Patel Engineering Ltd: Buy

CMP: Rs.52.15

Introduction: Patel Engineering Ltd, established in 1949, is a prominent Indian infrastructure and construction company specializing in sectors such as hydropower, roads, bridges, tunnels, irrigation, and urban infrastructure. Photo: NBM & CW.

Financial Performance:

In the second quarter of FY25, the company reported a net profit of ₹73 crore, a 97% increase from ₹37 crore in the same period the previous year. 

Revenue rose by 15% to ₹1,174 crore, up from ₹1,021 crore. Earnings before interest, tax, depreciation, and amortization (EBITDA) increased by 16% to ₹161 crore, with margins slightly expanding to 13.7%.

Strategic Collaborations:

Patel Engineering has entered into a memorandum of understanding (MoU) with Rail Vikas Nigam Ltd. (RVNL) to jointly pursue hydro and infrastructure projects both domestically and internationally. This collaboration aims to leverage the combined strengths of both companies to secure and execute large-scale projects.

Order Book and Growth Prospects:

The company's order book stands at over ₹19,100 crore, approximately five times its revenue and market capitalization. Notably, 64% of this order book is attributed to the hydropower segment, positioning Patel Engineering to benefit from the Indian government's significant investments in hydropower and infrastructure projects.

Land Holdings: Patel Engineering Limited holds significant land parcels across various states in India, totaling approximately 2,150 acres with an estimated market value of around ₹1,000 crore.

Concerns:

Despite strong financial performance, some analysts have issued a 'Sell' recommendation due to the issue over high non-operating income and slower debt settlement. 

The company's non-operating income constitutes 48.92% of its profit before tax, indicating a reliance on non-core activities. Additionally, the debtors turnover ratio has declined, suggesting slower debt collection.

Conclusion:

Patel Engineering's robust financial performance, strategic partnerships, and substantial order book highlight its growth potential in the infrastructure sector. However, investors should be mindful of the company's reliance on non-operating income and its debt management practices when considering investment opportunities.

Disclosure: I have bought some shares of the company for some of my portfolio clients.