Initiating Coverage: Engineers India Ltd (EIL)

Engineers India Ltd (EIL) is India's leading publicly held company engaged in the areas of Hydrocarbon, metal and infrastructure consultancy. The company has a healthy market share in the Hydrocarbon consultancy segment and enjoys entrenched relationship with few of the major oil & gas companies like HPCL, BPCL, ONGC and IOC. Driven by increased activity in global energy scenario and rapid development in Indian Hydrocarbon space, we believe that the company is well poised for 13% CAGR in net profits between FY11-13E.

In our estimates, we project a 21% CAGR in consolidated revenues between FY11-13E from Rs.28 bn in FY11 to Rs. 41.6 bn in FY13E. Within the revenue streams, we expect consultancy & engineering business to grow at 6% CAGR and Lumpsum turnkey project segment (LSTP) to grow at 30% CAGR between FY11-13E mainly driven by 1) current order book at Rs 57 bn 2) continued momentum in the domestic Hydrocarbon Industry mainly refining and petrochemicals 3) pick up in investments in projects in power and infrastructure space 4) company's new initiative adding to revenues and 5) meaningful contribution from overseas Hydrocarbon markets mainly Middle East.

At the current price, company's stock looks reasonably valued on a discounted cash flow basis. We therefore initiate coverage on EIL stock with a BUY rating and one year DCF based target price of Rs.320.

 Engineers