Stock of this civil construction company has zoomed nearly 200% in 3 months

Shares of Patel Engineering were locked at upper circuit for the third straight day on Thursday, and now quote at the highest level since November 2018.

Shares of Patel Engineering were locked at the upper circuit for the third straight day, up 5 per cent at Rs 43.53 on the BSE on Thursday at 11:57 AM; on the back of heavy volumes. A combined 8.79 million shares representing 1.1 per cent of total equity of the civil construction company had changed hands. There were pending buy orders for a combined 2.2 million shares on the NSE and BSE.

Patel Engineering is engaged in the construction of dams, bridges, tunnels, roads, piling works, industrial structures and other kinds of heavy civil engineering works and have executed a variety of infrastructure projects in the technology intensive areas like hydro power, irrigation and water supply, urban infrastructure, and transportation segments especially in tunnels and underground works for hydroelectric and transportation projects primarily as civil contractors.
 

In past three months, the stock price of Patel Engineering has zoomed nearly 200 per cent from level of Rs 14.61 on April 17. It was trading at its highest level since November 2018.

On June 5, 2023, Patel Engineering announced that it has been awarded the Letter of Acceptance (LOA) from City and Industrial Development Corporation (CIDCO) for the construction of a 6.70 km long treated water tunnel and associated works from Sai Village to Vindhane Village in Raigad District, Maharashtra. The water tunnel project worth Rs 519.50 crore is going to be executed without any joint venture partnership.

The construction of the long-treated water tunnel and allied works are expected to be delivered in 60 months, as stipulated in the bid. The company's expertise in tunneling, underground works for hydroelectric, and infrastructure development positions them well to successfully complete the project within the stipulated timeframe, the company said in an exchange filing.

On June 30, Acuité Ratings & Research has upgraded its products rating of Patel Engineering and revised the outlook from ‘Positive' to ‘Stable’.

The rating upgrade is majorly on account of substantial and sustained improvement in realization of receivables during FY23 and FY22 and consequent improvement in liquidity position of the company. The improvement was majorly on account of healthy collection efficiency of more than 95 per cent from its top projects (which constitutes ~80 percent to overall revenues).

The rating also factors in the turnaround of the business operations of the company as reflected by healthy topline growth on a sequential basis while achieving significant improvement in its working capital cycle. Acuité also observes quicker churn in the bank guarantee facilities enjoyed by the company and reduced reliance on working capital limits. Furthermore, with increased thrust on infrastructure projects, Acuite expects continued improvement in the business and financial risk profile of the company over the near to medium term.

The rating also draws comfort from the strong order book order position of the company which continued to drive healthy growth in scale of operations. The unexecuted order book position of the company stood at Rs 20,807 crore as on March' 2023 (including L1 orders of Rs 3,221 crore out of which projects worth Rs 1,403.13 crore has been converted into LOAs in Q1FY24). Furthermore, the liquidity position of the company remained adequate with adequate net cash accruals against matured debt obligations, the rating agency said in rationale.

While the continuous improvement in realisation of debtors has been noted, the high working capital intensity and the competitive pressures in the construction industry continue to be constraining factors in the rating, it added.