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Motilal Oswal
Engineers India (Buy)
Target: ₹89
CMP: ₹68.40
Engineers India (ENGR)'s revenues were 14 per cent higher than estimated; however, the lack of operating leverage led to a 16 per cent miss in EBITDA. Margins in consultancy projects were weak at 14.3 per cent v/s 39.3 per cent in Q1-FY20.
Order inflows plunged 91 per cent y-o-y to ₹81 crore, with another ₹16 crore worth of orders received thus far. Order inflows were primarily from the hydrocarbon segment.
The order book (OB) declined 20 per cent y-o-y to ₹9,120 crore, with OB/rev at 3.1x, the lowest in last four years.
With superior execution and lower order inflows, a depleting order book remains a concern, although it is not alarming at this stage.
We expect the reversal of the revenue mix in favor of the consultancy segment to aid profitability.
Cash in hand stood at ₹2,500 crore, with the company evaluating options such as higher dividend payouts and investments into strategic assets to boost RoEs.
On account of lower order inflows and a hazy outlook for FY21, we reduce our FY21/FY22 EPS by 14 per cent and 15 per cent respectively and maintain our Buy rating, with target price of ₹89 (prior: ₹93).
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