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• Report Date 11-Feb-2013
• CMP: Rs 151
• Mid Cap – with Mkt Cap of 5,113 crores
• Pricing: Rs 145-150 range, Retail gets an additional Rs 6 discount
• Issue Period: 6-12 Feb 2014
• Advice: Buy

Here is a note on the Engineers India Ltd  FPO (EIL).

Introduction

• EIL is a PSU engaged in engineering consultancy and turnkey implementation of petrochemical projects.
• Its turnover in FY13 was 2,529 crores, with profits at 632 cr. Market Cap today is 5,113 cr, at CMP 151.
• It has 2,890 employees. The focus was Oil and Gas projects, but EIL is diversifying into new sectors like Fertilizer and LNG, Non-ferrous metallurgy, Infrastructure and Nuclear and solar energy.
• The Delhi based firm is expanding from mostly Indian projects, to execution in MENA (middle east North Africa) and South East Asia. Additionally, offices in London, Milan and Shanghai are for international procurement and marketing.
• The divestment of 10% of EIL shares is going on through the FPO process.

 Price Snapshot

• Investors in EIL over the last 5 years have seen an 11% appreciation in the share price. However, the high of Rs 538 occurred in 2010 when a share split and bonus was announced. Thereafter the share has fallen steadily.
• The dividend at 120% on a FV of 5, provides a dividend yield of 4%.
• EIL is today available at 2009 price levels.

Financials

• The Revenues, EBITDA and Profits have grown at 25%, 17% and 17% over the last 5 years. But there has been a  fall in the recent year, of FY13.
• We can see that FY12 was a peak year with a number of projects completed here. Business appears to be falling from here. (The FY14 number is only for first 3 quarters).

• Business revenues consists of Consulting and Turnkey segments. The former is steady while the latter is cyclical and dependent upon the projects completed.
• Margins are steady and high for Consulting, but lower and variable for turnkey, dependent on the execution.

• Cash flow has been positive but lumpy and variable.
• Current P/E is 8.05 times, the lowest in the last 5 years.
• Debt is zero, and cash on hand is 1848 cr (FY13). This translates to Rs 55 per share of cash.
• A key ratio is Orders Booked to Revenues Billed. A view of this shows that the ratio is at the best level for the last 4 year period.
• ROCE and RONW are high at 39% and 28% respectively. This is a positive indicator.

FPO Offer and Subscription Status

• The IPO price band is 145-150 per share; Issue period for Retail is Feb 6-12, 2014.
• The government holding will fall from 80% to 70%. It is selling this to meet its FY14 divestment targets.
• As per data available till EoD Feb 10^th, the offer is already 1.44 times oversubscribed. The breakup is QIB 2.33 times, Non Institutional investors 0.01 times and Retail 0.84 times.
• P/E at upper end for the Retail offer is 7.7 times FY13.  

Overall Opinion

• The Oil and Gas sector of India is still PSU dominated. EIL is a preferred vendor in this segment.
• EIL is also growing rapidly in new sectors and geographies.
• Our view is that this sector will start to do well over the next 2-3 years and EIL will be an early gainer in this revival.
• By all indicators, in the next 2 days ie 11-12 Feb, the offer should be well oversubscribed.
• Based on all this, EIL in this FPO is a good contrarian, value buy.
• Investors need to have a longer 2-3 year perspective.  

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Disclaimer

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Either JM or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com