performance below expectations: 4QFY18 revenue grew 15% YoY to INR5.1b, marginally below our estimate of INR5.2b. EBITDA declined 60% YoY to INR575m, impacted by INR220m write-off for its investment in oil and gas exploration block. Adjusting for this, EBITDA declined 45% YoY to INR795m, missing our estimate of INR1.1b. Adjusted PAT declined 42% YoY to INR909m, in line with our estimate of INR890m, supported by lower tax rate and higher than estimated other income.
- Weak performance from consultancy segment impacts operational performance: Overall revenue growth was supported by strong growth in turnkey segment (INR1.7b; +87% YoY). However, consultancy segment revenue declined (INR3.4b; -4% YoY), given the high base of 4QFY17 (when multiple projects reached completion stage, resulting in strong revenue booking). As the contribution from lower margin turnkey segment increased (34% of sales v/s 21% in 4QFY17), operating margin for the quarter declined sharply (15.6% v/s 32.6% in 4QFY17). EBIT margin in the turnkey segment was 7% v/s -7% in 4QFY17 (adjusting for write-back of INR390m), whereas consultancy segment margin was 27% v/s 32% in 4QFY17 (adjusting for write-back of INR180m).
- Robust order backlog provides strong revenue visibility: Order backlog for FY18 stands at INR78.7b, providing a visibility of 4.4x its FY18 revenue of INR17.9b. Management expects revenue growth of 15-20% in FY19 and margins of 25-30% in the consultancy segment and 5-7% in the turnkey segment.
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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