Engineers India Equity Research

Date of Research – 14 January 2016

Price – 221.60

About the Company

Founded in 1965, Engineers India Limited (“Engineers India” or the “Company”) provide engineering and related technical services for petroleum refineries and other industrial projects. Engineers India is working under the administrative control of Ministry of Petroleum and Natural Gas (MoP&NG), Government of India. The Company operates in many sectors focusing primarily on the oil and gas and petrochemical industries. The Company has diversified into sectors like infrastructure, water and waste management, solar & nuclear power and fertilizers. The Company operates from 4 regional engineering offices in Mumbai, Kolkata, Chennai and Vadodara.

In addition, Engineers India has two Subsidiaries – Certification Engineers International Limited (CEIL) and EIL Asia Pacific Sdn. Bhd. (EILAP). The Company has also established two strategic Joint Ventures; TEIL Projects Limited with Tata Projects Limited and Jabal EILIOT Co Ltd, with Jabal Dhahran of Saudi Arabia and IOT Infrastructure and Energy Services Ltd. The Company’s services include procurement, project management and certification services, process design and construction management services, engineering and commissioning services.

In process design services it provides conceptual designs and feasibility reports; design packages for open art process units for gas-processing and refineries and integrated utilities and offsite facilities, and offers a portfolio of more than 30 process technologies for application in oil and gas processing sector. Construction management services include services at site, including warehouse management, quality control and assurance, health safety and environment (HSE), progress monitoring and scheduling.

Key Financial Figures

Consolidated (Rs. Cr)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations 2,529.04 1,846.47 1,741.25 1,524.99  1,479.73 
Expenses 1,936.24 1,463.43 1,516.93 1,354.77  1,165.43  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) 592.80 383.04 224.31 170.22  314.30  
Depreciation 11.12 14.79 20.18 25.04  22.70  
Finance Costs 0.00 0.07 0.29 0.18  3.18  
Other income 316.79 335.92 273.12 254.95  222.43  
PBT 898.47 704.11 476.97 399.95  510.84  
Tax 266.27 221.38 164.26 138.42  180.64  
PAT (before Minority Interest and share of Associates) 632.20 482.73 312.71 261.52  330.20  
Profit/ (loss) attributable to Minority Interest –  – 
Share of profit / (loss) of Associates –  0.20  
Consolidated Profit / (Loss) for the year 632.20 482.73 312.71 261.52  330.01  

Profitability Analysis

Consolidated (%)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Operating Profit Margin Ratio 23.44 20.74 12.88 11.16  21.24 
Net Profit Margin Ratio 25.00 26.14 17.96 17.15  22.32 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Share Capital 168.47 168.47 168.47 168.47                              168.47
Reserves & Surplus 1,730.31 2,126.77 2,353.27 2,463.20                           2,562.22
Net worth (shareholders funds) 1,898.78 2,295.24 2,521.74 2,631.67                           2,730.69
Current liabilities 1,878.10 1,114.24 1,270.65 1,333.80                           1,399.16
Other long term liabilities and provisions 26.72 1,114.24 24.41 22.66                                 27.85
Total Liabilities 3,803.61 3,907.31 3,816.80 3,988.12                           4,157.71


Application of Funds / Assets (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Fixed Assets 108.09 189.10 252.69 291.37                              333.66
Noncurrent Investments 57.50 647.43 12.68 13.28              2.25
Current assets 2.35 2,235.55 3,262.82 3,399.47                     3,477.20
Long term advances and other noncurrent assets 3,420.71 835.23 56.59 50.89                              123.58
Deferred Tax Assets 214.96 232.02 233.12                              221.02
Goodwill on consolidation (net)
Total assets 3,803.61 3,907.31 3,816.80 3,988.12 4,157.71

Efficiency Analysis

Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
ROCE 37.69 39.33 15.19 8.52 6.23
ROE / RONW 33.91 27.54 19.14 11.88 9.58

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations (Rs. Cr.) 2,529.04 1,846.47 1,741.25 1,524.99  1,479.73 
Growth (%) (32.08 %) (26.99 %) (5.70 %) (12.42 %)  (2.97 %) 
PAT (Rs. Cr.) 632.20 482.73 312.71 261.52  330.20  
Growth (%) (1.81 %) (23.64 %) (35.22 %) (16.37 %)  26.26 % 
Earnings Per Share – Basic (Rs. ) 18.76 14.33 9.28 7.76  4.90 
Earning Per Share – Diluted (Rs. ) 18.76 14.33 9.28 7.76  4.90 
Price to Earnings 8.24 19.92 21.24 21.94  32.31 

Dividend History

The Company has maintained an average dividend yield of 2.72 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Engineers India’s average current ratio over the last 5 financial years has been 1.43 times which indicates that the Company has been maintaining sufficient cash to meet its short term obligations

Long term Debt to Equity Ratio

Companies operating with high long term debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Engineers India’s average long term debt to equity ratio over the last 5 financial years has been 0.00 times which indicates that the Company operates with zero level of debt and is placed well to withstand economic slowdowns.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Since the Company operates with very low levels of debt, its average interest coverage ratio over the last 5 financial years has been 1,461.58 times.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Engineers India reported a promoter holding of 57.02 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 19.61 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.