KRChoksey is bearish on Patel Engineering Company and has recommended sell rating on the stock with a target of Rs 75 in its August 13, 2012 research report.
“PEL reported revenue of Rs 569 crore (+5.1%, YoY) is below to our expectation, primarily impacted by lower execution on going irrigation projects. EBITDA is flat to Rs 74.8 crore (+1.3%, YoY) and margins fell by 49 bps on YoY on account of increase in construction cost. Interest cost grew to Rs 58 crore (+21%, YoY), shows higher debt utilization for working capital. PAT fell to Rs 3.4 crore (-67%, YoY) impacted by higher tax rate and interest cost.”
“PEL didn’t announce any major orders in Q1FY13 as company is facing scarcity of orders due to challenging economic and political environment in the country. We except in the absence of major order inflows PEL’s profitability will deteriorate more in near future.
Chennai Engineering Colleges
PEL is waiting for environmental clearances from TN Govt. for 1,050 MW power project and expecting to commence hydro power projects at Arunachal in 2HFY13E. Higher interest cost of Rs 58 crore (+21%, QoQ) hit the bottomline and reveals incremental debt is used to fund the working capital.
Engineering Graduation
Interest cost of full year Rs 211 crore (+21.61%, YoY) hit the bottom line of the company. Other Income fell to Rs 0.5 crore (-71.3%, YoY) has also impacted the bottomline for the Q1FY13.”
“We revise our estimates to EPS of Rs 7.2 & Rs 8.9 (from Rs 10.8 & Rs 12.1) for FY13E & FY14E respectively. We change our TP to Rs 75 (from Rs 89) and recommend “SELL” on PEL, based on 1.) no substantial order inflows and large looming debt in the balance sheet 2.) core construction business is facing problems like order inflow, costoverrun, high WC and debt 3.) lower progress on BOT assets like power projects 4.) negative cashflow from parent and huge investment in BOT will deteriorate the balance sheet further,” says KRChoksey research report.
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