Friday, October 5, 2007

Patel Engineering Company.

Patel Engg Q1FY08 cons net profit up 34.46% at Rs 27.04cr
2007-07-26 13:14:10 Source :
As on 6-Oct-2007.
# Parameter Value Remarks
1 Price 493
2 PE 25
3 52 Week High : 510
4 52-Week Low : 290
5 Div 130
6 EPS 19
7 B/V 38

Patel Engineering Ltd., a civil-infrastructure construction company, has posted a 34.46 per cent jump in consolidated net profit at Rs 27.04 crore for the first quarter ended June 30, 2007 as compared to Rs 20.11 crore in the corresponding quarter previous year. Consolidated income from operations for the quarter rose 33.07 per cent at Rs 415.25 crore as against Rs 312.06 crore during the same period previous year. The earning per share (basic and diluted of face value of Re 1) for the quarter stood at Rs 4.54 as on June 30 , 2007 compared to Rs 3.72 in the corresponding quarter last year.

Order Book Position

As on June 30, 2007, company’s order book position stood above Rs 5,000 crore. As a part of its business strategy, the company continued to focus on niche areas and high margin business. Meanwhile, the company has pre-qualified for new projects worth in excess of Rs 6,000 crores as on June 30, 2007.

African Foray

The company has entered into the high-margin African markets and has bagged its first order worth US$ 153 million in Algeria from Agence Nationale Des Barrage Et Transferts (ANBT – Algeria). The project is in joint venture with M/s As-ka Insaat Construction Co, a Turkey based company. The work includes detailed design and construction of the dam under the Project Travaux De Construction Du Barrage De Mehouane Sur L’oued El-Guessar (Mehouane Dam). PEL has also floated a separate 100% subsidiary Patel Engineering (Mauritius) to tap new markets in Mauritius.

Real Estate

The company has floated a wholly owned subsidiary Patel Realities India Ltd (PRIL) for real estate development. The company currently owns more than 500 acres of urban land bank in Bangalore, Chennai, Hyderabad, Mumbai and other cities. The company plans to focus on residential and commercial development in these metros.

Management Comments

Sonal Patel, Whole Time Director, Patel Engineering said, “With the government’s expenditure on infrastructure increasing, we continue to remain bullish.” She also added, “Going forward, we intend to bid for projects on public-private partnerships and thus enhance our role as developer.”

On company’s foray into new markets, Mr. Rupen Patel, Managing Director, Patel Engineering Ltd, said, “We believe African markets have good potential over the next few years and the company is in process of finalizing bids for other projects in other African sub-continent including Mauritius.” He also added, “The company has bid for projects worth about $100-$ 200 million in Africa and is keen to acquire local construction firms in this region.”

Commenting on the real-estate business, Mr Pravin Malkani, President, PRIL said, “Going forward, we believe that reality business will bring strong cash flows which will then be used to further strengthen our core business and taking more BOT and independent power projects.”

Key takeaways from Patel Engineering concall

  • Patel Engineering posts 34.46% jump in cons net profit at Rs 27.04 crore versus Rs 20.11 crore YoY
  • Consolidated income from operations rose 33.07% at Rs 415.25 crore Vs Rs 312.06 crore
  • Revenues includes: 50% from Hydro projects, 30% from Irrigation and 8% from road business
  • As on June 30, 2007, company’s order book position above Rs 5,000 crore.
  • Company has pre-qualified for new projects worth in excess of Rs 6,000 crore as on June 30, 2007
  • Company bagged order worth USD 153 million in Algeria from Agence Nationale Des Barrage Et Transferts (ANBT – Algeria).
  • Floated wholly owned subsidiary Patel Realities India Ltd (PRIL) for real estate development.
  • Company currently owns more than 500 acres of urban land bank in Bangalore, Chennai, Hyderabad, Mumbai and other cities.
  • Real estate revenues starts reflecting from FY09
  • Working capital is of 150 days
  • Current cash at Rs 175 crore including Rs 100 crore from unutilised funds from FPOs
  • Rs 30 crore revenues from Joint venturs
  • Debt equity ratio - 0.70, current debt at Rs 500 crore plus.

Key highlights of the company

Robust order book.

Patel Engineering has a current order book of approximately Rs.50 billion spread across hydropower (55%), irrigation (28%), road and microtunneling projects (17%). The company's major thrust area is hydropower EPC projects. Patel would continue to remain focused on this. It has also diversified its order book towards road BOT projects as well as irrigation projects in India and other countries. The company expects to benefit from the Government's focus on increasing the contribution of hydropower to the total power generated in the country. It is already L1 in Rs.4 billion worth of orders.

Stable margin scenario.

