Let’s dig deeper into Engineers India Limited – EIL stock analysis.
Engineers India Ltd (EIL) is an engineering consultancy and EPC company established in 1965. It is a Navratna public-sector undertaking of the Government of India under the Ministry of Petroleum and Natural Gas. EIL provides engineering consultancy and EPC services principally focused on the oil & gas and petrochemical industries.
The company’s shares have 52 weeks price band of INR 128-49 and a total market capitalization of INR 41 billion which makes it a Mid-Cap company. The shares have a P/E ratio of 10.44 and a dividend yield of 6.68%
Now, let’s take a deep dive into the fundamentals of the company.
The company will be evaluated on 10 parameters and each would be given a rating out of 5 stars. From this, we will arrive at a combined stock rating for the company. As the ratings are based on long term past performance, they are relevant for at least 3 years in the future until FY 2022. The parameters are as follows.
1. Economic Moat
2. Business Model and Management
3. Growth Ratios
4. Profitability Ratios
5. Cash Flow Ratios
6. Liquidity and Solvency Ratios
8. Valuation Ratios
9. ROE (Du Pont Analysis)
10. Future Prospects
(All units are INR Millions except ratios and per share data)
1.Economic Moat (★ ★ ★ ★ ☆)
The company operates in the EPC and consultancy industry where market dominance comes from scale, innovation, talent and resources at disposal. EIL majorly provides engineering consultancy and EPC services focused mostly on the oil & gas and petrochemical industries.
The company has 2339+ engineers and professionals in the workforce. They have a availability of technical resources of about 4.6+ million man-hours per annum in design offices along with 1.19+ million man-hours of construction management services.
EIL has a record of executing over 5000+ assignments consisting of 400+ major projects valued over $ 200 Billion. the presence and resources front, the company has corporate offices in New Delhi, Gurugram, Mumbai and three regional engineering offices in Kolkata, Chennai and Vadodara.
They also have inspection offices at all major manufacturing locations of the country. This helps them to deliver their services over a Pan-India network. This gives them a wide economic moat. Therefore this category gets 4 stars in Engineers India fundamental analysis
2. Business Model and Management (★ ★ ★ ★ ★)
The business model of the company is focused mainly on global engineering consultancy and EPC projects. The Company has also diversified into sectors like infrastructure, water and waste management, solar & nuclear power and fertilizers to leverage its strong technical competencies and track record.
It also provides specialist services such as heat and mass transfer equipment design, environmental engineering, specialist materials and maintenance and plant operations and safety services.
The company’s overseas presence is marked by an engineering office in Abu Dhabi, which caters to the business needs in UAE/Middle-East region. Additionally, there are offices in London, Milan and Shanghai to coordinate the activities of international procurement and marketing.
The company has 80+ major refinery projects, 11+ petrochemical complex designs, 213+ offshore platforms and 10+ Fertilizer projects completion. This overall shows a good and diversified business model.
Mr J.C. Nakra is the Chairman & Managing Director of our Company. In a career spanning over 38+ years, he has worked in a wide array of domains including Projects, Construction & Marketing. Mr S.K. Handa is the Director of projects and has been associated with many greenfield and brownfield projects implemented by EIL.
Overall the management has been stable and has shown interest in minority shareholder’s wealth. Therefore this category gets 5 stars in Engineers India fundamental analysis.
3. Growth Ratios (★ ★ ☆ ☆ ☆)
The revenue has grown at a declining rate of over the 10 year period. The working capital has been positive, which means the current liabilities are more than the current assets. This also indicates that the nature of business is asset-heavy. The capital expenditure has flattened over the years which shows no significant upcoming growth for the company. The net and operating margin have also shown a decline. Therefore this category gets 2 stars in Engineers India fundamental analysis
4. Profitability Ratios (★ ★ ★ ☆ ☆)
The gross margin has declined over recent years due to increasing costs. The Operating margin has also declined over the years. The EBT margin and therefore the net margin has fallen due to the increasing interest expense. The return on assets has also decreased as net income is reduced. This is because of the capital expenditure done by the company which requires additional interest-bearing debt. Therefore this category gets 3 stars in Engineers India fundamental analysis.
