Reviews
In this edition, we have reviewed Engineers India Ltd. and Coforge Ltd. We suggest our reader-investors to HOLD Engineers India Ltd. and Coforge Ltd.
We had recommended Engi-neers India in Volume 36, Issue No. 19 dated August 16-29, 2021 under the ‘Low Price’ segment. The recommended price for the stock was ₹ 72.75. We had recommended the stock on the basis of great dividend payout ratio, debt-free status and low price-to-earnings (PE). Engineers India is a leading global EPC company and engineering consultancy. It was estab- lished in 1965 and provides engineering consultancy and EPC services mainly focused on the oil and gas and petro- chemical industries.
EIL has a wholly owned subsidiary, Certification Engi- neers International Limited. The company has also initiated business development activities in sectors like defence, smart cities, bio fuels, ports and harbours, LNG terminals, etc. as part of possible diversification initiatives aligned with the projects of the Government of India. EIL has also managed its robust track record to effectively expand its opera- tions internationally. Looking at the financial performance of the company it has given net sales of ₹ 692.11 crore in Q3FY22 from ₹ 845.49 crore in Q3FY21. The operating profit for Q3FY22 stands at ₹ 105.44 crore as compared to Q3FY21 which was ₹ 125.96 crore. The Net sales have seen a decrease and recorded ₹ 71.49 crore profit, as opposed to ₹ 90.32 crore in Q3FY21.
Inevitably, net profit fell 39.74 per cent from ₹ 433.86 crore in FY20 to ₹ 261.46 crore in FY21. The company is a market leader in the Hydrocarbon segment. EIL existing facilities are operating at 100 per cent utilization which portends well for the company. Its order book in the consultancy segment rose 19 per cent YoY. The company has teamed up with NTPC for renewable developments. Also the company is also collaborating with GAIL in the hydrogen segment. An associate company plant is currently running at 60-65 per cent capacity and should break even at 70 per cent capacity utilisation. The management expects it to break even in FY22. It sees better returns in FY23 on higher utilisation. It also expects order inflows of over ₹ 20 billion on a long-term basis and is confident of improving margins going forward.
Hence, we recommend HOLD.
We had recommended Coforge in Volume 36, Issue No. 20 dated August 30 to September 12, 2021 under the ‘Choice Scrip’ segment. The recommended price for the stock was ₹ 4,941. We had recommended the stock on the basis of strong ROE standing, major deal signings and organic gowth. Operating as NIIT Technologies until August 2020, the company transitioned to a new name Coforge that reflects its evolution over the years as well as its vision for the future.
Also, the company has a growing presence in manufacturing, healthcare, retail and public sector or government outside India. Analysing the financial performance of the company in the third quarter, on a consolidated basis, net sales and other operating income was at ₹ 3,031 crore in Q3FY22 as compared to ₹ 2,210.70 crore in Q3FY21, indicating a rise of 37.11 per cent. The operating profited ascended 34.33 per cent from ₹ 379.60 crore in Q3FY21 to ₹ 509.90 crore in Q3FY22.
Net profit of Q3FY22 was recorded ₹ 292.70 crore as against net profit of ₹ 205.10 crore reported in Q3FY21. On the annual front, net sales rose 11.45 per cent to ₹ 4,662.80 crore in FY21 to over ₹ 4,183.90 crore in FY20. The operating profited scaled 2.67 per cent in FY21 to ₹ 812.10 crore from ₹ 791 crore in FY20. The net profit declined 0.34 per cent to ₹ 466 crore in FY21 as compared to net profit of ₹ 467.60 crore reported in FY20. Coforge reported a strong performance in Q3FY22 with 39 per cent YoY growth in revenues. The company indicated that the order book has been on the rise with executable orders over the next 12 months at USD 701 million while the order intake for the quarter was at USD 247 million, which consists of one contract worth USD 45 million which it won in Europe and has to be executed over the next six years. The company added 13 more new clients to its portfolio during the quarter. It has witnessed acceleration in organic growth and consistently won strong and large deals. Also, it has the ability to leverage acquisition and partnerships to materially accelerate revenue growth and scope to further improve margins. Hence, we recommend HOLD.
(Closing price as of Mar 16, 2022)