Patel Engineering - 4QFY2012 Result Update - Angel Broking

For 4QFY2012, Patel Engineering (PEL) posted higher-than-expected revenue (jumped by 117% on qoq basis) during the quarter, however poor performance at EBITDAM level and high interest cost resulted in huge decline on earnings front. We believe recovery to the growth path for PEL will take time as order inflow concerns loom large and as the current order book is plagued with delays/deferrals. Also, the company is yet to provide for the hedging loss incurred due to project cancellations, which we believe would materialize and impact the company's financials in future. Hence, we maintain our negative stance on the company and a Neutral rating on the stock.

Poor EBITDAM and high interest cost drag earnings down: For 4QFY2012, Patel posted 14.5% yoy decline on the top-line front to Rs.1,346cr. The company's EBITDA margin for the quarter increased by 110bp on a yoy basis and came at 9.5%. Interest and depreciation came in at Rs.84cr and Rs.23cr respectively. On the earnings front, the company posted a decline of 70.1% on yoy basis to Rs.9cr owing to poor performance on revenue front and higher tax rate (52%).

Outlook and valuation: PEL's core C&EPC business is currently facing headwinds with its large projects facing delays and a disappointing order inflow. Further, the longer gestation nature of its order book, macro headwinds and increasing debt levels put the company's growth visibility for the next few quarters under doubt. Hence, we maintain our Neutral view with a fair value of Rs.95/share. Key risks to our recommendation are: 1) pick-up in order inflow from the power segment in the near term; 2) earlier-than-expected execution from the company's slow-moving orders; and 3) raising of capital and the resultant decline in debt levels.

Source : Equity Bulls

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