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Published on 11/01/2018 2:47:07 PM | Source: Kotak Securities Ltd

Accumulate Engineers India Ltd For Target Rs.221.00 - Kotak Sec

Reiterate our positive view on EIL; we introduce and roll forward our target price on FY20 core earnings. We move target price to Rs 221 (ascribe PER of 25x on FY20 core earning; earlier price target at Rs 212 based on 26x FY19 earning estimate). In view of limited upside to our target price (significant run up in stock price post Q2FY18 result), we ascribe ‘Accumulate’ (BUY earlier) rating on EIL.

Our investment thesis is predicated on the following assumptions 1) increased awarding of large ticket domestic hydrocarbon orders, 2) direct awarding of greenfield orders to EIL on nomination basis by hydrocarbon majors and 3) improvement in company’s margin profile driven by higher proportion of PMC (Project Management and Consultancy) orders in FY20.

Company Highlights

EIL stock has sharply risen since Q2FY18 result and currently at PER of 22.3x FY20 core eps, we believe that company’s stock is reasonably discounting 1/ potential growth in order inflows on back of improved business environment and 2/ expected growth in margin and core earnings going ahead. We move recommendation to ‘Accumulate’ from ‘BUY’ earlier with revised target price of Rs 221 (ascribe PER of 25x on FY20 core earnings).

Valuation And Recommendation

We introduce and roll forward our target price on FY20 core earnings. We move target price to Rs 221 (ascribe PER of 25x on FY20 core earning; earlier price target at Rs 212 based on 26x FY19 earning estimate). In view of limited upside to our target price (significant run up in stock price post Q2FY18 result), we ascribe ‘ACCUMULATE’ (BUY earlier) rating on EIL.

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