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Small order win for Patel Engineering

Small order win for Patel Engineering
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First Published: Wed, Dec 22 2010. 09 39 PM IST
Updated: Wed, Dec 22 2010. 09 39 PM IST
Patel Engineering Ltd’s stock rose about 4% on Wednesday to Rs319 on a day when the broader market was more or less flat.
The company announced on Tuesday after market hours that it had won a Rs300 crore project from REC Transmission Projects Co. Ltd to establish a 765 KV transmission system. It has won the project in consortium with BS TransComm Ltd and Simplex Infrastructures Ltd with Patel Engineering being the lead member. The project is expected to be completed by March 2014.
The size of the order is relatively small for Patel Engineering, considering that the company had a consolidated order book of Rs10,500 crore at the end of the September quarter. This order book includes L1 orders (where Patel Engineering is the lowest bidder and chances of winning those projects is high) worth Rs2,100 crore. Also, Patel Engineering has won this project in consortium with two other players. This could also eventually allow Patel Engineering entry into the power transmission space. But then that’s well into the future.
Patel Engineering is known to have better operating profit margins compared with other companies in the space. That can be attributed to the company’s exposure to the high-margin hydropower and irrigation segments. For the quarter ended September, the company’s operating margins slipped by 350 basis points on a year-on-year basis to 15%. One basis point is one-hundredth of a percentage point. Operating performance was affected due to lower contribution from the hydro segment.
For the half year ended September, margins slipped by 155 basis points to 16%. Nevertheless, these margins are better than many other players in the sector, say analysts. Revenue growth, too, was good. In the September quarter, revenue increased by 26% and for the first half of the year, revenue was up by 17%.
It goes without saying that order inflows would be the key element to watch out for in the days to come. In keeping with many other infrastructure companies, Patel Engineering, too, has been facing problems on the order inflows front. Also,execution has been a worry for infrastructure companies in general. Since the beginning of this fiscal year, Patel Engineering has underperformed the BSE-500 index like many other stocks in the space.
The decline does make Patel Engineering’s stock valuation attractive. Higher order inflows, better execution and better performance from its real estate business would be positives for the company.
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First Published: Wed, Dec 22 2010. 09 39 PM IST