Angel Broking neutral on Patel Engineering

“For 3QFY2012, Patel Engineering’s (PEL) numbers came in above ours and street’s estimates. The company posted strong revenue growth during the quarter, mainly on account of its international subsidiaries. However, we are not revising our numbers on the basis of this quarter’s performance, as we believe recovery to the growth path for PEL will take time as order inflow concerns loom large and as the current order book is plagued with delays/deferrals. Also, the company is yet to provide for the hedging loss incurred due to project cancellations, which we believe would materialize and impact the company’s financials in future.”

“For 3QFY2012, on a consolidated basis, PEL posted net sales growth of 42.5% yoy primarily due to good performance of its international subsidiaries. EBITDA margin came as a surprise at 18.0%, as international subsidiaries reported superlative margins of 19.5%. Therefore, reported PAT for the quarter grew by 104.8% yoy, despite a 63.4% yoy/14.1% qoq increase in interest cost.”

“PEL’s core C&EPC business is currently facing headwinds with its large projects facing delays and a disappointing order inflow. Further, the longer gestation nature of its order book, macro headwinds and increasing debt levels put the company’s growth visibility for the next few quarters under doubt. Hence, we maintain our Neutral view with a fair value of `106/share. Key risks to our recommendation are: 1) pick-up in order inflow from the power segment in the near term; 2) earlier-than-expected execution from the company’s slow-moving orders; and 3) raising of capital and the resultant decline in debt levels,” says Angel Broking research report.

Institutional holding more than 40% in Indian cos

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