SNAPSHOT
NSE CODE: PATELENG
BSE CODE: 531120
CMP: 138.75
52 WEEK HIGH/LOW: 500.00 / 137.50
MCAP: 968 Cr.
PE: 8.49
INDUSTRY PE: 13.19
EPS: 16.34
FV: 1.00
BV: 184.16
P/BV: 0.75
DIVIDEND (IN %): 200.00%
OVERVIEW
Patel Engineering Ltd (PEL) is one of the pioneer company in infrastructure. It is mainly engaged in the construction of Hydro power projects including dams, tunnels, power-houses, etc., Irrigation and water supply projects, Transportation projects, including roads, railways, bridges and tunnels and real-estate. It is 60 year old company which has completed over 75 dams worldwide and made several acquisitions in the US and India. It has successfully completed many projects and increasing the experience in transportation, Hydro power, Irrigation and urban infrastructure. Most of their Customer base belongs to Government bodies & PSU’s like NTPC, NHPC, NHAI, and NEEPCO. In addition, Company has over 1200 acres of land bank in metros like Mumbai, Bangalore, Chennai, Delhi and Hyderabad.
INVESTMENT RATIONALE
Patel Engineering Ltd (PEL) order book remains strong by end of Dec 31, 2010. Although, it has not increased in bigger way in FY10 but remain stable. Company Order book Stands @ Rs 100 Bn. This also includes L1 of Rs 10 bn. Hydro projects constitute 45%, irrigation 40% and remaining 15% are transportation projects and urban infrastructure. Company expecting of order book worth 150 bn within next 2 years. In FY10, Company was unlucky due to delay and cancellation in few of their projects. US subsidiary faced delay due to heavy snowfalls. Recently, NTPC cancelled Loharinagpala hydro project. PEL has already lodged a claim of Rs2bn with NTPC. Company two projects including Pranahita Lift irrigation project worth Rs. 15 bn in Andhra Pradesh which account for 18% of the total order book are delayed which has made flat growth for the company. Also, Teestla Low dam and parbati was also delayed due to flash floods. Although, management is confidence that all these projects will be completed and worked started lately which will reflect in FY11-12. The company is setting up a 1,320 MW thermal power plant at Nagapattinam District in Tamil Nadu and 90 MW hydro power project at Gongri, Arunachal Pradesh. Financial closure of Nagapattinam is expected in FY11 as per management. In Q3FY11, company reported net sales of Rs.4345.9 mn, which is 31.3% down on YoY. Disappointing set of numbers was due to 1) Cancellation of Loharinagpala Hydro project 2) Delay in 2 Andhra projects 3) Delay in US projects due to heavy snowfall and 4) Delay in two hydro power projects (Teesta & Parvati) due to flash floods. Although the real estate sale was good in last 1 year in spite of slowdown in real estate.
VALUATION
Stock has corrected very sharply with series of negative news like IT Raid, disastrous Q3 numbers, Rising Debt, Infrastructure concern. Most of the concerns are real but mostly already in price. Book Value Stands @ 184.16. At Current Market price of 138, Stock is available @ cheapest valuation in Infra space. Only Real-estate wing value close to Rs. 100. On, SOTP basis, the value of business is worth Rs. 220 (~ A Big Discount of 40%). There are some concerns like Slowdown in Order, Increasing Debt, projects to be completed on time but Going forward, management has immense experience in the domain of Infrastructure and company could perform better in FY12-13. FY12 EPS could be close to 19 which translates price around 300. Hence, Investors can BUY @ CMP 138 for Target 300+ in Next 2 Years.
Regards – EquityAhead Research!!
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