Buy Patel Engineering - PINC Result Review

ALL EYES ON H2FY11 (Order Book Traction)

Patel Engineering Ltd's (PEL) results were in-line with our expectation as consolidated PAT increased 10% YoY at Rs400mn. However, revenues were tad below our estimates at Rs7bn, a 9.2% YoY growth. We hitherto remain positive on the company, as we are witnessing traction in the core business with L1 position increase by Rs16bn during the quarter where as overall L1 stands at Rs31.2bn.

Also, the management indicated attaining FC for its thermal power project & booking of real estate revenue to start from H2FY11, which will improve sentiments for its non-core initiatives. The risk being, lower than expected traction in AP project (Pranahita yet to commence) and deterioration in working capital and debt (Rs18.5bn); current inventory position stands at 52% of sales against 57% during end of FY10, a noticeable improvement which PEL needs to maintain. We increase our target price to Rs567 (from Rs544) as we roll forward core business valuation to FY12E at P/E of 12x.

VALUATIONS AND RECOMMENDATION

We maintain 'BUY' recommendation while marginally increase our target price to Rs567 from Rs544, as we roll forward core business valuation to FY12 and value at a P/E of 12x. Meanwhile valuation for others remains same with Real estate at Rs55 per share, Land Bank at Rs 67per share, Power at Rs36 per share and BOT at Rs12 per share.

Source : Equity Bulls

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