Buy Patel Engg, Target 550: Sovid Gupta, Fairwealth Securities

Buy Patel Engg, Target 550: Sovid Gupta, Fairwealth Securities Stock analyst Sovid Gupta, Fairwealth Securities has maintained ‘Buy’ rating on Patel Engineering to achieve a medium term target of Rs 550.

Mr. Tarika said that interested investors can buy the stock between Rs 300 to 340 with a stop loss of Rs 240.

Current EPS & P/E ratio of the stock stood at 25.72 and 16.52 respectively. The share price has seen a 52-week high of Rs 470 and a low of Rs 103.15 on BSE.
 
Mr. Tarika said that investors can buy the stock with a time horizon of 3 months.

He also said that this call presents an upside potential of 40% and 70% for investors.

Investors having a holding period of 1-3 years can invest at current levels for a target of Rs 720.

The stock analyst has valued the company via SOTP valuations, valuation of Rs 720 has been arrived by evaluating core functioning at Rs 325 (10x EBITDA multiple) per share and realty business at around Rs 325 share (30% discount to market value).

The company’s core processes have been valued at EV/EBITDA multiple of 10, whereas realty has been valued at 35% discount to the market value Key Investment reasons are firm order book know-how in complicated and high margin Hydro power and upstream irrigation projects. 

Leadership in Hydro power projects with 22% market share and prequalification for 12,000 crores of forthcoming Hydro Power projects. Huge Land Bank valued at more than Rs 2000 crores and growing awareness in Power Generation Business.

On March 24, Patel Engineering Ltd bagged an order for tunnelling work from the Narmada Valley Development Authority. The order was valued at Rs 7.99 billion.

In December 2008, the order book size of the company stood at 7100 cores.

During the last month (May 2009), the company received an order worth INR 554.67 Crore from the Vidarbha Irrigation Development Corporation, Maharashtra. The other order worth INR 153.37 Crore during the same month was bagged from the Himachal Pradesh Power Corporation.

The company’s order book position would cross 9000 crore by middle of this year with majority of the orders coming from Hydro segment hydro power related projects (60%), accompanied by irrigation (20%) and remaining is spread across transportation and micro-tunnelling.

In 3QFY2009, the company posted steady growth. The company’s consolidated sales rose 31% Y-o-Y to Rs 495 crore on account of strong order book position of Rs 7,100 crore.

For 9MFY2009, top-line growth surged a bit to 32% to Rs 1495 crore.

As of 31st March, 2009, the company’s order book position stood at Rs 9000 crore. The company enjoys higher margins as compared to its peers as it fulfills technology-intensive businesses including Hydro Power and Upstream Irrigation systems. 

The company has ventured into the realty segment by shifting the growth rights of its historical land bank to Patel Realty India (PRIL), its 100% division. Moreover, it has a land bank of about 1,000 acres spread across Hyderabad (640 acres), Bangalore (106 acres), Chennai (230 acres) and Mumbai (26 acres).

PRIL plans to build up this land bank in different stages and has accordingly declared plans for the Phase I expansion. Under Phase I, the company is rising around 10% of the total land bank.