“BUY” This Navratna Stock For A Gain of 53% Recommends ICICI Securities

ICICI Securities Limited one of Indias largest equity broking firms has placed a buy call on the stock of Engineers India Limited with a target price of Rs 109. At a market price of Rs 71, the brokerage initiated a buy call on the stock, predicting a gain of roughly 53%. However, the stock is currently trading at a market price of Rs 69.90 per share on the National Stock Exchange (NSE). Engineers India Ltd (EIL) is a best-known engineering consultancy and Engineering, Procurement, and Construction (EPC) firm based in India. Infrastructure, water, and waste management, solar and nuclear power, and fertilisers are also integrated into the companys business - chain. According to the brokerage, the companys Execution on HPCL Barmer remained low as LSTK execution during Q2FY22 fell 12.3% YoY to Rs3bn. Consultancy execution was also subdued with a muted 1.8% YoY growth to Rs3.5bn over a low base. The margin for the segment contracted 156bps to 25.5%. For LSTK, although the margin expanded by 66bps, it remained low at 2.5%. ICICI Securities has stated in its research report that The company provided Rs129mn during H1FY22 (Rs1.7bn in FY21) for any likely principal default under employee provident fund trust. This led to employee cost, as a proportion of sales, expanding 450bps hurting the overall margins, which declined 200bps YoY to 9.3%. Additionally, other income fell 47% YoY, further impacting the earnings, which shrunk 36% YoY. The broking firm also reported that the Company won two large orders from CPCL Nagapattinam comprising of ~Rs10.4bn out of the total order inflow of Rs11.7bn in Q2FY22. With this, the total order book now stands at Rs80bn (2.4x TTM sales). Some large orders in the near term pipeline include one medium-sized order from Numaligarh; BPCL-related umbrella order of ~Rs2.5bn; HMELs petrochemical expansion (Rs6bn-7bn); and MRPLs petchem expansion.Advertisement ICICI Securities claims in its research report that The current valuation at 11x FY22E and 13.6x FY23E earnings is benign given the strong balance sheet with 22% RoE projection for FY23E. Accounting for the high cash balance, we value the core business separately and add back the cash with 70% weightage factoring in the risk of any likely further investment towards asset ownership. Due to lower execution and muted earnings during Q2FY22, we cut our earnings estimates for FY22E and FY23E by 9% and 6% respectively. The brokerage has further added that Given that the Ramagundam facility has commenced operations, we have also factored in the companys 26% stake worth Rs4.5bn into our valuation as well as the investments in NELP and Numaligarh. We arrive at our target price of Rs109, implying a multiple of 15x to FY23E core earnings. Delay in order finalisation, loss of market share and delay in execution are some of the major risks to our view. The stock has been picked from the brokerage report of ICICI Securities Limited. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.