The Main Highlights are Q3 performance disappointment by erosion in margins. Actually Margins are looking to be at lower levels for one more quarter but earnings are headed for a big boost from higher operational levels and low tax. The other advantage is a solid and well-balanced order book and a big pipeline of orders will provide a clear vision and consistency in the future. Ample amount of cash on the balance sheet to help well-balanced procurement of materials and execution of orders in a timely manner. This stock has plunged considerably in the last 12 months and is trading at fairly attractive valuations and currently offering an 8 percent dividend yield.
The market has seriously rebuffed the Engineers India stock price in spite of good development and strong perceivability, upheld by orders close by. While the stock has been on a constant downtrend from about Rs 200 share in January 2018 to its present degree of Rs 54 a share, the last point of correction started was highlighted by the organization’s poor financial performance in the December quarter.
The current scenario is now presenting a very good buying opportunity as a result of excessive risk aversion or negativity about the organization’s standpoint which is now completely evaluated into the stock, consequently offering attractive valuations.
The stock is exchanging at multiple times its FY21 evaluated earnings, which is very sensible thinking about conventional development in profit, the solid order book of around multiple times its yearly income, asset-light Business plan, zero debt, the exceptional yield on equity and a decent profit yield of near 8 percent.
One potential explanation could be a drop in operational margins and resultant disillusionment on the profit front. The market was frustrated in view of a 19 percent year on year growth in net profits during the quarter finished December 2019 in spite of solid 54 percent year on year bounce in revenues. The other large concern was a 1672 basis point drop in operating margins.
In any case, the market is by all accounts missing that the calamity was not so much due to the poor operational exhibition. A huge piece of this edge amendment was by virtue of the unexpected change in the revenue mix.
Engineers India Missing Quarterly Earnings
The organization’s turnkey ventures business, which earned an EBIT edge of 3 percent, saw a 124 percent year on year development in revenue. Its building consultancy business which earned 24 percent EBIT margin, developed by a 6.6 percent on a year on year basis.
This numerical lopsidedness has obliterated the margins and which is the reason net profit developed at a moderate pace. However, when we take a gander at the numbers from a nine-month point of view, they look tolerable with more like 20 percent year on year development in EBITDA and 9 percent development in net profits.
Huge pressure on margins stays a clingy issue and the organization key executives have subsequently guided to keeping up margins at around 4 percent in the turnkey business as against 5 percent prior. Fortunately, the consultancy fragment is relied upon to hold its margins at 25-30 percent.
Besides, a 100 basis point drop in operating margins could without much of a stretch be suited with an in excess of a 1000 basis point decrease in the pertinent corporate duty rates. Engineers India has been paying assessment at around 35 percent every year which has now come to 25.2 percent – a major lift which ought to be obvious in the coming quarters.
Engineers India Big Opportunity
Over the last 16 months, there has been an immense slowdown in hydrocarbon CAPEX both in the local and global markets. A portion of the enormous undertakings have been put on hold, postponed or terminated and therefore, the market sentiment was very bad.
Nonetheless, even right now, India has kept up a decent pace of winning specifically a couple of big projects, as before. Its request book has fallen by around 9 percent since the start of the current financial year. In any case, that is a direct result of good execution. Significantly, the organization is as yet sitting on a strong order book of Rs 10164 crore which is more than 4 times its FY19 revenues.
In addition, the current project pipeline is similarly solid. The vast majority of the organizations right now energetically sitting tight for some huge ventures and they anticipate that some of them should seek to grant soon. In financial 2021, the administration is confident about the projects, for example, BPCL Numaligarh, BPCL Mumbai extension, IOCL Panipat development, MRPL extension, and HMEL extension ventures will completely get executed.
Engineers India Main Threats
Deferral in granting of ventures in the hydrocarbon space and lower CAPEX by oil PSUs could affect the development and profit standpoint. A noteworthy drop in oil price and currency fluctuations could cause a huge slowdown in the CAPEX and impact execution cycle.
Task execution difficulties and issues could prompt moderate development and effect operating profit further.