WINNING STROKES: THINK DIFFERENT:

The UPA Government is here to stay as I mentioned yesterday in this blog where the ratio given for the Survival of the UPA Government was 80:20. Today, I give 100% chance of survival of the UPA Government and hence we could see more rally in future specially in Infrastructure Space. Paid members were already asked to accumulate Punj Lloyd and Reliance Industrial Infrastructure Ltd, long back.

But then why is Infrastructure companies and defence related companies should we focus now?? It is because to build a nuclear reactor we need both. We need to look at it first from defence angle and at the same time we need good companies who are capable of building/constructing High Tech Projects. In India we have very few of them. But big names could be the main contender for the building of nuclea reactors. Reliance Industrial Infrastructure Ltd (though they do not have the proven knowhow), HCC, BEML, BHEL etc. could be few names in this space. Reliance Industrial Infrastructure Ltd have never constructed a nuclear reactor but then nothing is impossible as far as Reliance is concerned. This is more or less and infrastructure company already dealing with other forms of High-Tech projects. The results of the company for Q1FY09 are above the market expectations.

The company (RIIL) managed to eke out a good balance sheet even in this downturn. Also when the steel and cement prices are going now where it is best to buy Infrastructure companies like Tantia Construction, IVRCL Infra etc.

But since the government would be more less be guided by the dictats of Congress, the SP and the RJD, it is better that we invest only in Reliance Group companies except Reliance Power and to some extent RNRL.

If the Reliance group morphs Reliance Industrial Infrastructure Ltd to making of nuclear related constructions then I cannot imagine where the stock will go or to what price it will move up, considering the huge potential of the Indo-US nuclear deal in terms of awarding of contracts.

We all know that Mukesh Ambani is close to Congress and have personal relationship with Murli Deora. Similarly Anil bhai has very close relationship with Amar Singh and Mulayam Singh Yadav. Hence my conclusion to buy Reliance Group shares in Bulk.

Another group which could get benefitted from the present government is the Jindal Group?? The reasons are best know to all the political commentators.

Hence for the time being just focus on Reliance Group of Companies. I am also told that a big bull is pumping money in Reliance Industries Ltd, which is expected to get huge benefits in view of Mukesh Ambani's proximity of to both the Congress and Mr.Murli Deora.

Yesterday, I recommended Mundra Port and SEZ Ltd here at Rs.477 and today it crossed Rs.500.

Today Kohinoor Broadcasting Corporation Ltd hit the buyer freeze and so is Energy Development Ltd (a company associated with the Samajbadi Party leader).

The following scrip was recommended to the Paid Groups on this Sunday Report. The report on this scrip is reproduced with the same Recommended price which was given in the Sunday Report to the Paid Groups.

Engineers India Ltd: High Growth Expected:

BSE Code: 532178

CMP: Rs.456.4

Face Value: Rs.10

Book Value: Rs.218.43

Market Cap: 2,562.96 Cr

EPS: Rs.33.34

P/E: 13.69

52-Week High/Low: Rs.1314.4/Rs.427

Introduction: Engineers India Limited (EIL) was set up in 1965, by Government of India with a view to develop indigenous capabilities for design and engineering of petroleum and other allied process sectors. Over the years, EIL has become one of the largest and leading design, engineering & consultancy organisation in its area of operation. EIL is a Central Public Sector Undertaking under the administrative control of Ministry of Petroleum & Natural Gas, in which the President of India, is presently having 90.401% of paid up share capital of Rs.56.16 Cr. Today, Engineers India Limited (EIL) is provides technical services to oil, gas and other industrial projects. In addition to petroleum refineries, it provides services to other fields, such as pipelines, petrochemicals, oil and gas processing, offshore structures and platforms, fertilizers, metallurgy and power. The Company also focuses on areas, including highways and bridges, information technology, airports, mass rapid transport systems, ports and terminals, power projects, non-conventional/renewable energy sources, specialist materials and maintenance services, intelligent buildings, water and urban development projects. The Company’s business activities generally fall under two broad segments: (a) consultancy and engineering and (b) lump sum turnkey projects. It mainly focuses on refineries and other petrochemical industries, which contribute almost 90% to its revenues. Despite its expertise in turnkey projects, its Lump-sum turnkey projects (LSTK) division has not grown at a rapid pace and most of the growth comes from the consultancy division. However, LSTK contributes nearly 50% to EIL’s current order book. EIL`s quality management systems in respect of its services have been assessed and upgraded to ISO 9001:2000 version. Company has strategic alliances with VAI Industries UK Limited, Deutsche Montan Technologies GmbH, IOCL, Petron Scientech Inc., Stroytransgaz, Russia, GAIL India, Sirtech Nigi Italy and Jacobs Engg Co. EIL has two wholly owned subsidiaries, EIL Asia Pacific Sdn Bhd in Malaysia and Certification Engineers International Ltd. for undertaking independent certification & third party inspection assignments.

