MOSL: ENGINEERS INDIA (Buy)-Turnkey faces execution challenges-order backlog though provides strong revenue visibility
Engineers India: Turnkey faces execution challenges; order backlog though provides strong revenue visibility
(ENGR IN, Mkt Cap USD1b, CMP INR108, TP INR125, 16% Upside, Buy)
A bleak operating performance …: Sales increased 20% YoY to INR6.1b, below our estimate of INR7.1b, impacted by weak execution in Turnkey segment (sales at INR2.6b v/s our estimate of INR3.6b). EBITDA increased 12% YoY to INR933m (below our estimate of INR1.1b), with the margin of 15.2% in line with our estimate of 15.1%. EBIT margin improved 210bp YoY to 28.7% in Consulting, but shrank 75bp YoY to 6.3% in EPC. Adjusted PAT of INR950m was below our estimate of INR1.2b due to a higher tax rate (35% v/s our estimate of 25%). Despite healthy revenue growth (37%) in FY19, EBIDTA/PAT were down 17%/8% on account of an adverse revenue mix (lower-margin Turnkey segment sales at 45% v/s 23% in FY18).
- …led by Turnkey weakness: EPC/Turnkey project sales grew 51% YoY to INR2.6b, but came in below our estimate of INR3.6b due to weaker-than-expected execution. Turnkey EBIT margin of 6.3% (-75bp YoY), too, was below our estimate of 7.0%. In Consulting, both sales of INR3.5b (albeit muted growth of 4% YoY) and EBIT of INR1.0b were in line with our estimate of INR3.6b and INR1.0b, respectively.
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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