Analyst corner: ‘Buy’on Engineers India with revised TP of Rs 155

By: | Published: October 18, 2018 2:18 AM

EIL recently won Rs 50-bn order from HPCL

eil, rajasthanEIL recently bagged long awaited Rs 50-bn HPCL Rajasthan refinery order from HPCL taking record order book to over Rs 110 bn.

We met with the management of EIL to get perspective on the company’s operations. Management is able to reassure that the company is well poised to benefit from the potential order flows in the domestic hydrocarbon space over the next three years. Middle East/Africa market has started to gain buoyancy after recent increase in crude oil price.

EIL recently bagged long awaited Rs 50-bn HPCL Rajasthan refinery order from HPCL taking record order book to over Rs 110 bn. However, being heavily dependent on government spending, we believe that further order awarding/bidding in the sector would remain modest until general election, 2019. We expect meaningful order flows from 2HFY20 onwards.

We reduce exit multiple (ascribe PER of 18x FY20 core earnings vis-à-vis PER 23x FY20 core earnings earlier) to factor in near/medium term sluggishness in order booking. However we believe that EIL stock is trading at extremely cheap valuation at PER 12x FY20 core earnings. Reiterate ‘Buy’ with revised target price of Rs 155 (Rs 187 earlier).

EIL recently won Rs 50-bn order from HPCL. The order is split into Rs 11.8 bn of PMC (Project management & consulting) job and balance into LSTK (Lump sum turnkey project). With this order win, company order backlog amounts to record level of over Rs 110 bn. As per management, execution of this order would start in the Q4FY19 and major revenue shall flow in FY20/21.

EIL has recently made a bid for acquiring 100% stake in another public undertaking-PDIL. Currently PDIL is under the ministry of chemicals & fertilizers. Founded in 1978, PDIL provides design engineering and consultancy services. It serves fertilizer and allied chemical industries, oil and gas sector, power and infrastructure sectors in India and internationally.

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