Patel Engineering enjoys very good margins as compared with other construction players due to its focus on the higher margin hydropower construction projects. Hydropower projects have operating margins in the range of 17-22% while irrigation projects have margins in the range of 7-15%. Road projects have relatively lower operating margins of 5-7%. Portfolio diversifications, larger scale of operations and variable pricing clauses have enabled the company to hedge against any kind of margin decline. For a particular quarter, margins depend on the specific projects executed in the corresponding period. However, we expect the company will be able to maintain operating margins in the range 13.5% for the full year, going forward.

Venture into thermal IPP project.

The company has signed an MoU with the Government of Gujarat to set up a thermal power plant of 1200 MW, entailing an investment of Rs.50 billion. The electricity generated will be sold to power traders, captive consumers and state governments. The company is currently in the process of land acquisition, tying up coal linkages outside India and getting clearances from the Government. We do not expect returns from the thermal IPP project to come in the near term. However, this foray is likely to result in enabling the company to emerge as an independent power producer in the long run.

Patel Engineering, a civil engineering company with specialisation in complex infrastructure projects including dams and micro tunnelling, is moving ahead to acquire large coalmines in Indonesia and Africa, according to market grapvine.

Valuation and recommendation

With a current order book of approximately Rs.50 billion, we expect the company to

grow its revenues at a CAGR of 30%. At the current market price of Rs.398, the

stock is trading at 21.7x and 17.3x on P/E multiples on FY08 and FY09 estimates,

respectively. Adjusted with the subsidiary and land bank valuations, it is trading at

14.3x and 11.4x on P/E multiples on FY08 and FY09 estimates, respectively. This

is very attractive.

We maintain our estimates and upgrade the stock to BUY from HOLD with a price

target of Rs.485. Our price target is based on the sum of DCF value of the core

business, subsidiary valuation and land development valuations arrived through NPV methodology on FY09 estimates. Our target price provides an upside of 22% from the current levels.

India's Patel Engineering Ltd said it has won an order worth 4.28 bln rupees from National Thermal Power Corp Ltd for a hydroelectric project in the northern Indian state of Uttaranchal.

Q: How has your net profit and sales growth been?

A: Sales is up by 33% on a consolidated basis and net profit is up almost 35% this quarter compared to last quarter.

Q: Would you therefore say, that there was an improvement in margins?

A: There has been a slight improvement in margins. What you see right now is the order book come into play. We were extremely happy that the order book this quarter has exceeded our expectations, and the order book today stands in excess of Rs 5,000 crores, out of which over 50% is hydro work.

Q: If you have to compare this order book to a year ago, how much has been the growth in an annual term?

A: In the past three-years, the order book has been growing at a compounded rate of almost in excess of 40%.

Q: What lead time would this Rs 5,000 crore order book require to finish it?

A: About 2.5-3 years is the lead-time, if you see the order book pan out and play out. If Patel does not take any more work, then the company would at least grow a minimum of 25% to execute the existing order book. But like I said earlier, the intake of orders has far exceeded the expectation this quarter.

Q: You have said earlier that you expect an order intake of about Rs 2,000 crores for FY08, would you like to up that bar?

A: Yes I may in the coming months, because this quarter has been extremely good in terms of intake.

Q: Give us an idea about Michigan Engineering, which you acquired? What prospects do you have from there?

A: Michigan Engineering is a small company. Since the acquisition has been almost 100%, the turnover of Michigan Engineering has in FY07 close to Rs 50 crores and I expect more than 50-70% growth on top line.

The Michigan order book is close to Rs 90-100 crores right now and I expect that there is at least about Rs 400 crores of micro-tonne work, which is likely to come up this year for which Michigan will get a sizeable amount, because they provided end-to-end solutions.

Q: Your operating margins a year ago in the same quarter was 11%, how much would it be now?

A: This year the operating margins are almost the same, but when you look at the last quarter, we got orders of Rs 1,700 crores in hydro and we are mobilising those sites. So if you take those costs, profit and margin have remained stagnant in spite of huge spending on infrastructure mobilisation.

Courtesy(9 Oct, 2007):

Patel Engg abuzz with land bank talk The stock of Patel Engineering has been moving up on the bourses on talk that the company is getting its land bank valued by global real estate advisors DTZ and global property professionals Knight Frank. The company is reportedly getting around 1,200 acres in Mumbai, Bangalore, Hyderabad and Chennai valued at Rs 300 per share. Company officials were unavailable for comment. The company, which is due to announce its results on October 14, is expected to report robust numbers. Analysts are expecting a 40% growth in net profit. Analysts point out that if one were to alienate the land price, the company’s current PE falls well below the industry PE of 30. The stock of Patel Engineering ended the day at Rs 474.40 on BSE, down almost 4%. The stock has seen a 4% gain over the past week.

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