Mukand Engineers Ltd (Buy@Rs.23, Target Rs.45) - LKP Advisory

The story so far.....

Mukand Engineers Ltd (MEL) is a Mumbai based small sized engineering company with a turnover of Rs700mn and over two decades of experience in executing EPC projects mainly in the sectors of hydrocarbon, steel, aluminium and power. It undertakes EPC contracts, civil and piping works besides engineering and project management jobs for power and steel plants. Promoters hold 54% equity in MEL which has a market capitalization of only Rs300mn.

In the highly competitive EPC space, MEL has been able to successfully hold its foot largely due to its market standing as an approved vendor for large project developers. The current order book position of over Rs.3.7bn dominated by contracts from NMDC, BHEL & NTPC among others partially mitigates the impact of slowdown in investment cycle and provides earnings visibility over the next two years.

What went wrong in FY'12?.... prolonged slowdown in investment cycle led to delays in project execution. Significant slowdown in the power sector and key customers like NTPC and BHEL, which together comprise significant portion of the order book, witnessed slowdown in implementation of projects and the projects earlier scheduled to be completed in FY'12 is now expected to be completed in FY'13.

The result: MEL, whose revenues are derived from implementation of new projects, saw its revenues decline to Rs686mn in FY'12 from a high of Rs.1.2bn in FY'10 and net profits dipping to Rs33mn in FY'12 from Rs82mn in the previous year.

The story ahead.......

With an order backlog of Rs1.6bn and fresh order intake of Rs2.15bn during Q1FY'13 (MEL has bagged an order in April'12 worth Rs.2.15bn from NMDC for installation of Steel Melting shop for the latter's integrated steel plant in Chhattisgarh) and with an order book position of Rs3.7bn which is more than 5xFY'12 revenues we believe that the dividend paying MEL trading at half price to book is at an inflexion point from where things can only get better.

Buy MEL trading at 3xFY13-14E expected earnings at CMP of 23 for a one year price target of 45.

Source : Equity Bulls

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