Angel Broking neutral on Patel Engineering

“For 1QFY2013, Patel Engineering Ltd (PEL) posted a muted revenue performance, which along with poor performance at the EBITDAM level and high interest cost resulted in a huge decline on the earnings front. We believe recovery to the growth path for PEL will take time as order inflow a concern loom large and as the current order book is plagued with delays/deferrals. Hence, we maintain our negative stance on the company and a Neutral rating on the stock.”

“For 1QFY2013, PEL posted a 4.3% yoy top-line growth to Rs 789cr. The company’s EBITDA margin for the quarter stood at 13.1%, a drop of 270bp on a y-o-y basis but an improvement of 360bp on a sequential basis. The interest and depreciation came in at Rs 67cr and Rs 20cr respectively. On the earnings front PEL reported a profit of Rs 7cr, a decline of 55.9% on a y-o-y basis owing to lower EBITDAM and high interest cost. The company’s EBITDA margin for the quarter stood at 13.1% a drop of 270bp on a y-o-y basis but an improvement of 360bp on a sequential basis. Interest and depreciation came in at Rs 67cr and Rs 20cr respectively. On the earnings front PEL reported a profit of Rs 7cr, a decline of 55.9% on a y-o-y basis owing to lower EBITDAM and higher interest cost. Going ahead as well, we believe earnings will continue to reel under pressure, given that the company’s key segments (power and irrigation) are facing major headwinds (no major order inflows for FY2012) and the smoke does not look to get cleared in the near to medium term.”

“PEL’s core E&C 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,” says Angel Broking research report.

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