Share holding pattern: The promoters’ holding (President of India) is 90.4% while general public’s holding is only 9.60%. Among the public Life Insurance Corporation of India holds 1.56% while General Insurance Corporation of India holds 1.17%.

Financials: The total income of the company for Q4FY08 came out to be Rs.287.77 Cr against Rs.189.55 Cr in the same period previous year. The net profit of the company for Q4FY08 came out to be Rs.56.7 Cr as against Rs.42.52 Cr in the same period previous year. The EPS of the company in Q4FY08 took a quantum jump to Rs.10.09 as against Rs.7.57 in the same period previous year. What is important to note that even in this downturn the PBDT in Q4FY08, was Rs.90.11 Cr as against Rs.60.42 Cr in the same period previous year. The PBT in Q4FY08 was Rs.87.4 Cr as against Rs.58.32 Cr in the same period previous year. On a standalone basis, the total income of the company for FY08 is Rs.873.32 Cr as against Rs.653.4 Cr in the same period previous year. The net profit of the company is a whooping Rs.194.6 Cr as against Rs.142.99 Cr in the same period previous year. The PBT for FY08 is Rs.293.88 Cr as against Rs.204.64 Cr in the same period previous year. The EPS of the company for FY08 is Rs.34.65 Cr as against Rs.25.46 Cr in the same period previous year. The point to be noted here is that operating profit margin for FY08 increased to 41.42% as against 37.30% while the net profit margins remained flat even when the commodity prices were shooting over the roof.

Investment Rationale:

• EIL got the nod of Government of India for formation of joint venture company between the Company and Tata Projects with authorized share capital of Rs.15 Cr and paid up capital of Rs.10 Cr, based on equity participation of 50% by each of the partners to take up EPC projects in oil and gas, fertilizer, power and infrastructure sector in India as well as abroad. The JV will provide significant autonomy to EIL and provide the necessary leeway in bidding for global deals.
• The Cabinet cleared the proposed joint venture between Engineers India Ltd (EIL) and Tecnimont of Italy. The new JV will undertake execution of engineering, procurement and construction jobs, mostly in the Middle East. Tecnimont SPA a leading international EPC contractor with a strong presence in oil and gas, petrochemical and chemical sector.
• EIL is making consistent efforts in developing technologies and strengthening its Research and Development (R&D) division. The division is continuously pursuing developmental activities both in-house and in collaboration with other R&D Institutes like IOCL (R&D), BPCL (R&D) etc.
• Engineers India has diversified into highways and bridges, intelligent building, urban development, water resources, etc due to the huge potential. Engineers India`s broad strategy has been to leverage existing core competency in engineering, construction and project management to secure business in these areas.
• Besides its Head Office at New Delhi, EIL has branch office at Mumbai, zonal office at Kolkata , regional offices at Chennai and Vadodara and inspection offices at all major equipment manufacturing locations in India. It also has overseas offices at London, Abu Dhabi, Kuwait, Qatar, Malaysia and Australia. EIL has a large number of site offices in India and abroad.
• It is a dividend paying company and the total dividend for FY08 came up as 110% on paid up share capital including an interim dividend of 40%. For the FY07, the dividend paid was 60% of the paid up Equity Share Capital.
• The grapevine is that the company is entering in a major way in the Oil Exploration Business and is looking for joint ventures in the same.
• LSTK division of the company is expected to start contributing to EIL’s growth once revenue from this segment starts reflecting in the company’s financials. EIL’s engineering consultancy business is yet to catch the attention of most investors, as most of its peers are in the unlisted domain. This is because of limited investment in fixed assets, reducing the need for companies to go public. The public sector company is looking at the exports market, especially in the Middle East, more aggressively now, which also provides better margins. It recently bagged an order worth nearly Rs.100 Cr for construction of a petrochemical complex in Abu Dhabi.

Conclusion: Engineers India Ltd (EIL) is a major beneficiary of the existing shortage in refining capacity as investment in petroleum refining is likely to remain high for the next few years, domestically as well as globally. This is likely to translate into huge business opportunity for the company. EIL has an order book of more than Rs.3000 Cr. This provides strong revenue visibility for the next few years. But like any other business dependent on skilled manpower, shortage of manpower is a concern. Investors buy the stock at dirt cheap price of around Rs.456.4 with a short term target of Rs.550—Rs.600. In the medium term the stock can flare up to Rs.850, if it is able to cross Rs.710 with good volume on closing basis. Please keep a SL of Rs.439 for any short term trade. This is an excellent stock in the Engineering and Consultancy Space.

Note: I am recovering slowly from Malarial fever, after taking choloroquine. Malaria makes one very weak and your hearing gets a little disturbed for which one has to take lot of fluids and milk.