With the stock markets in a topsy-turvy mode and investor sentiment at the weakest, safety of capital is more important than chasing aggressive returns. Investing in these circumstances becomes easy when you get a fundamentally strong PSU such as EIL which is growing consistently at a brisk pace and which has a huge order book providing a clear visibility to the future growth prospects. Moreover a consistent dividend payout as well as capital appreciation is what makes it even more attractive. This is why the stock is being recommended by us in the Choice Scrip section in this issue.

Engineers India (EIL) is one of Asia’s leading design, engineering and turnkey contracting company providing an array of project services from conceptualization, planning, designing, engineering and construction of projects in the fields of oil & gas, mining & metallurgy, infrastructure etc. For this Rs 2823.28 cr company, 60% of revenues come from turnkey projects, while the balance 40% come from consultancy services. Its fundamental strength and consistently good performance over the past five years is what makes it a safe bet in the current market conditions EIL has been growing at a five year CAGR of 40% in the bottomline, while its topline grew even faster at 45% during the same period. Considering that EIL provides specialised services to the oil & gas sector, where growth opportunities are immense, EIL’s growth looks sustainable going forward. 34% of total energy consumption continues to be on account of oil & gas. Besides, with refining capacities and additions continuing to take place with estimated capacities to touch 241 Million Metric Tonnes (MMT) by 2012 and 302MMT by 2017, there is potential for ample projects in the sector, which would help drive EIL’s future growth.

What also augurs well for EIL is its strong order book position of Rs 7484 cr of which 65% consists of turnkey projects, while the balance 35% are consultancy projects. This order book is 2.65 times its FY11 revenues and provides a good revenue visibility for EIL. In fact the company is also focussing on new segments such as water and waste management, infrastructure, nuclear, solar and city gas distribution. All this should help to push up its growth in the coming years. But the icing on the cake is the fact that EIL is a zero debt company. Thus EIL wouldn’t be impacted by rising interest rates. However, being a project company does put it under some interest rate risk. However, considering its Rs 7484 cr order book, this impact would be minimal. In fact with Rs 2100 cr of liquid cash in its books as on FY11, EIL will actually benefit from rising rates leading to better other income.

On the financial front, for FY11 EIL’s topline was up 41% at Rs 2823.28 cr (Rs 1993.80 cr), while profit increased 20% to Rs 522 cr (Rs 435.58 cr). At these numbers EIL is available at PE and EV/EBDITA of 17.66x and 8.87x, which looks fair for a briskly growing company such as EIL. Besides, EIL gives investors the best of both worlds i.e. a consistent dividend income (FY11 dividend at Rs 5 on Rs 5 face value giving dividend yield of 1.85%) and capital appreciation as well. Hence one can stay invested in this scrip with one year target of Rs 330