Reduce Engineers India: target of Rs 200: ICICI Securities

ICICI Securities's research report on Engineers India

Engineers India (EIL) reported a rather subdued quarter with a – 1) 25% decline in revenues; and 2) decline in EBITDA margin (aided by decline in consultancy margins) – resulting in a 52% decline in profit (PAT). Order inflow (OI) and the mix in OI turned out to be a pleasant surprise. EIL saw an OI of INR 48bn, comprising of INR 26bn of consultancy and INR 22bn of others. Note that consultancy is a more profitable business with healthy margins (22%, FY24). As a result, the consultancy order book (OB), at INR 55bn, improved 3.3x. EIL reiterated its guidance of INR 35bn of revenues and EBIT margin of 20% in consultancy (lower than its historical margin). We bake in 300bps of margin improvement in consultancy for FY26E. We retain REDUCE given expensive valuations and revise the TP to INR 200 (earlier INR 225).

Outlook

We, thus, arrive at our target price of INR 200, valuing its core business at 20x FY26E core earnings. The stock currently trades at 28x FY24 EPS, much higher than the past five-year average TTM multiple of ~15x. We, thus, retain our REDUCE rating.