A robust order book, long-term revenue visibility and an upturn in the economy bode well for the construction firm.
Mumbai-based Patel Engineering has recently won the largest water-front project in Mauritius which includes development of an integrated township in the capital city of Port Louis.
The project is expected to generate a gross revenue of Rs 4,500 crore and will be completed in seven years. The company’s order book now stands at Rs 10,800 crore (including this project), or over four times its FY09 revenue, providing significantly higher revenue visibility.
Besides, the company is commissioning a 1200-Mw plant, for which it has recently got coal linkages for 50 per cent of its requirements. For the rest, Patel is in talk for mines in Indonesia and the deal is expected to be finalised soon. This is a positive development for the company as it has already acquired the land and can now go for financial closure.
The real estate business segment, too, has seen improved traction. It recently sold nearly 71 per cent of the 1,123 apartments in its Bangalore project. Further, it has a 51 per cent stake in a 2.2-million-square-feet residential project in Noida (near New Delhi) and has sold over 1,200 apartments.
The fundamentals are improving for the company in all major business segments. Analysts expect a net profit growth of 30 per cent in FY10 and 25 per cent in both FY11 and FY12.
On a consolidated earnings basis, the stock, at Rs 460, is trading at reasonable valuations of 14 times FY11 and 12 times FY12 estimated earnings. Considering its exposure to build-operate-transfer (BOT) assets, real estate and power, analysts value the stock at Rs 530-550 per share on a sum-of-the-parts basis.
With upcoming projects (Rs 2,000 crore of projects at L1 stage) and the upturn in the economy, especially in power and real estate segments, Patel’s fundamentals seem promising.
