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Mixed set of numbers; margins to pickup in 2H

Our view

Engineers India Ltd (ENGR) reported a muted set of numbers, primarily led by weak execution in the Consultancy segment (down 2% YoY) while Turnkey segment reported 47% YoY growth. Gross margin contracted ~1100bps YoY which led to EBITDA margin contraction of ~400bps YoY at 5.4%. Order inflows at Rs3.4bn declined 71% YoY. As on 2QFY23 order book stands at ~Rs84.3bn (2.7x TTM revenue), providing revenue visibility for next few quarters. Going forward, management maintained FY23 revenue growth guidance of 15% and order inflows 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%/51% over FY22?FY25. The stock is currently trading at a P/E of 10.4x/8.9x/8.5x FY23E/24E/25E EPS. We maintain our BUY rating on the stock with a TP of Rs88. 

Result Highlights.

* Sales came in?line with YSLe at ~Rs7.8bn (up 21% YoY) primarily on account of weak execution in the Consultancy segment which de?grew 2% YoY to Rs3.4bn whereas Turnkey segment grew by 47% YoY at Rs4.4bn.

* EBITDA de?grew by 30% YoY to Rs420mn (YSLe: Rs743mn) with EBITDA margins coming at 5.4% (~400bps YoY contraction) chiefly owing to weak gross margins

* PBT grew by 22% YoY to Rs1bn on the back of higher other income (up 136% YoY)

* PAT came in at Rs851mn (YSLe Rs734mn) up 43% YoY due to a lower effective tax rate (16.4% vs 28.5% in 2QFY22)

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