Patel Engg: Subdued quarter

Operating profit of the company grew slower at 30.3 per cent

Patel Engineering reported a 33.3 per cent y-o-y increase in revenues to Rs 378.85 crore in Q3 FY08, but its operating profit grew slightly slower at 30.3 per cent.

The operating margin thus declined by 30 basis points at 12.9 per cent. The shares of the engineering company declined by 3.2 per cent due to lower profits and weakness in the mid-cap space.

The company's order book position stood at Rs 5508 crore, as on December 2007, which is over 4.2 times its FY07 revenues. Patel Engineering is an established player in the infrastructure space.

It is involved in the construction of power projects, dams and tunnels, and is responsible for creating 22 per cent of the hydropower infrastructure in the country. The hydropower segment accounts for 60 per cent of the company's current order book.

Patel Engineering has also entered into the real estate and power generation business.

The company holds 1,000 acres of land under a 100 per cent subsidiary and this will be developed in a phased manner. It has bagged an order from Koyna Dam power house and has signed an MoU to set up a 100 mw hydroelectric plant in Arunachal Pradesh on a build-own-operate-transfer (BOOT) basis. It also secured a Rs 428 crore order to set up a 520 mw hydroelectric plant in Uttarakhand.

The stock price of Patel Engineering has gone up by 115 per cent in the last three months thanks to its current order book and future expectations.

The company is pre-qualified for new projects worth Rs 6,000 crore. At its current price of Rs 967, the stock trades at about 39 times estimated FY08 earnings and 33 times FY09 earnings, without considering the value of its real estate holdings.

ABG Shipyard: On a sound keel

ABG Shipyard reported an improved performance in the December 2007 quarter following the delivery of two vessels to its clients.

The company's operating profit grew 55.1 per cent y-o-y to Rs 81.6 crore and net sales rose 54.8 per cent to Rs 275 crore. Its operating profit margin expanded 10 basis points y-o-y to 29.7 per cent in Q3 FY08.

In the September 2007 quarter too, the company's operating profit margin had improved by 160 basis points y-o-y to 30.4 per cent. The stock fell by 4.6 per cent on Tuesday to Rs 934.

The company's adjusted raw material costs as a percentage of net sales declined by 100 basis points y-o-y to 56.4 per cent in Q3 FY08.

There were repeat orders worth Rs 1,040 crore in the last quarter from existing international clients such as Lamnalco and Maridrive for the construction of nine vessels.

As a result, ABG Shipyard's outstanding order book at the end of the December 2007 quarter exceeded Rs 8,277 crore compared with Rs 7,120 crore at the end of the preceding quarter. The revenues from these contracts Are expected to flow in over the next few quarters.

ABG is setting up a new facility at Dahej. The facility, which is likely to become operational from April this year, will enable the manufacturing of higher margin ships with a capacity up to 120,000 dwt (dead weight tonne). The stock trades at 30 times estimated FY08 earnings and 15 times FY09 earnings.

With contributions from Jitendra Kumar Gupta and Amriteshwar Mathur