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Higher EPC share leads to muted performance

Our view

Engineers India Ltd (ENGR) reported a dismal set of numbers, primarily led by weak execution in the Consultancy segment (down 3% YoY) while Turnkey segment reported 50% YoY growth. Gross margin contracted ~1100bps YoY which led to EBITDA margin contraction of ~360bps YoY at 5.6%. Order inflows at Rs2.3bn grew by 309% YoY on a low base. As on 3QFY23 order book stands at ~Rs78.6bn (2.4x TTM revenue), providing revenue visibility for next few quarters. Going forward, management maintained order inflow guidance at ~Rs40bn.

We believe EIL’s healthy order book, lean balance sheet, strong project pipeline and strong growth visibility augurs well in the long run and expect EIL to report revenue/PAT CAGR of 5%/54% over FY22?FY25. The stock is currently trading at a P/E of 11.7x/9.7x/9.1x FY23E/24E/25E EPS. We roll forward our target multiple to FY25E with a revised TP of Rs90. Given the recent run?up in the stock price we now have an ADD rating (previously BUY)

Result Highlights.

* Sales came in at Rs8.3bn (vs YSLe Rs8.1bn) primarily led by Turnkey segment which grew by 50% YoY at Rs4.8bn while weak execution in the Consultancy segment led to a decline of 3% YoY to Rs3.5bn  

* EBITDA de?grew by 26% YoY to Rs465mn (YSLe: Rs594mn) with EBITDA margins coming in at 5.6% vs 9.2% in 3QFY22 chiefly owing to weak gross margins (43.4% vs 54.3%)

* PBT de?grew by 30% YoY to Rs652mn on the back of lower other income (down 33% YoY)

* Due to weak operational performance, PAT declined 30% YoY at Rs478mn (YSLe Rs780mn)

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