VR Logo

Attractive Pick

A substantial growth in its earnings per share makes Engineers India a good long-term investment pick…

Engineers India Ltd. (EIL) is a public sector undertaking (PSU) under the Ministry of Petroleum and Natural Gas. Its business is divided into two principal operating segments — consultancy, and engineering and turnkey projects. Lately the company has extended its activities into sectors such as non-ferrous mining and metallurgy and infrastructure.

Strength.
EIL has a strong track record in designing, consultancy and project management. It has developed onshore and offshore gas platforms, strategic storage spaces and pipelines.
Since the government is currently directing a lot of investment towards core sectors, the company is well placed to benefit from these opportunities.
The hydrocarbon sector is the largest contributor to the company’s revenues. EIL enjoys leadership position in consultancy and in delivering turnkey projects to the hydrocarbon sector.

Growth drivers.
The company proposes to diversify its operations to other sectors such as water and waste management, city gas distribution, power and fertilisers. It is already present in the Middle East, North Africa, and South East Asia. Now it proposes to expand its footprints into new geographies.

Healthy order book.
At the end of FY11 the company’s order book stood at a healthy Rs 7,500 crore. This is nearly 2.6 times its FY11 revenue. All the major segments such as refining, petrochemical, pipeline, and oil and gas processing contributed positively towards order inflows. However, around 35 per cent of the order book consists of fixed-price contracts. In the current inflationary scenario, this could result in operating margins getting suppressed.

Strong financials.
It is a debt-free, cash rich company. On a consolidated basis, its cash and bank balance stood at Rs 1,798.13 crore at the end of FY11.

Valuation.
The stock is currently trading at a price-to-earnings (P/E) ratio of 15.46 (as on November 11, 2011). This is lower than its five-year median P/E of 18.83. Over the last five years, its earnings per share (EPS) has registered a compounded annual growth rate of 30 per cent. This translates into a price-to-earnings to growth (PEG) ratio of 0.51 times. You may buy this stock with an investment horizon of at least three years.