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MOSL: ENGINEERS INDIA (Buy)-In-line-ordering disappoints

ENGINEERS INDIA: In-line; ordering disappoints

(ENGR IN, Mkt Cap USD1.0b, CMP INR111, TP INR146, 32% Upside, Buy)

 Operating performance in line: Engineers India's (ENGR) sales increased 6% YoY to INR7.2b (in-line) in 2QFY20, supported by growth of 7% YoY in Consultancy segment and 6% YoY in Turnkey Projects segment. EBITDA was up 17% YoY to INR1.1b, with the margin of 14.8% ahead of our estimate of 14.3%. PBT increased 13% YoY to INR1.7b (in-line). With ENGR opting for the new tax structure, a one-time write-down of deferred tax asset worth INR750m was taken and charged to the P&L in the quarter. Thus, PAT came in 31% YoY lower at INR678m (below our estimate of INR1.3b).

• Segment performance: In Consultancy, sales came in at INR3.5b (+7% YoY) and EBIT at INR968m; margin shrank 160bp YoY to 27.4%. Turnkey projects sales increased 6% YoY to INR3.7b, while EBIT stood at INR285m; margin expanded 270bp YoY to 7.7%. Muted execution can be attributed to rains and floods on most of the sites of operations, with execution expected to pick up in 2HFY20. Management expects Consultancy margins to be in the 25-27% range and  Turnkey margins to be ~5% in FY20.
• Order inflows disappoint: Order inflows were weak at INR1.7b, while order book (OB) declined 6% YoY to INR108b. Current OB provides revenue visibility of 4x its TTM revenue (down from 4.4x in 1QFY20). Management expects order inflows to be INR16-18b in Consultancy in FY20.