Engineers India (ENGR IN) - Q4FY23 Result Update - Healthy order prospects, improves outlook

Rating: ACCUMULATE | CMP: Rs111 | TP: Rs116. Q4FY23 Result Update - Healthy order prospects, improves outlook. Engineers India Ltd (EIL) reported decent revenue growth of 7.5% YoY to Rs8.6bn. Adj. EBITDA margins contracted 367bps YoY to 9.7%. Order inflow came in at Rs47bn in FY23. Management targets FY24 order inflows to be in same range (~Rs45-50bn), given healthy order pipeline from projects such as IOCL- Petrochemical facility in Gujarat, BORL- Refinery expansion, Private sector – Crude to Chemicals, Polymer projects etc. EIL has been focusing on new verticals like Hydrogen, Biofuel etc. and is strengthening its exports market presence in Middle East, Africa and South America. Furthermore, for FY24 the company targets to maintain Consultancy EBIT margin of 27% and Turnkey at ~3-4%.

EIL’s long term growth prospects remain intact given 1) healthy order book, 2) strong project pipeline (mainly from Petrochem orders), 3) diversification into newer verticals and 4) lean balance sheet. We expect Revenue/PAT CAGR of 12.9%/25.5% from FY23 to FY25E. The stock is currently trading at PE of 14.7x/11.4x FY24/25E. We roll forward to FY25E and downgrade to ‘Accumulate’ from ‘BUY’ on stock with revised TP of Rs116 (Rs85 earlier), valuing it at PE of 12x FY25E (10x FY24E earlier), factoring in healthy order pipeline from petrochemical segment and focus on diversification into newer verticals (Hydrogen, Biofuel, coal gasification etc).

Turnkey segment drives revenue growth of 7.5% YoY: Standalone sales grew 7.5%YoY to Rs8.6bn, (PL estimate ~Rs9.7bn) owing to growth in turnkey up 15.9% YoY to Rs4.9bn, while consultancy segment declined ~2% YoY to Rs3.7bn. Consultancy accounted for 42.9% of total sales (47% in Q4FY22) and Turnkey projects contributed for 57.1% (53% in Q4FY22). Gross margin declined to 44.4% in Q4FY23 vs 47.8% in Q4FY22 factoring in business mix. During the quarter company reported write back of contractual obligation worth Rs787.8mn, towards settlement with client in consultancy segment. Adjusting to this, EBITDA declined 22% YoY to Rs843mn (PL estimate of ~Rs735mn), with EBITDA margin contracted 367bps YoY to 9.7% (PL estimate 7.6%). Adj. PAT declined 36.7% YoY to Rs799mn (PL estimate of Rs668mn).

Order book stands at Rs76.9bn: Order inflows for Q4FY23 came in at Rs39bn, driven by strong order win in Turnkey segment (Rs32bn). Company has also received a go-ahead letter for additional orders worth Rs15.9bn. Order book stands healthy at Rs76.5bn (2.3x FY23 revenue). Major order won in Turnkey segment includes 1) Change Order: Execution of Residual Utilities and Offsites (RUO) for Rajasthan Refinery Limited (RRP) and 2) Change Order: BS-VI Auto Fuels Projects at CPCL, Manali Refinery.