Buy Engineers India; target of Rs 235: SPA Research

EIL reported lackluster set of numbers in the last quarter owing to tepid execution in the turnkey segment and some one-off costs that resulted in lower margins. While revenues declined 41.4% driven by 94.4% dip in turnkey segment's revenue, operating margins worsened by 552 bps YoY to 13.8% owing to one off cost provision of INR 317 mn made in turnkey segment. Order inflows in the last quarter remained strong at INR 7.8 bn (+2.5x YoY). Order backlog as on date stands at INR 37.9 bn, which translates into book to bill of 2.5x. We incorporate FY18 numbers and retain our  BUY rating on the stock with a target of INR 235.

EIL remains well placed to benefit from expected revival in domestic hydrocarbon space owing to improved balance sheet of domestic Oil PSUs. Diversification into other high growth sectors and international market, given low visibility of Greenfield

refinery projects bodes well for EIL. Robust order backlog of INR 37.9 bn in addition to expected inflows of +INR 25 bn over the next 18 months will drive growth in near term. Superlative operating margins and low capital requirements ensures high free cash flows. Increased liquidity in form of cash and cash equivalent of INR 26.1 bn (INR 77/ share) provides stability. We incorporate FY18 numbers and retain retain our BUY rating on the stock with a target of INR 235 based on 20x FY18E earnings.