ValuePickr Forum

Engineers India Ltd

Engineers India Ltd.:
Please find below my research on EIL. I don't have answers for some of the questions that I am jotting down in the end. It will be great if people can help me answer them:

Engineers India Limited provides engineering and related technical services for petroleum refineries and other industrial projects primarily in India. Its fields of activities include petroleum refineries, pipeline, oil and gas processing, petrochemicals, offshore structures and platforms, ports and terminals, metallurgy, fertilizers, power, highways and bridges, airports, non conventional/renewable energy sources, and intelligent buildings and urban development. The company offers various services to conceptualize, design, engineer, and construct projects to meet the specific requirements of its clients. It has strategic alliances with VAI Industries UK Limited; Deutsche Montan Technologies GmbH; Curtin University of Technology; IOCL; Petron Scientech, Inc.; Stroytransgaz; GAIL India Limited; and Jacobs Engg Co. The company was founded in 1965 and is headquartered in New Delhi, India with additional offices in London, the United Kingdom; Abu Dhabi, the United Arab Emirates; and Kuwait, Qatar, Malaysia, and Australia.


EIL executes projects either on a Lump Sum Turn Key (LSTK) or consultancy basis. Petroleum refining sector plays a dominant role in the company's business. EIL, with a strength of more than 3,000 qualified engineers, is regarded to be the best such company in Asia, besides those in Japan. It has developed indigenous capability in all aspects of the oil industry.EIL has to its credit, over 400 major projects successfully completed and has grown over the years to become a unique organization, the likes of which has not been created in any other developing country.Firm has no debt and generates copious amounts of cash flow. Company has solid, clean balance sheet. Cash makes up for Rs. 2000 Cr. approximately on a total assets size of approx. Rs. 3000 Cr. It is looking to grow internationally (mostly in middle east countries) and enter into new sectors like Nuclear, Water, Solar Power and Coal To Liquid. Government of India has 90% stake in the business. Management has lot of depth with long tenure in the company. Company has diversified customer base and next to nothing capital expenditure requirements.

I am not a big fan of government run organizations but EIL is a special case. EIL, in my opinion truly reflects capabilities of Indian engineers. The company has been profitable consistently and it will be difficult for other engineering consulting competitors to duplicate it's cost structure and capabilities. EIL is involved in all kinds of infrastructure projects being commissioned in India. Government of India is also planning to divest another 10-15% of its shares in the company. This action would increase the float of the company and make it easier for bigger players to buy a stake in the company.


Valuation:
Free Cash Flow/Total Enterprise Value yield works out to a juicy 15%.


Here is other financial info:

Price 1,146.50
Market Cap (mm) 64,387.40
Shares Out. (mm) 56.2
Float % 9.20%
Dividend Yield % 1.60%
EPS
62.53
P/E 18.63x
Total Revenue (mm)
15,514.50 TEV/Total Revenue 2.9x Price/Tang BV 4.7x
Net Income(mm) 3,511.50 Cash & ST Invst.(mm) 20,614.70
Market Capitalization(mm) 65,440.40 Total Debt 0
Total Enterprise Value(mm) 44,825.80 Total Assets 30,255.50
Capital Expenditure(mm) -219.6 P/Diluted EPS Before Extra 18.6x
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Revenue (mm) 6,947.1 8,594.7 5,467.4 8,592.8 12,871.6 9,252.9 8,060.0 5,818.4 7,376.8 15,514.5
Net Income (mm) 1,252.5 1,271.7 247.1 641.6 822.5 1,180.2 1,428.2 1,451.3 1,980.2 3,511.5
Margin % 18.0% 14.8% 4.5% 7.5% 6.4% 12.8% 17.7% 24.9% 26.8% 22.6%
EPS 4.4 11.43 14.646 21.017 25.433 25.844 35.263 62.53
12 months
Mar-31-2003
12 months
Mar-31-2004
12 months
Mar-31-2005
12 months
Mar-31-2006
12 months
Mar-31-2007
12 months
Mar-31-2008
12 months
Mar-31-2009
Return on Assets % 8.4% 5.2% 7.8% 6.3% 5.8% 5.8% 9.2%
Return on Equity % 8.8% 10.6% 14.0% 15.4% 14.3% 17.7% 27.1%


Question:

