Hold Patel Eng; target of Rs 113: KRChoksey

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Hold Patel Eng; target of Rs 113: KRChoksey

KRChoksey has recommended hold rating on Patel Engineering Company with a target of Rs 113, in its February 6, 2012 research report.

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KRChoksey has recommended hold rating on Patel Engineering Company with a target of Rs 113, in its February 6, 2012 research report.

"Patel Engineering Company (PEL), reported net sales of Rs 428.6 crore (+15.6%, YoY), below to expectations primarily driven by lower execution on ongoing projects. EBITDA fell by Rs 74.2 crore (-30%, YoY) primarily led by increase in construction costs. Last year company received losses of Rs 50 crore due to cancelation of Lohari Nagpala project (NHPC) and this cost was included in interest cost of Rs 81.4 crore in Q2FY11. PAT grew by Rs 13.6 crore (+76%, YoY) primarily led by lower interest cost. Debt level is same as compare to last quarter."

"Management indicated, PEL is L1 in ~Rs 20 bn new orders but these are not yet finalized and have not included in order book. Consider the above factors PEL has shown the muted order inflow growth in Q3FY12 that decreases the revenue visibility. Management has received number of inquiries in the segment of hydro power and expects revival in the sector at Q4FY12. Further, the company has an order book of $ 150 mn in overseas market. High debt levels (Rs 20 bn) in PEL balance sheet have impacted the profitability up to a large extent. Parinata (AP) and Kotli-bhel (UK) projects unable to take off due to lack of environmental clearances and political turmoil. Other verticals like power projects (thermal & hydro) still have not financially closed."

"We marginally revise estimates in EPS to Rs 11.6 from Rs 11.9 especially for FY13, based on muted order inflow in Q3FY12 and lower execution in ongoing projects. We retain "Hold" rating (TP Rs 112) based on 1.) core construction business is facing problems like order inflow, costoverrun, high WC and debt 2.) lower progress on BOT assets like power projects 3.) negative cashflow from parent and huge investment in BOT will deteriorate the balance sheet further," says KRChoksey research report.

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