Patel Engenering

IRB INFRA RVNL

Summary

Patel Engineering Ltd is engaged in the construction of dams, bridges, tunnels, roads, piling works, industrial structures, and other kinds of heavy civil engineering works in areas like hydro, irrigation & water supply, urban infrastructure, and transport.

About Company:

Founded in 1949 with its headquarters in Mumbai, Patel Engineering Limited is a well-known name in the civil engineering construction industry. The company has successfully built numerous large civil engineering projects over the course of its more than seven decades of operation, including dams, bridges, tunnels, roads, piling projects, and industrial structures. The business is well-established in a number of high-margin, technologically advanced industries, including hydro, tunneling, irrigation, water supply, transportation, urban infrastructure, and supply. Over 250 projects have been successfully completed because of its excellent project execution.Patel Engineering Limited has a stronghold in the tunneling and hydropower industries and has been essential to some of India's most prominent and crucial projects. The company has valuable non-core assets and has its shares listed on the BSE and NSE of the Indian Stock Exchanges. Including L1 Orders, the company's order book totals roughly 2,00,142 Mn

Hydro Power Overview:

Hydro Power is a serious government initiative to increase energy generation.

At least 50% of the electricity produced in 66 countries comes from hydropower, and at least 90% in 24 countries. According to the International Hydropower Association (IHA), India has surpassed Japan to take over as the country with the fifth-largest hydropower production capacity in the world, trailing only Canada, the United States, Brazil, and China in terms of installed base.

•  India has a huge potential for producing electricity due to its abundance of rivers and other bodies of water.
•   At a load factor of 60%, India's hydropower potential, which is roughly 1,45,000 MW, can supply about 85% of the country's electricity needs.
•   In India, only about 26% of the hydropower potential has been used. Consequently, there is a ton of untapped room for growth in this market.
•     India's installed large hydro capacity expanded from 35.9 GW in March 2008 to 46.85 GW as of July 2022, while installed small hydro capacity increased four-fold to 4.89 GW within the same time period.      6.82 GW more installed capacity is anticipated to be added to the hydropower capacity.
• Nepal and India decided to establish a Joint Hydro Development Committee in February 2022 to look into the feasibility of successful hydropower projects.

Investment Boost in the Power Sector

At US$ 1.6 billion in FY22, FDI in India's renewable energy sector increased by 101% year over year from US$ 797.21 million in FY21.

Between April 2000 and March 2022, FDI inflows totaled $15.89 billion in the power sector.

In September 2021, the Government of the United Kingdom announced that it will invest US$ 1.2 billion through public and private investments in green projects and renewable energy in India to support the latter’s target of 450 GW of renewable energy by 2030

Business Overview:

Hydro Power Projects

Patel Engineering has a wealth of expertise in building hydroelectric projects of all sizes across the nation, from 3 MW to more than 2000 MW. Along with ancillary buildings like intake, gate structures, penstocks, switchyards, and related services and structures, we have also built powerhouses of every kind, including underground, surface, and subsurface ones.The experience and knowledge needed to work on a hydroelectric power plant are extensive. It can be difficult to deal with difficult geographic locations, harsh weather, and other harsh situations, but at PEL, we see these barriers as opportunities. Despite these obstacles, our can-do mentality has enabled us to successfully complete a number of important power projects.

•  Involved in the Generation of more than 15000 MW
• Involved in the construction of more than 87Dams

Tunneling:

For completing such projects, the Company has distinguished itself as one of the best engineering organizations. Specialized skills are required for tunneling. Modern technology, sophisticated instruments, and procedures like NATM have supplanted conventional tunneling methods in PEL.

The 6400-meter concrete-lined TBM tunnel, four shaft excavations, the building of a surface pipeline, the installation of valves, and electrical work all went into building the MCGM Water Tunnel.

Building a rock tunnel with a 3.0m bored diameter that was finished at 2.2m and includes communication facilities is the goal of the Veravalli Mumbai Tunnel Project.

Drilled over 300 kms of Tunnels.