5. Cash Flow Ratios (★ ★ ★ ☆ ☆)
The capital expenditure has flattened which shows no significant prospects in future but this also impacts the free cash flows of the company. Therefore the free cash flow growth has gone positive over the years. This indicates cash flow stability. Therefore this category gets 3 stars in Engineers India fundamental analysis.
6.Liquidity and Solvency Ratios (★ ★ ★ ★ ☆)
The current ratio is 1.83 which is above the minimum requirement of 1. This indicates that the current liabilities are less than current assets and the company does not need to borrow money to pay their obligations.
The debt to equity ratio has also been flat over the years along with the financial leverage. The quick ratio has also deteriorated over the years. Overall the company’s financial position has eroded but still, there is no significant concern.
Therefore this category gets only 4 stars in Engineers India fundamental analysis.
7. Efficiency Ratios (★ ★ ★ ★ ★)
The day’s inventory and inventory turnover ratio has almost remained constant over the years without showing any improvement. The payable days have gone up along with the receivable days which shows improving business efficiency.
The cash conversion cycle has shown some improvement in the last few years and has remained negative. Therefore this category gets only 5 stars in Engineers India fundamental analysis.
The table in the excel model is colour formatted so the worst performance over the period is highlighted in red colour and the best performance is highlighted by green.
8. Valuation Ratios (★ ★ ★ ★ ☆)
The market has been pricing EIL shares at lower multiples, this is because of the deteriorating financial and lack of significant growth prospects for the company. All three valuation ratios have seen a decline since FY 2016 and are expected to decline further in the near future. The company, however, has a good dividend yield. Therefore this category gets 4 stars in Engineers India fundamental analysis.
9. ROE 5 way Du Pont Analysis (★ ★ ★ ★ ☆)
The leverage has increased slightly over the years and this has a positive impact on Return on Equity. The asset turnover has also decreased because of this. The operating margin has increased over the years and tax efficiency has been improving. Overall this has led to an increase in ROE over the years. Therefore this category gets 4 stars in Engineers India fundamental analysis.
10. Future Prospects (★ ★ ★ ☆ ☆)
Some insights for the coming years from management discussion & analysis (MD&A) and con calls are as follows.
- Order intake outlook for the company continues to be healthy due to large contracts from BPCL and IOCL in the near future. Medium to long term outlook, however, is not stable. Due to some consultancy related issues, the projects are getting delayed, impacting the overall execution of the segment and profit margins.
- Work on HPCL Barmer has gained speed with the completion of approx. 15% of the project currently. HPCL’s Vizag project is also going well for the company.
- Engineers India along with Oil India has submitted the expression of interest for due diligence of investment towards Numaligarh refinery. This project, however, is going to remain high CapEx consuming and management can revise the plans for execution.
EIL has shown deteriorating financial position and has no significant upcoming growth which can be commercialized. The stock may not give extraordinary returns but can provide portfolio diversification with good dividend yield. Therefore this category gets 3 stars in Engineers India fundamental analysis.
The overall rating is arrived by taking the average of the above 10 parameter ratings and rounded up if it is above 0.5 and rounded down if it is below 0.5.
Overall Fundamental Rating:
ENGINEERS INDIA SHARES (3.7/5)
Therefore it is a 4-star stock
★ ★ ★ ★ ☆
|Summary of the Analysis|
|Economic Moat||★ ★ ★ ★ ☆|
|Business & Management||★ ★ ★ ★ ★|
|Growth Ratios||★ ★ ☆ ☆ ☆|
|Profitability Ratios||★ ★ ★ ☆ ☆|
|Cash Flow Ratios||★ ★ ★ ☆ ☆|
|Liquidity & Solvency||★ ★ ★ ★ ☆|
|Efficiency Ratios||★ ★ ★ ★ ★|
|Valuation Ratios||★ ★ ★ ★ ☆|
|ROE (Du Pont Analysis)||★ ★ ★ ★ ☆|
|Future Prospects||★ ★ ★ ☆ ☆|
|Overall Fundamental Rating||★ ★ ★ ★ ☆|