Engineers India - 3QFY22 Result Update - Reliance Securities

Subdued Quarter; Healthy Order Book Provides Revenue Visibility

Engineers India (ENGR) reported a revenue of Rs6.8bn (down 19% YoY and up 5% QoQ) in 3QFY22 vs. our estimate of Rs9bn, due to lower sales in turnkey projects. Revenue of consultancy segment increased by 1% YoY to Rs3.6bn, while revenue of turnkey segment declined by 33% YoY to Rs3.2bn. EBITDA fell by 17% YoY (up 4% QoQ) to Rs625mn (our estimate of Rs1.1bn), while EBITDA margin increased by 20bps YoY to 9.2%. EBIT margin of consultancy segment declined by 160bps YoY to 23.8%, while that of turnkey segment increased by 70bps YoY to 2.1%. PAT came in at Rs680mn (down 23% YoY, up 14% QoQ) vs. our estimate of Rs1.1bn, due to both a lower revenue and other income. We believe the strong track record in consultancy of complex and high-value projects, debt-free status, negative working capital cycle, and being a beneficiary of large government projects places ENGR in a sweet spot. For FY22, we lower the revenue/PAT estimates by 8.1%/8.2% factoring the lower execution in turnkey segment during 3QFY22. We largely maintain the revenue and PAT estimates for FY23 and FY24. Keeping the target multiple unchanged, we maintain our BUY rating on the stock, with a 1-year SOTP-based unrevised Target Price of Rs117, valuing its core business at 10x FY24E earnings (Rs95) and investments at book value (Rs22).

Healthy Order Book Provides Revenue Visibility

For 9MFY22, the company's order inflow grew by 74% YoY to Rs15bn, led by the consultancy segment, while the order book declined by 1% YoY to Rs82.1bn (2.4x FY22 revenue). The company has received orders of Rs10.4bn from Chennai Petro and a consultancy project worth Rs1.1bn from Numaligarh Refinery during 9MFY22. We expect order inflows of ~Rs20bn in FY22E. Some large projects that are expected in the near term include HMEL's petrochemical expansion and MRPL's petchem expansion.

Outlook & Valuation

We expect ENGR to witness order inflows of ~Rs20bn in FY22E and mainly in the consultancy segment. Negative working capital cycle, robust business model, strong clientele base, strong track record in consultancy of complex/high-value projects, debt-free status, and being a beneficiary of large government projects places ENGR in a sweet spot. Though the exposure to a single sector is a major concern, the company is planning to diversify into strategic crude oil storage, water/waste-water management, non-ferrous metallurgy, ports and LNG. ENGR was looking for optimum deployment of its cash since a long time and got the opportunity to diversify and utilize the cash in high-IRR projects. Considering its asset-light business model, strong clientele base, foray into newer segments and healthy execution track record, we maintain our BUY rating on ENGR, with a SOTP-based 1-year unrevised Target Price of Rs117. We value its core business at 10x FY24E earnings (Rs95) and investments at book value (Rs22).

Link to the report

Source : Equity Bulls

Keywords

EngineersIndia EIL RelianceSecurities ResultUpdate Q3FY22