Mumbai: Engineers India Ltd’s has put up a decent show in the March quarter even as the covid-19-led disruption slowed other capital goods and engineering companies. The stock gained 7.7% on Friday due to the results, but investors must still watch the execution in FY21.
For now, Engineers India has been executing its orders quite well in the past year, which is why revenue growth has shown a consistent growth in the last few quarters. Revenues in Q4 increased about 40% year on year (y-o-y), which is decent given the lockdown was implemented in March. Both consultancy and turnkey business did well in Q4, but the latter showed a better growth rate.
The international consultancy business slipped in Q4, and going ahead is likely to remain slow due to travel restrictions. The execution of outstanding projects has also been good during these covid-19 times.
Order inflows, though, have been lower in FY20. The company’s new secured business dropped to ₹1617 crore in FY20 as compared to close to ₹6000 crore inflows in FY19. International consultancy business saw a sharp improvement in orders. However, domestic turnkey business is growing slowly, and new orders have been negligible.
Another worry is that the margins in the domestic turnkey business have slipped over the last few quarters. Last year, the company was operating at about 6% margin in the turkey business, which has now halved to about 3%. This is a worry and is a drag on the overall profitability.
Outstanding orders have dipped to about ₹9555 crore in FY20 from about ₹11188 crore in the year-ago period. This year orders are expected to come from the oil and gas sector, which are set for expansion.
“Several domestic orders are on the way as companies are expected to pick up the pace of expansion. Execution has been good. The order book remains strong and the visibility to earnings remains decent. The books have a high cash balance," said Vinita Sharma, head of research, Narnolia Financial Advisory
The company has some major projects, particularly with oil refining companies, in the current year. However, execution remains key and could be challenging in the current environment. While the valuations of about 12 times are not pricey and seems reasonable, a slowing order inflow is an overhang.