Reliance Securities
Engineers India (Buy)
CMP: ₹113.15
Target: ₹150
Engineers India emerged as a market leader in Indian hydrocarbon segment with strong expertise in design, engineering and implementation of projects. It has maintained a strong track record in executing several domestic orders, while maintaining long-term relationship with key clients. The current order backlog at record high of ₹12,200 crore (7x of FY18 revenue) provides promising revenue visibility in next couple of years. Recently the company has secured its largest ever order worth about ₹5,500 crore from HPCL petrochemical complex in Barmer (Rajasthan).
The project has PMC scope of ₹1,180 crore and a turnkey order of ₹4,390 crore. The consultancy margin for this order will be at about 30 per cent, against the average margin of about 25 per cent, while turnkey margin is at about 6 per cent, which works out at blended margin of about 11 per cent. With this order win Engineers India’s order book currently stands at ₹12,200 crore, (7x of FY18 revenue). The project is expected to complete in next 4 years (10 per cent in next 12 months).
Given sectoral growth potential, huge capex in hydrocarbon sector, asset-light business model, foray into newer segments and debt-free balance-sheet, we believe the valuation to be attractive.