Last week, Patel Engineering Ltd clarified on a report, stating that it has not been banned from participating in projects commissioned by the National Highways Authority of India (NHAI).

After the opening of a bid for the Dankuni-Kharagpur project with NHAI, the firm realized that there was an “inadvertent error" in the estimation of the bid and requested for withdrawal of the bid. The firm maintains that after this, it has bid for two projects, which indicates it can participate in NHAI projects.

While that is good news, things have been rough for investors after Patel Engineering surprised the Street negatively when it posted the December quarter numbers. Its stock has fallen by 32% to Rs136 apiece since the results were announced about a month back.

Why the sharp fall? One obvious reason is the poor December quarter results. Consolidated revenue fell by 31% year-on-year to Rs435 crore and net profit declined 80% to around Rs9 crore. Performance was hit by extreme weather, execution delay in an irrigation project and cancellation of a hydropower project.

However, analysts are more concerned about the deteriorating visibility of the core business. Order inflow has been disappointing. The current order book stands at about Rs10,000 crore, including about Rs1,000 crore in orders where the firm is the lowest bidder and chances of winning those projects are high.

“It has bagged orders worth only Rs14 billion in FY11 (2010-11) YTD (year-to-date)," wrote analysts from Elara Securities (India) Pvt. Ltd in a note to clients on Monday. The company hopes to do well on orders in the next fiscal.

Another concern, according to analysts, is that in the coming months, the firm may have additional tax liability. Analysts had downgraded their earnings estimates for FY11 and FY12 considerably after the December quarter results.

Elara Securities has revised its estimates downwards again in about a month. “We reduce our FY12 revenues and earnings estimates by about 10% and 27%, respectively, owing to the alarming concerns on Patel Engineering’s order backlog quality, largely dominated by big non-moving irrigation and hydropower projects since the past few quarters, coupled with lack of any major visibility on fresh order inflows," Elara analysts said.

Even as valuations appear attractive, investors would do well to watch for orders and execution to pick up in the next few months.

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