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* 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 Rs122bn (7x of FY18 revenue) provides promising revenue visibility in next couple of years. Recently the Company has secured its largest ever order worth ~Rs55bn from HPCL petrochemical complex in Barmer (Rajasthan). The project has PMC scope of Rs11.8bn and a turnkey order of Rs43.9bn.
* The consultancy margin for this order will be at ~30%, against the average margin of ~25%, while turnkey margin is at ~6%, which works out at blended margin of ~11%. With this order win ENGR’s order book currently stands at Rs122bn, (7x of FY18 revenue). The project is expected to complete in next 4 years (10% in next 12 months).
* At CMP, the stock trades at 19.7x FY19E EPS of Rs5.9 and 14.8x FY20E EPS of Rs7.9. 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. We reiterate our “BUY” recommendation on the stock with Target Price of Rs158 (valuing at 20x FY20 earnings).
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