Hold Patel Eng; target of Rs 89: KRChoksey

KRChoksey has recommended hold rating on Patel Engineering Company with a target of Rs 89, in its May 17, 2012 research report.

“Patel Engineering Company (PEL) reported revenue of Rs 1,036 crore (-10.4, YoY) is below to our expectation, primarily impacted by lower execution on going irrigation projects. EBITDA fell to Rs 79.5 crore (-11.7%, YoY) and margins fell by 12 bps on YoY on account of increase in construction cost. Interest cost grew to Rs 57 crore (+47%, YoY), shows higher debt utilization for working capital. PAT fell to Rs 9.7 crore (-74%, YoY) impacted by higher tax rate and interest cost. PEL reported revenue of Rs 2,640 crore (+3.4%, YoY) and PAT of Rs 63.5 crore (-37%, YoY) based on lower execution as well as higher interest cost for FY12E.”

“Higher interest cost of Rs 57.4 crore (+31%, QoQ) hit the bottomline and reveals incremental debt is used to fund the working capital. Interest cost of full year Rs 211 crore (+21.61%, YoY) hit the bottom line of the company. Other Income grew to Rs 6.1 crore (+202%, YoY) has increased the bottomline for the Q4FY12. The order intake for the full year is Rs 18.6 bn (Rs 6.1 bn in Q4FY12) explains the current executable backlog of ~Rs 57 bn. We have included Rs 15 bn of new order intake in FY13E as the core sectors like hydro and irrigation facing hurdles like environmental and land acquisition etc. PEL is waiting for environmental clearances from TN Govt. for 1,050 MW power project and expecting to commence hydro power projects at Arunachal in 1HFY13E.”

“We maintain recommendation “HOLD” on PEL with Target Price of Rs 89; 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.) 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.   

Non-Institutions holding more than 90% in Indian cos

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