Patel Engineering - 1QFY2013 Result Update - Angel Broking

For 1QFY2013, Patel Engineering Ltd (PEL) posted a muted revenue performance, which along with poor performance at the EBITDAM level and high interest cost resulted in a huge decline on the 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. 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 1QFY2013, PEL posted a 4.3% yoy top-line growth to Rs.789cr. The company's EBITDA margin for the quarter stood at 13.1%, a drop of 270bp on a y-o-y basis but an improvement of 360bp on a sequential basis. The interest and depreciation came in at Rs.67cr and Rs.20cr respectively. On the earnings front PEL reported a profit of Rs.7cr, a decline of 55.9% on a y-o-y basis owing to lower EBITDAM and high interest cost.

Outlook and valuation: PEL's core E&C 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. The 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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