Hold Patel Engg; target of Rs 100: KRChoksey

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Hold Patel Engg; target of Rs 100: KRChoksey

KRChoksey has recommended hold rating on Patel Engineering (PEL) with a target of Rs 100, in its November 16, 2011 research report.

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KRChoksey has recommended hold rating on Patel Engineering (PEL) with a target of Rs 100, in its November 16, 2011 research report.

"Patel Engineering (PEL) reported standalone revenue of Rs 613.3 crore (up 13.3%, YoY) that is above to our expectations, primarily led by pick up in projects execution at various project sites. EBITDA grew to Rs 94.8 crore (up 23%, YoY), primarily led by fall S&A expenses and stable raw material prices. Interest Costs has fallen surprisingly to Rs 38 crore (down 20.8%, QoQ) inspite of no reduction in debt. PEL reported PAT of Rs 30 crore (up 193%, QoQ) on account of high EBITDA & lower interest costs."

"PEL received an order inflow of Rs 10 bn including major L1 contract ~Rs 250 crore in J&K. The order backlog has increased to Rs 7,250 crore (exclude kotli-bhel project) at the end of Q2FY12 that is to be executed in next 30-36 months. Management received number of inquiries in hydro power segment and expects revival in the sector at Q4FY12. Further, the company has an order book of $ 150 mn in overseas market. Management indicated that interest income is charged to subsidiaries helped to reduce interest cost that has improved the profitability in the last quarter. Lower S&A expenses helped to improve the margins and stable raw material prices will help to maintain margins in future. Other verticals like real estate and power assets are in progress stage."

"We maintain recommendation "HOLD" on PEL with Target Price of Rs 100; reduce from previous recommendation of Rs 113. The above target price is reduced on the following factors 1.) core construction business is facing problems like order inflow, costoverrun, high WC and debt 2.) certain decrease in interest costs inspite of no change in debt in last quarter 3.) lower progress on BOT assets like power projects 4.) negative cashflow from parent and huge investment in BOT will deteriorate the balance sheet further," says KRChoksey research report.

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To read the full report click on the attachment