ICICI Direct Share Price: Brokerage ICICI Direct has initiated coverage on Patel Engineering with a 'buy' call on the company. The brokerage says that Patel Engineering has a strong presence in segments like hydro power, and irrigation, which has a big opportunity. After ICICI Direct initiateed the coverage, the stock of the engineering company soared by over 6.50 per cent on BSE on Monday.

Here's why ICICI Direct is bullish on Patel Engineering-

Strong Presence in segment like hydro power and irrigation, which has big opportunity

COMMERCIAL BREAK
SCROLL TO CONTINUE READING

Hydro power, tunnelling and irrigation segment constitute 93 per cent of the company’s orderbook.

The company foresees a strong ordering opportunity ahead in the above-mentioned segments such as 

a) 19 GW of HEP projects concurred by CEA 

b) state-run hydropower major pursuing pumped storage projects (PSPs) of more than 20,000 megawatts (MW) capacity across states 

c) huge pipeline of 875 tunnels, spanning a length of around 2,600 km. and 

d) Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) for 2021-26 outlay allocation of Rs 93,068 crore.

Huge opportunity to translate into healthy inflows and revenue growth ahead: 

The brokerage highlighted that order inflow momentum had slowed down in H2FY24 amid elections.

It expects the order momentum to pick up post Q1FY25 (post-election results).

It expects the company to receive order inflows of Rs 6,000 crore and Rs 10,000 crore in FY25 and FY26, respectively.

Given the robust inflow potential, we expect strong revenue CAGR of 16.3 per cent over FY23-26E to Rs 6,612 crore.

Stable margins; interest costs to drive strong earnings growth ahead: 

As per ICICI Direct, the company expects similar levels of margins at 13-14 per cent.

With strong execution, stabilised raw material prices, the brokerage expects the company's margins to remain stable at 14.2 per cent.

Strong topline growth coupled with stable margins and lower interest expense is likely to drive 32.4 per cent earnings CAGR over FY23-26E. 

Non-core asset monetisation and arbitration claims could help the company to lighten the balance sheet

The brokerage says that in the near term, Patel Engineering has guided for receipt of Rs 150-200 crore from the arbitration claim awards.

Furthermore, it has major land parcels across Maharashtra, Tamil Nadu, Bangalore and Telangana encompassing 2,150 acres and worth Rs 1,000 crore, which it is looking to monetise in the long-term horizon. 

Patel Engineering rating and target price

Given the strong opportunity from the key segment driving the topline and earnings growth visibility coupled with stable balance sheet, ICICI Direct has initiated coverage with a 'buy' rating on the stock. 

It has assigned a target price of Rs 80, thereby valuing it at 16x FY26 P/E.

Patel Engineering share price

The stock of the egineering firm soared by 6.58 per cent to the day's high of Rs 62.89 on BSE on Monday after closing at Rs 59.01 in the previous session.

The stock of the company was trading up by 5.83 per cent, or Rs 3.44, at Rs 62.45 at 1:12 pm on Monday.

What does Patel Engineering do?

Patel engineering is an EPC player which specialises in technology intensive areas like hydro, tunnelling, irrigation, water supply, urban infrastructure, and transport.

The company enjoys an order book of Rs 19,134 crores (Including L1 Orders) as of Q3FY24, implying 4.3x book to bill, says ICICI Direct in its report.