Patel Engineering Company-Hold Patel Engineering; target Rs 113: KRChoksey

KRChoksey has recommended hold rating on Patel Engineering (PEL) with a target of Rs 113, in its September 23, 2011 research report.

“Patel Engineering Ltd (PEL) is a Construction & Engineering Company operating in various segments and specialized in hydro-power generation, irrigation segment and roads. PEL has a superior technology of under water Lake Tap works that is used for micro tunneling in hydropower segment. PEL’s scope of work includes heavy construction, housing complexes, dams, tunnels, bridges, factories, steel projects, thermal and hydro power house, marine works and public health works.”

“Industry: Management indicated that due to slow down in decision making policies by Government, the inflow of new orders in hydro-power and irrigation sectors has halt and lackluster growth in order inflow will prevail in near term. The company is receiving no. of enquiries in hydro-power segment and expected revival in 4QFY12. Irrigation projects have stuck in AP due to political turmoil. Further problems like land acquisition and environmental clearances has halt no. of projects in power sector. Order Book: The Company doesn’t have received substantial order in Q2FY12 due to limited order inflow and intense competition. PEL has executable order book of Rs 6,500 crore (2x FY11 Sales) including major projects like Tapovan Vishnugad HEP (4x 130MW), Kameng HEP (4x150MW), Rampur HEP (434MW) and Teesta Low Dam H.E.P 132 MW. Debt & WC: There is no relief to PEL as debt stands at Rs 2,000 crore and interest costs is eating the substantial profitability due to hike in interest rates. Working Capital is still high will remain at same levels in frequent quarters. Assets ownership: The Company is expected to get Financial Closure for Hydro-Power (144 MW) at the end of Q2FY12. The environmental clearances are pending before state government for Thermal Power projects (1050 MW).”

“PEL is facing structural changes in core construction business on account of low order inflow, high debt, high working capital and cost overrun in some of the power projects. The negative cashflow from parent and investment in other BOT Assets will deteriorate the balance sheet of PEL in future. Therefore, we maintain “HOLD” on PEL,” says KRChoksey research report.