Buy Patel Engineering; target of Rs 94: KRChoksey

KRChoksey is bullish on Patel Engineering Company and has recommended buy rating on the stock with a target of Rs 94 in its November 15, 2012 research report.

“PEL reported standalone Q2FY13 PAT Rs 14.8 crore (-50.7%, YoY) that is in line to expectation of Rs 15 crore primarily driven by higher execution at on going irrigation projects. Revenue grew to Rs 729 crore (+19%, YoY) and EBITDA grew to Rs 137.2 crore (+45%, YoY) and margins fell by 57 bps on YoY on account of increase in construction cost. Interest cost grew to Rs 115.7 crore (+204%, YoY), shows higher debt utilization for working capital.  Consol revenue Rs 996.5 crore (+5.1%, YoY), including Rs 115.1 crore (+72%, YoY) from real estate and international subsidiaries topline fell by 46.2% on YoY. EBITDA grew to Rs 167.4 crore and margins improved by 500 bps primarily contributed by real estate vertical. Reported PAT Rs 18.9 crore (-37.2%, YoY) impacted by higher interest cost.”

“PEL mentioned orderbacklog of Rs 120 bn as strong order inflow Rs 4-5 bn in H1FY12 based on Rs 18 bn (Varanasi-Shaktinagar road) from UPSHAL, Shontong-karcham Hydro Electric Project (Rs 10 bn) from Himachal Government and in house Gongri Hydro Electric Project (Rs 10 bn). We expect the revenue visibility have been increased for FY14E based on existing order backlog. Standalone interest cost of Rs 115.7 crore (+99.4%, QoQ) hits the bottomline as company has added Rs 133 crore incremental debts that we expect is routed to other subsidiaries via loans and advances. The total standalone debt in H1FY13 is Rs 2,503 crore. We expect that debt is at peak level because expansion plans for verticals like real estate and infra assets have been halted and any fall in interest rates will improve the bottomline in future.”

“We revise our estimates to EPS of Rs 6.8 & Rs 11.3 (from Rs 7.2 & Rs 8.9) for FY13E & FY14E respectively. We change our TP to Rs 94 (from Rs 75) and recommend “BUY” on PEL, based on 1.) substantial order inflows of 4-5bn with OB of Rs 120 bn 2.) peak out of debt in the balance sheet 3.) fall in interest rates will improve bottomline in upcoming quarters,” says KRChoksey research report.         

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