  • What is EIL going to do with all the cash sitting on the Balance Sheet?
  • Where do I find out how much order backlog the company has?
  • Company doubled its revenue base between 2008 and 2009 fiscal year. Is it sustainable? Also, the increase in revenue base came from LSTK projects which happen to have lower margins. Is that trend going to continue in the future? Right now LSTK projects make up about 46% of the revenue and the rest comes from Consultancy. Consultancy assignments carry higher proft margins of about 30% while LSTK profit margins are much lower. LSTK profit margins range anywhere from 1% to 12%
  • Who are EIL's competitors? I don't see any publicly listed company at least in mid-cap space.
  • What is it that EIL does better than its competitors?

EIL recently bagged last month 2 huge orders from BPCL Kochin & Mumbai which will keep them busy for next 2-3 years.This means the biggest concern of EIL has been taken care.
now is the company ripe for picking at this level?

I have started buying EIL for the first time earlier this week. I have known the company for more than 3 decades. I attempt to answer some of the questions you raised:

What is EIL going to do with all the cash sitting on the Balance Sheet?

It is a government enterprise. I all likely hood it would end up there.

Who are EIL’s competitors?

L&T is the single biggest competition I could imagine for LSTK project as well as consulting. There other niche players in consulting like Lurgi, Bechtel, Doosan, Punj lloydamong others.( But most of them are probably not being traded publicly in India. )

What is it that EIL does better than its competitors?

EIL benefits from being a government enterprise in my view. They get projects from every refinery projects by the state-run companies, they also do consulting for other India friendly goverments in developing world. I know they had projects executed in Iran, Algeria and others.

http://articles.economictimes.indiatimes.com/2014-02-17/news/47412423_1_engineers-india-fpo-order-book

Isnt EIL which came with a FPO at a rock bottom price of 144 almost at a 4 year low a prime pick for buying at cmp of 152 due to FPO overhang which is finally getting clear.Also

  1. On an Expected EPS of 16 rs for FY 14 PE of 9 odd becomes very attractive .The main factor that has attracted analyst to this counter is the cheap valuation. The company is now trading at nine times its consensus forward earnings, significantly lower than its 3-year average. With the improvement in growth, a re-rating is expected, which promises handsome returns to the long-term investors. The downsideriskto this counter is limited from current levels because the company has extremely strong fundamentals.

Due to its asset-light business model, low capital requirement, high operating margin and negative working capital,

Engineers India’s return on equity is above 30 per cent. The returns ratios are expected to remain at elevated levels because 54 per cent of its current order book is from the high-margin consultancy segment. It is a debt-free company and also boasts Rs 2,600 crore cash balance, which is about 50 per cent of its current market cap. The management is following a liberal dividend payout policy and this is expected to continue in the future.

  1. Cash equivalent of almost rs 74 on books.

  2. Excellent div yield including interim dividend of rs 3 expected to be announced in march 14 like in last year.

4)The company’s effort to increase its international presence is also yielding fruit: 28 per cent of the orders were from international clients as on 31 December, compared with just 7 per cent as on 31 March 2013. While easing tensions in the Middle East area have helped get more orders, the weakening rupee is helping the company with better export realisations.

5)Due to flipping by IPO applicant the price may fall down further making it more attractive?

No wonder different research houses like Ambit,IndiaNivesh,Religare & Quant broking has given a price target ranging from 160- 209.

Views Invited.

Discl- Have been allotted shares in the recent FPO.

Yes. The financials are very good. But a breakout in a bullish sector works better than in a bearish sector.

This is my first reply on the board.
I have been tracking EIL for last 2 years and looks like the financials have been improving. Moreover oil prices have bottomed out amid the squabble in OPEC and there is considerable interest in new exploration activities inside India and in near vicinity. I have an optimistic view on the stock from a long term ( 3-5 yrs).

I am looking for view from others who have been tracking the company and have an opinion on the sector or stock and how the growth prospects might look like.

Disclosure: Had initiated exposure to the scrip for tracking purpose 1 year ago and thinking of increasing it

Looks Good as numbers are improving…

Hi All, Was wondering if any of you could throw some light on the deferred tax of 75Cr which the firm paid in this quarter? The operational performance seems good with profit before tax increasing by more than 13% Why was this deferred tax expense created in the P&L for this quarter?