Buy Engineers India; target of Rs 322: Hedge Equities

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Buy Engineers India; target of Rs 322: Hedge Equities

Hedge Equities is bullish on Engineers India and has recommended buy rating on the stock with a target of Rs 322 in its August 22, 2011 research report.

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Hedge Equities is bullish on Engineers India and has recommended buy rating on the stock with a target of Rs 322 in its August 22, 2011 research report.

"Hydrocarbon is one of the integral sectors to the advancement of any economy as the energy needs augment in tandem with the economy. EIL has offerings, in the sector, ranging from conceptualizing to commissioning the projects, which makes the company a unique player with distinctive expertise. The business model is going through a transformation process i.e. the dominance of consultancy business in the revenue mix has been shrinking despite the segment maintains its growth at reasonable rates. Utilizing the expertise in the sector, the company has stepped into turnkey projects recently. Also, it has an established business in mining and metallurgy and is getting into fertilizer, water and water management, fertilizer, nuclear, solar and city gas distribution etc."

"With a consistent inflow of orders, the company has been able to maintain a healthier order book. The company had an order book of (as at the end of Q1FY12) Rs. 7484.3 crore, which is 2.49 times its FY11 sales showing better future revenue visibility. Meanwhile, the composition of the same signifies some concerns with The LSTK holding around 64% in the total order book as well as the top line. EIL`s financials has been showing impressive growth figures with the top line and bottom line having grown at a CAGR of 45% and 40% respectively during 2006-07 to 2010-11. Though the company is a consultancy oriented company, what drives the growth in the numbers has been the LSTK segment, which had shot up by a whopping 80% in FY11 while that of Consultancy division remained at around 7%."

"EIL`s financials has been showing impressive growth figures with the top line and bottom line having grown at a CAGR of 45% and 40% respectively during 2006-07 to 2010-11. Though the company is a consultancy oriented company, what drives the growth in the numbers has been the LSTK segment, which had shot up by a whopping 80% in FY11 while that of Consultancy division remained at around 7%. We estimate the top line to grow at a compounded annual growth rate of 13.9% and bottom line at 12.5%. Our DCF model with 14% discount rate values the company at Rs. 282 for FY11 and we have a target of Rs.322 (which gives a 23.8% upside potential in the stock) for FY12, which doesn`t factor in the risk of shrinking margins due to the fact that the business has been skewing more towards LSTK despite an impressive growth. We initiate coverage on the stock with a Buy view for those who have an aggressive risk appetite," says Hedge Equities research report. 

Bodies Corporate holding more than 50% in Indian cos

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To read the full report click on the attachment