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Friday, May 20, 2011

Stock analysis post results - Patel Engineering

Here is the quarterly results update and analysis on Patel Engineering for 4Q FY2011. The stock recommendation on this stock remains Neutral until any further trigger.

Patel Engineering (PEL) posted disappointing numbers on consolidated and standalone basis for 4Q FY2011. Company’s current order book is running with delays in execution. New order inflow scenario is not encouraging for company so recovery to growth path looks difficult and may take some time. The company recently had an IT raid on their office. This would accrue in the next few months, increasing the tax rate in near future. Another negative trigger is the loss incurred due to project cancellations. This would materialize and impact the company’s financial numbers. All these creates a negative scene for company and suggests to not to buy stocks in near term unless we see any positive development in company.

Result Analysis
It was yet another disappointing quarter on the operating front. For 4Q FY2011, on a consolidated basis, PEL posted growth of 33.4% yoy and 267.4% qoq in net sales primarily due to real estate revenue booking and low margin outside work. EBITDA margin came in at 8.1% (450/530bp yoy/qoq decline) due to Jogeshwari property sales – adjusting this, EBITDA margin would have been at 3–4%. Reported PAT declined by 50% for the quarter.

Stock Valuation and outlook
PEL’s core business is C&EPC. It is facing problems with its large projects facing delays. Company has disappointing order inflow. Another most important factor to consider is the longer gestation nature of its order book, macro headwinds and increasing debt levels create a doubt on company’s growth visibility for the next few quarters. Considering blurred visibility in future, one should not buy stocks until any big trigger.

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