Patel Engineering Limited

Patel Engineering Limited, founded in 1949 is a major Infrastructure and Construction conglomerate in India. They have experience in constructing various hydro projects, transmission line, roads, canals, tunnels etc. The company has all necessary capabilities & resources to tap the opportunities in infrastructure sector, if and when they arises. The company was darling of stock market in 2008 Infra rally and stock price touched ticks of more than a thousand in 2007. Thereafter, in the meltdown, the stock has fallen to Rs. 9 in and around October, 2019. Like all infra players, the company suffered due to high leverage.
What has Changed?
  1. The company is trying to reduce its debt consistently for last many years. On a standalone basis, as debt has come down drastically from 44,74 Crore in FY 17 to 5362 crores in FY 18 to 3225 crores in FY19. The debt is being reduced through sale of non-core assets and receipt of arbitration money. Interest charges in quarterly numbers if 2020 is around 84 crores as compared to 155 crores in 2018. Further debt reduction is expected in the current fiscal.
  2. Credit rating of the company is still in investment grade. In August, the company got rating upgrade, which must lower interest rate marginally.
  3. Promoter’s shareholding has been reduced to 19% in September 2019 with almost 100% shares pledged. The company comes out with a right issue in September, 2019 which was almost fully subscribed by the promoters resulting in increase in shareholding of promoters to 60%. Promoters shares are still pledged.
  4. Presently the Order Book stands at around 10,400cr, Annual Sales of Rs 2000cr. Standalone debt is 2108 Cr and consolidated debt is 2591 Cr. Company’s Fundamentals and Financials improving.
  5. Days of aggressive bidding in Infrastructure sector is getting over. Recently NHAI barred 8 companies from bidding due to their non-performance.
Investment Theme:
  1. Promoters have increased their shareholding drastically and it shows their confidence in the company going forward.
  2. With the financials improving consistently, the company is not likely to default on its obligations.
  3. Valuations are very attractive with around 750 crores market cap at around 1/5th of book value.
  4. Infrastructure push of the government.
  1. Debt is still high. The company needs to monetize some more non-core assets to reduce debt further.
  2. Promoters shareholding is pledged.
On the whole, it is a high-risk investment.
Will love to know the views of fellow members.

Similar threads