Patel Engineering (PE) is a mid-sized infrastructure player with a strong presence in high-margin hydropower construction projects.
With a burgeoning order book and access to leading-edge technology, the company appears well placed to capitalize on the current infrastructure spending in the country. It is one of the few players with pre-qualifications in hydro, upstream irrigation and other projects.
It possesses in-house niche technologies like roller compacted concrete (RCC) dam construction, micro-tunneling, double lake water tapping, etc.
Patel Engineering also has a land bank of around 1,000 acres spread across Hyderabad, Bangalore, Chennai and Mumbai. It plans to develop this in phases.
We have valued the company on SOTP methodology wherein we have assigned its core construction business a PE of 10x FY2010E EPS of Rs25.5. For its real estate arm, we have arrived at NAV of Rs163/share. We upgrade the stock from Neutral to BUY with a target price of Rs418.