Patel Engineering - A bet on India's Infra growth

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Patel Engineering Limited, founded in 1949 and headquartered in Mumbai, is a prominent player in the civil engineering construction segment. With over seven decades of experience, the company has successfully constructed various heavy civil engineering works such as dams, bridges, tunnels, roads, piling, and industrial structures.

The company is strong in high-margin, technology-intensive areas like hydro, tunneling, irrigation, water supply, urban infrastructure, and transport. Its outstanding execution of projects has resulted in the successful completion of over 250 projects.

Patel Engineering Limited commands a robust position in the hydropower and tunneling segments and has played a vital role in some of India’s most prestigious and strategically significant projects. Its shares are listed on the Indian Stock Exchanges (BSE/NSE), and the
company has valuable non-core assets.

Currently, the company’s order book stands at about ₹ 2,00,142 Mn (Including L1 Orders)

Narration Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Trailing Best Case Worst Case
Sales 3,701.13 3,415.39 4,040.87 3,883.84 2,274.55 2,362.21 2,617.21 1,994.79 3,380.31 4,201.97 4,253.70 5,223.35 4,225.79
Expenses 3,234.27 2,919.00 3,641.66 3,462.83 1,743.34 1,985.26 2,431.73 1,750.41 2,850.13 3,577.04 3,619.69 4,444.82 3,658.78
Operating Profit 466.86 496.39 399.21 421.01 531.21 376.95 185.48 244.38 530.18 624.93 634.01 778.54 567.01
Other Income 98.97 131.25 40.97 165.14 106.00 247.43 201.69 -114.78 83.27 119.48 95.99 - -
Depreciation 81.98 79.78 54.98 78.04 54.27 50.20 66.18 72.03 81.90 93.30 89.96 89.96 89.96
Interest 437.86 516.17 601.61 579.21 489.42 370.27 266.27 401.39 419.53 418.42 404.50 404.50 404.50
Profit before tax 45.99 31.69 -216.41 -71.10 93.52 203.91 54.72 -343.82 112.02 232.69 235.54 284.08 72.55
Tax 21.28 22.02 -20.22 31.79 -11.27 44.49 23.42 -70.88 43.14 53.89 59.61 25% 25%
Net profit 16.37 8.47 -196.19 -102.89 104.79 154.15 11.13 -290.75 72.10 183.48 182.62 212.18 54.19
EPS 0.60 0.31 -7.10 -1.82 1.85 2.61 0.18 -4.16 1.00 2.37 2.36 2.74 0.70
Price to earning 69.03 172.69 -5.43 -29.94 22.53 6.76 45.06 -2.56 22.46 6.30 19.85 19.85 16.20
Price 41.15 52.90 38.52 54.50 41.78 17.61 8.19 10.65 22.53 14.95 46.85 54.43 11.35
RATIOS:
Dividend Payout 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
OPM 12.61% 14.53% 9.88% 10.84% 23.35% 15.96% 7.09% 12.25% 15.68% 14.87% 14.90%
TRENDS: 10 YEARS 7 YEARS 5 YEARS 3 YEARS RECENT BEST WORST
Sales Growth 1.42% 0.56% 13.06% 17.09% 24.31% 24.31% 0.56%
OPM 13.42% 14.07% 13.48% 14.61% 14.90% 14.90% 13.42%
Price to Earning 45.58 20.49 20.08 16.20 19.85 19.85 16.20

Risks and concerns.

Internal Risk Factors:
Our business heavily relies on government contracts, making us
vulnerable to potential policy changes. This introduces uncertainty
and challenges that need careful management. Additionally, delays,
modifications, or cancellations of projects can have a significant
impact on our business, affecting our order book and future projects.
These factors have the potential to materially and adversely affect
our results of operations and financial condition.

External Risk Factors:
Prevailing economic, political, and market conditions can lead
to a slowdown in the Indian economy, negatively impacting our
business, financial performance, and operations. Communicable
diseases like COVID-19 and natural calamities pose a significant risk
to the Indian economy, which in turn can have adverse effects on
our business. Moreover, a potential downgrade in India’s debt rating
by rating agencies can have adverse implications for our business
operations and financial performance.

Rating
Rating1342×652 133 KB

Disclosure - Invested

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Key highlights
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Q2FY24 Con-call highlights -

(+)

  • Current order book - 20,000 crores.
  • Received an order to work on India’s largest Hydro project.
  • H2 is expected to bring better order inflow.
  • The company currently handles 45% of the total hydro projects in India (Signifying dominance).
  • There is tremendous potential in the sector going ahead.
  • Share of tunneling projects to increase further (Better margins).
  • Debt repayment is to happen throughout the next 3-4 years.
  • Revenue growth guidance 15-20%.
  • Expect an inflow of 150-200 crores through the Vivadh se Vishwas scheme.
  • 90-95% price escalation is passed on to the clients.
  • Debt reduction will consistently increase the net profit margin as interest costs reduce.
  • H2 will be much stronger.

(-)

  • Election year might temporarily hamper big order inflows.
  • High debt remains a pinching point.

(i)

  • 60% Hydro | 21% irrigation | 12% tunneling | road and others.
  • 62% order inflow from PSUs | 35% state govt. | others.