Buy ISGEC Heavy Engineering; target of Rs 330: ICICI Securities

ICICI Securities research report on ISGEC Heavy Engineering

ISGEC Heavy Engineering’s (ISGEC) management, in their concall, shared confidence on buoyancy in certain segments of domestic market like FGD, refinery, civil infra, petchem, fertilisers, hospitals and airports. Pace of execution continues to be slow, impacted by labour unavailability (currently at 75%). The impact on manufacturing margin in Q4FY20 was due to delay in dispatch of equipment and management sees sustainable margins in manufacturing segment at 9% and EPC segment at 5%. The directors’ remuneration will be cut by 75% and a 5-30% cut in the salary of white collar employees (> Rs800,000 per annum salary) is expected to reduce overall staff costs by ~15% for FY21. Current orderbook at Rs69bn (1.4x TTM sales) provides growth visibility.

Outlook

We factor-in 8% standalone earnings growth over FY20-FY22E and maintain BUY rating on the stock with an unchanged SoTPbased target price of Rs330.