Company Overview:

Engineers India Ltd (EIL) is a leading global engineering consultancy and EPC company providing services mainly to Hydrocarbons and Petrochemicals sector. The company has strong track record across entire oil & gas value chain – offshore platforms, oil & gas processing, oil refining, petrochemicals and pipeline projects - with experience of landmark/ complex projects. The company is the preferred partner of all major oil & gas PSUs like BPCL, ONGC, IOC, HPCL, CPCL, MRPL. EIL has established an outstanding track record in design, engineering and execution of cross-country pipelines for transportation of crude oil, refined petroleum products, natural gas and LPG. EIL has undertaken the construction of various kinds of tanks, terminals and other storage facilities for oil and gas companies. The company has also initiated business development activities in sectors like Bio Fuels, SMART Cities, LNG Terminals, Ports and Harbours, Defence etc., as part of possible diversification initiatives aligning with Government of India initiatives. The company is working on multiple new opportunities in green energy - Green hydrogen, coal to methanol, emission control technology for steel majors and; emission control technologies to help oil & gas companies achieve their net zero targets. EIL has strategized itself as a leading consultancy organization in the Oil and Gas Sector. It is likely to be a key beneficiary of expansion in refining capacity from present 249.9 MMT to 443 MMT by 2030 and 490 MMT by 2040. EIL is actively involved in carrying out comprehensive studies for setting up new projects in Refinery/ Petrochemicals, Specialty chemicals sector and Bio Fuels sector including Hydrogen sector. Aligning with the Govt. of India's vision for promotion of biofuels; EIL is making efforts for Strategic Progress in the Bio Fuel Sector. EIL is executing a prestigious and one of its kind Assam Bio Refinery Project, being executed at Numaligarh with bamboo as a feedstock. EIL is also actively involved in the changing landscape of the LNG Infrastructure in the country. EIL entered Coal Gasification by securing an assignment for Pre-project activities and providing consultancy services for setting up of Surface Coal Gasification based Ammonium Nitrate Plant at Majri Area, for Western Coalfields Limited (WCL), Maharashtra. EIL has been able to make headway in Hydrogen Sector by securing a Study assignment from GAIL for Hydrogen Blending in Natural Gas Pipeline / CGD Network; Conceptual Study from NICDC for Setting of Green Hydrogen Facility in Dholera Special Investment Region (DSIR) and assignment from BORL for LEPC Selection, Feasibility Study & Basic Design of OSBL Facilities for Green Hydrogen Electrolyser and associated systems at BORL, Bina.

Sector Outlook and their key areas:

Heavy and civil engineering construction is the process of building, altering, repairing, improving, or demolishing any complex large government and city project structures using a detailed design and plan. The main types of heavy and civil construction are utility system construction, highway, street, and bridge construction, and other heavy and civil engineering construction. The construction of distribution lines, as well as related buildings and infrastructure for utilities (that is water, sewer, petroleum, gas, power, and communication), is referred to as utility system construction. It includes all structures (including buildings) that are integral parts of utility systems (such as storage tanks, pumping stations, power plants, and refineries). The companies involved in heavy and civil construction are divided into large enterprises and small and medium-sized enterprises. These services are used by both the private and public sectors. The global heavy and civil engineering construction market grew from $1840.28 billion in 2022 to $1936.17 billion in 2023 at a compound annual growth rate (CAGR) of 5.2%. The Russia-Ukraine war disrupted the chances of global economic recovery from the COVID-19 pandemic, at least in the short term. The war between these two countries has led to economic sanctions on multiple countries, a surge in commodity prices, and supply chain disruptions, causing inflation across goods and services and affecting many markets across the globe. The heavy and civil engineering construction market is expected to grow to $2305.56 billion in 2027 at a CAGR of 4.5%.

Technical View:

Engineers India Ltd has taken strong support at lower end of Cloud on weekly chart at Levels of 73 and manage to protect the Level so immediate support is placed at Rs 73. Important Resistance to watch is Levels of 88 that is supported with Strong Volume profile area any move above the same will Trigger huge movement towards the levels of Rs 98 as its 1st Target followed by 110 as 2nd target as stock is moving above its Cup and handle pattern above 88 Levels any dip is a buy with immediate SL of 73.

Market leader having a strong track record:

Engineers India has demonstrated strong track record in highly competitive engineering and construction segment; having an impressive record of executing 7000+ assignments (including over 600 major projects) worth over $200 Bn. The company has unmatched track record of providing services to major petrochemical complexes. EIL has helped in setting up 20 out of 23 refineries in India including 10 Greenfield refineries. EIL has been involved in the establishment of 10 of the 11 mega petrochemical complexes in India. EIL has secured many repeat businesses from clients and is the preferred partner of all major Oil & Gas PSUs like BPCL, ONGC, IOC, HPCL, and MRPL. EIL, over the years, has successfully expanded its operations internationally. The company has emerged as a global player with the execution of a number of assignments for international energy majors in Middle East, Africa and South East Asia. The company has worked with a large number of process licensors and engineering/ contracting companies worldwide and is well versed with the engineering codes and practices followed internationally. The company has earned the reputation on the back of its technical knowledge, skills and professional competence. Leveraging its record in Oil & Gas and petrochemical industry, it expanded operations to other sectors i.e. LNG, Fertilizer, Power, Mining & Metallurgy and Infrastructure. It also offers complete solutions to hydrocarbon sector with expertise in design, engineering and project implementation.

CONCALL HIGHLIGHTS:

• Management reiterated standalone revenue growth guidance of 15% and Rs3.4bn PAT guidance for FY23. Revenue split between consultancy/turnkey segments would be 45%/55%. EBITDA margins are expected to pick up in 2HFY23 led by better execution.
• FY23 order inflow guidance was maintained at Rs40bn out of which Rs16‐17bn would be from consultancy segment. The company expects order inflows of Rs50bn each year for both FY24 and FY25.
• The Ramagundam fertilizer plant was shut down for maintenance in the month of September which is why it reported a loss in 2Q. it is already functioning at 80% capacity utilization and will soon achieve 100%.
• The company is exploring opportunities in emerging sectors such as green energy, bioethanol, coal gasification, steel emission control, green hydrogen, etc. It is conducting a lot of studies at the moment for clients such as Adani and PSUs however nothing concrete has taken place so far.
• The company targets 15‐20% revenue from sectors such as coal gasification, waste to ethanol for steel, green hydrogen, data center’s (it anticipates a lot of projects in FY24), airports, etc. Over the next 5‐6 years, management expects investments to the tune of ~Rs350bn for coal gasification.

Our view:

Engineers India has maintained a healthy order book over the years providing revenue visibility. Its order book as of Sep’22 stood at Rs 8431.3cr (2.7x TTM revenue) providing robust revenue visibility over next couple of years. We believe Engineers India is on strong footing on the back of strong track record in consultancy of complex and high-value projects, capex in hydrocarbon sector and foray into newer segment coupled with strong clientele base. Company’s asset-light business model, zero debt and strong profitability enables it to maintain healthy dividend payout ratio. Increasing interest in green hydrogen gives the company an opportunity to be a part of high growth segment. Although some orders inflows have delayed; its long-term prospects from refinery capacity expansion and foray into newer segments (coal gasification and green hydrogen) looks strong. We expect revenue/EBITDA/PAT to grow at CAGR of 12.4%/7.9%/80.1% over FY22-24E. We think the base case fair value of the stock is Rs 83. and the bull case fair value is Rs 98 over the next two-three quarters. Investors can buy the stock in the band of Rs 81-82 and add more on dips to Rs 72-73 band.