Recommendation From Infrastructure - General Sector

This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon. 

ENGINEERS INDIA LTD. : ENGINEERING AN UPWARD CURVE

HERE IS WHY
✓ High growth potential
✓ Good returns on capital employed
✓ Strong market penetration

Engineers India Ltd. (EIL) is a government-owned company and one of the ‘Navratna’ entities. It is mainly active in engineering consultancy and engineering, procurement and construction (EPC) services and primarily focused on the oil and gas and petrochemical industries. It has also diversified itself into other areas such as infrastructure, water and waste management, solar and nuclear power and fertilisers. The company has over five decades of experience in the field and has completed 7,000 assignments worth USD 200 billion. It reported net sales of Rs 3,144.17 crore in FY21 compared to Rs 3237.32 crore in FY20. That is a slight decline of -2.8 per cent. The EBIDTA stood at Rs 538.6 crore in FY21 as against Rs 710.7 crore in the previous year, a decline of over -24 per cent.

The PAT has declined by 215 per cent decreasing from Rs 433.8 crore to Rs 261.5 crore from FY20 to FY21 respectively. The company has taken a severe hit on account of the pandemic-triggered lockdowns as reflected by the decreased bottom-line. A decline of 54.5 per cent can be seen in the cash flows from operating activities, decreasing from Rs 376 crore in FY20 to Rs 171 crore in FY21. However, the quarterly results were exceptional, especially the top-line and EBITDA. Net sales for the quarter ended March 2021 stood at almost Rs 1,131.9 crore. That’s a growth of 33.8 per cent on QoQ basis and 30.95 per cent on YoY basis.

The EBITDA, exclusive of other income, was Rs 216 crore, which saw a growth of nearly 180 per cent QoQ and nearly 90.68 per cent YoY. However, the net profit stood at Rs 31.4 crore, indicating de-growth of -65.22 per cent QoQ and -75.6 per cent YoY. The other income reported was Rs 115 crore, which has led PAT to post de-growth. In the upcoming earnings’ call we might know the reason for that. Otherwise, the operational efficiency has been excellent in the quarter. The company is highly technology-driven. It has more than 60 per cent of indigenous technology in refineries and 100 per cent in the high-tech domain of oil and gas.

With its in-house research and development centre it has developed over 35 process technologies and has 36 live patents and 31 filed applications. The company has a dominant presence in India with 20 out of 23 refineries having EIL footprints. It has also built 10 out of the 11 petrochemical complexes in India. It is focused on international expansion with projects secured in the Middle East, African and Asian countries. The total order book stood at Rs 7,981.9 crore as of year ended FY21. The company has rewarded its stakeholders with ROE at 16.1 per cent and ROCE standing strong at 24.7 per cent.

It has paid hefty dividends and has a dividend yield of 1.87 per cent. The stock has a relatively low price-to-earnings multiple of 12.5. The company is almost debt-free. India is the second largest refiner in Asia just after China. Companies are increasingly spending on capacity-building which augurs well for EIL. Being a leader in the engineering consultancy space for oil and gas along with other sectors, EIL has a huge potential for growth and positive results are expected in the coming times. Based on our due diligence, we recommend our reader-investors to BUY this stock.