FIRSTCHOICE IPO ANALYSYTS SAYS THAT EIL WILL GO NMDC WAY AVOID
Engineering India Limited (EIL), a mini NAVRATNA, is an engineering consultancy company providing design, engineering, procurement, construction and integrated project management services, principally focused on the oil and gas and petrochemicals industries in India and internationally. EIL also operates in diverse sectors including non-ferrous mining and metallurgy and infrastructure. EIL is providing engineering consultancy services for the GoI’s energy security initiative under its Integrated Energy Policy for strategic crude storages.
Services in these industries and sectors cover the entire spectrum of activities from concept to commissioning of a project. The services include preparation of project feasibility reports, technology selection, project management, process design, basic and detailed engineering, procurement, inspection, project audit, supply chain management, cost engineering, planning and scheduling, facilitation of statutory and regulatory approvals for Indian projects, construction management, commissioning and also provide specialist services such as heat and mass transfer equipment design, environmental engineering services, specialist materials and maintenance services, energy conservation services, plant operation and safety services.
The company was incorporated in 1965 and have over the years developed a strong track record of working on landmark projects with various Indian and global energy majors. Among others, EIL has provided consultancy and project implementation services on more than 49 refinery projects, including eight greenfield refinery projects, seven petrochemical complexes, 35 oil and gas processing projects, 205 offshore platforms projects, 37 pipeline projects, 11 ports and storage and terminals projects, eight fertilizer projects and 26 mining and metallurgy projects.
The business is aligned into two principal operating segments: the Consultancy and Engineering segment and the Lump sum Turnkey Projects segment.
OBJECTS OF THE ISSUE:
The object of the Offer is to carry out the divestment of 33,693,660 Equity Shares by the Government. The Company will not receive any proceeds from the Offer and all proceeds shall go to the Selling Shareholder- Government of India. The government plans to raise about Rs 1,200 crore by disinvesting 10 per cent stake in the company.
FINANCIALS:
The total income increased at a CAGR of 47.28% from Rs.887.65 cr in the year ended March 31, 2007 to Rs.2196.96cr in the year ended March 31, 2010, while profit after taxation, increased at a CAGR of 47.31 % from Rs.199.26cr million in the year ended March 31, 2007 to Rs.444.34cr in the year ended March 31, 2010.
13-03-08
31-03-09
31-03-10
EPS (in Rs)
5.91
10.37
13.19
RONW
17%
24%
39%
EQUITY (in cr)
56.15
56.15
56.15
DIVIDEND PAYMENT(Rs in cr)
61.77
103.88
595.25
NAV AS ON 31-03-2010 is Rs 34.20.
After the public issue, the government holding in the company will fall to 80.4 per cent from the current 90.4 per cent. Earlier this year, the company had issued bonus shares in the ratio of 2:1. It had also gone for a stock split, with the face value of a unit being cut to Rs 5 from Rs 10 earlier.
STRENGTHS:
· Leadership position across the value chain in the hydrocarbon industry.
· Operations in diverse industries and economies.
· Technology-driven integrated turnkey and total solutions consultancy services.
· Strong financial position and with healthy Order Book.
RISKS:
Dependence on government / government controlled enterprises for business.
The company operates in highly competitive markets. The principal factors affecting competition include customer relationships, technical excellence or differentiation, price, service delivery including the ability to deliver personnel, processes, systems and technology.
In the hydrocarbon sector, EIL competes against major US, European, Japanese and Korean engineering and construction companies or their regional operating entities. In the mining and metallurgy sector and in the infrastructure sector, significant competitors include various Indian engineering and construction companies.
EIL’s business is principally focused on projects in oil and gas exploration, development and production, and transportation projects undertaken by large Indian and international energy conglomerates, many of which are directly or indirectly owned or controlled by either the government of the relevant country or relevant government organizations.
VALUATION:
After the recent bonus and split - the company had issued bonus shares in the ratio of 2:1, it had also gone for a stock split, with the face value of a unit being cut to Rs 5 from Rs 10, the company has Rs 168.45cr equity capital consisting of 33,69,36,000 equity shares of Rs 5/- each. Assuming that the company achieves a growth of 30% plus for the FY 11, the EPS would be around Rs 17/- The shares are presently quoting around Rs 340 in the exchanges. (28 PE). Because of low floating stock, the valuations are on the high side.
The recent NMDC’s FPO offer is still quoting below the offer price. The BRLMs and the government should realistically price this issue, leaving some thing for the investors.
RECOMMENDATIONS:
If the issue is going to be priced by less than 15 PE of its FY 11 expected earnings – that is around Rs 240/- APPLY. Other wise skip the issue.
Zerodha (Trading & Demat Account)
RHP
