PL Stock Report: Engineers India (ENGR IN) - Q1FY24 Result Update - Healthy tender pipeline - Accumulate

Engineers India (ENGR IN) - Amit Anwani - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: ACCUMULATE | CMP: Rs155 | TP: Rs165

Q1FY24 Result Update - Healthy tender pipeline

Quick Pointers:

♦ Other income was higher (up 240% YoY to Rs926mn), due to interest income (Rs560mn) for settlement amount from one of the client.

♦ Order inflow in Q1FY24 came in at Rs12.7bn (vs Rs2.3bn in Q1FY23), driven by Turnkey segment.

Engineers India Ltd (EIL) reported mix quarterly performance with revenue been flat YoY and EBITDA margins expansion of 276bps YoY to 8.5%. Order pipeline remain healthy from projects such as BORL- Refinery expansion, Private sector – Crude to Chemicals, Polymer projects etc. IOCL- Petrochemical facility in Gujarat. EIL has been focusing on new age verticals (revenue stood at ~Rs630mn in FY23) like Hydrogen, Biofuel, Biomass etc. EIL is focusing on increasing its presence in exports markets such as Middle East, Nigeria, Algeria and few countries in Africa. Management guided for revenue growth of ~10% with consultancy margins in range of ~25-27% for FY24. Order inflows to be ~Rs45bn for FY24.

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 like hydrogen and 4) lean balance sheet. The stock is currently trading at PE of 20.5x/15.9x FY24/25E. We maintain Accumulate rating on stock with revised TP of Rs165 (Rs116 earlier), valuing it at PE of 17x FY25E (12x earlier) factoring in healthy order pipeline from petrochemical segment and focus on diversification into newer verticals (Hydrogen, Biofuel, coal gasification etc).

Lower other expenses drive EBITDA margin: Standalone sales came in at Rs8.1bn, flat YoY (PLe ~Rs9.4). Turnkey, revenue grew 1.8% YoY to Rs4.6bn, while consultancy segment declined 1.4% YoY to Rs3.5bn. Consultancy accounted for 42.8% of total sales (43.6% in Q1FY23) and Turnkey projects contributed for 57.2% (56.4% in Q1FY23). Gross margin declined to 44% in Q1FY24 vs 44.5% in Q1FY23 factoring in business mix. EBITDA grew 48.9% YoY to Rs685mn (PLe ~Rs809mn), with EBITDA margin expanding 276bps YoY to 8.5% (PLe 8.6%), driven by lower other expenses (down 36.9% YoY to Rs556mn- due to provisions write back). Segment wise EBIT margins: Consultancy EBIT margin expanded to 25.6% in Q1FY24 vs 17.2% in Q1FY23, while Turnkey margin remained flat at 2%. Adj. PAT grew 125% YoY to Rs1.1bn, (PLe Rs842mn) driven by higher other income (up 240% YoY to Rs926mn).

Order book stands healthy at Rs81bn: Order inflow in Q1FY24 came in at Rs12.7bn (vs Rs2.3bn in Q1FY23), driven by order win in Turnkey segment (Rs8.2bn). Order book stands healthy at Rs81bn (2.5x TTM revenue), comprising of Consultancy (~61%) and Turnkey (~39%). Major order won in Turnkey segment includes Upgrading of The Institute of Petroleum Safety, Health and Environment Management (IPSHEM) facility at Goa (Rs3.3bn).

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