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Our View: When compared to GDP growth, the average energy multiplier for India has been at ~0.8x of GDP growth. Hence, assuming 5% CAGR demand for petroleum products, India is likely to face supply deficit situation by FY25. In addition, current refining capacity utilization stands at 100%+, which warrants significant capex, implying improving business prospects for ENGR over medium to long term. Hence, Govt. has set up a plan to nearly double its oil refining capacity in the next 5 years (refining capacity expansion of ~250MMTPA), so the cumulative capex is expected to be Rs7‐ 8trn, implying a PMC opportunity size of ~Rs450‐500bn for ENGR. Engineers India’s core business is services based on strong technical knowhow which enables it to operate on negative working capital & negligible capex (Infinite core RoIC) leading to strong free cash flows. We cut FY22E/FY23E EPS by 11%/8% to factor in the subdued margin in LSTK segment & lower other income. Margins seems to have bottomed out in FY21 & expect its improving trend over FY22‐FY23. Given debt‐free balance sheet, market leadership, superlative avg. FCF yield of 14%, strong execution capability and inexpensive valuation (8.6x FY23 earnings, ‐1.5SD of long term average). Retain BUY with TP of Rs102.

Key highlights from Q3FY21 earnings call FY22 order inflow guidance at Rs15‐20bn: ENGR has two committed order from i) Indian Oil for Panipat refinery expansion, and ii) the other project for BPCL. The major project execution for these is targeted next year. So, phase 2 of these projects is targeted by middle of next year. The main project execution for Panipat refinery is expected to be in the range of Rs6bn and for BPCL – Rs2bn. Besides, ENGR is looking for new refinery at Kaveri basin from Indian Oil (Indian Oil has approved capex for this refinery and bidding process has been initiated with order expected this end of the year or beginning of next year). Moreover, company is looking for Mangalore refinery expansion project for which feasibility study has been done. One or more small project from Numaligarh could materialize by the end of quarter for revamp and quality upgrade of Numaligarh refinery. In addition, HEML cracker expansion from 1.2 to 1.5mmtpa; Cracker project is currently ongoing for 1.2 mmtpa and subsequent expansion is planned next year. Order inflow for FY22E is expected to be in the range of Rs15bn – Rs20bn.

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