PEL built some well-known subterranean caverns for powerhouses for the Tapovan HE Project, and Sawrakuddu HE Project and it is now working on the Arun-III HE Project in Nepal and the Kundah HE Project, among other HE Projects. Drilled over 4,000 meters of shafts in all shapes and sizes.

Transport :

India's transportation infrastructure has expanded tremendously in recent years. The Company is delighted to have built some of the best roads and rail bridges in the country as part of this tremendous progress. The projects include the Sela bi-lane road tunnel, which is located at a maximum elevation of 13800 feet above sea level, as well as the 25 km long East-West Corridor in Assam. We have not only constructed motorways, bridges, and roads along high-altitude roadways like Karzok-Chumar along the Indo-Tibetan border, but we have also developed an unequaled reputation for dependability, capability, and originality.

The Company is thrilled to share the news that we have won the prestigious Construction Times Awards 2023 for the "Best Tunnel Project of the Year." The Sela Pass Road Tunnel Project was given this award. The Company completed a sizable project on NH-7, which connects Islam Nagar and Kadtal, with success. A build-operate-transfer (BOT) project is being undertaken for the North-South Corridor.

In addition to being a project of national significance, the RVNL-KTR is a brand-new 35-kilometer railway line that runs from Keoti to Dallirajhara-Rowghat and will enable the transportation of iron ore from Rowghat to the Bhilai Steel Plant. 4 km long T-14 parallel tunnels are now being constructed. USBRL, one of the most challenging rail projects, is crucial for the development of Jammu & Kashmir. This is an essential part of the USBRL initiative to connect Kashmir with the rest of India, making the connection easy, hassle-free, and weatherproof.

Irrigation & Water Supply:

One of the key variables in the growth of any country's economy is the availability of irrigation and water.PEL has constructed concrete gravity dams and earthen dams to allow people access to the water flowing through Indian rivers. Additionally, it has constructed slipways, wet docks, caissons, jetties, and other related constructions. Over 5.5Lakh acres of land Irrigated

Management Overview

Share Holding Patten

·        Patel Engineering Ltd is engaged in the construction of dams, bridges, tunnels, roads, piling works, industrial structures, and other kinds of heavy civil engineering works in areas like hydro, irrigation & water supply, urban infrastructure, and transport  Order Book data:

Concall Analysis 

• Performance for the first quarter of FY2024: A 24% increase in operating revenue from the prior quarter
• A sizable order book of almost 20,000 crores, with an emphasis on irrigation and hydro projects.
• Sale of a stake: To lower the corporate guarantee and strengthen its financial position, a stake in a subsidiary firm was sold.
• An improvement in rating: Triple B Plus. Vivad Se Vishwas 2 scheme: Investigating solutions proactively to resolve outstanding problems involving government contracts.
• Targeting new business: This year, the company hopes to capture orders between $5 and $10 billion.
• The hydropower and irrigation sectors offer opportunities, and the pump storage hydro sector is being considered for future growth.
• Margin improvement and debt reduction are the two main objectives for the following two to three years.
• Strong labor force: able to carry out projects.
• Risks associated with execution and expansion are minimal.
• Examining possibilities to further reduce debt and increase working capital through the monetization of non-core assets.
• Future revenue growth is anticipated to range between 15-20% over the following two years.
• Positive outlook: Aims to rank among the best infrastructure companies and is upbeat about the future of the infrastructure sector.
• There are no immediate intentions to distribute dividends due to lender constraints and debt restructuring.
• Cost-cutting measures: Emphasis on debt reduction, margin improvement, and cost-cutting methods.
• Claims realization: In order to speed up claims realization, the Vivad Se Vishwas 2 scheme is being considered. Arbitration awards are anticipated to be realized over the next 3–4 years.      

Financials 

• ·        The topline improved for the company on both q-o-q and y-o-y basis.
• ·        The gross margin was impacted due to the higher cost of construction, but to significantly lower tax expenses the company improved in net profit margin.

•        The key reason for the impact on margins in FY24E is due to the higher tax rate, which was guided by the company on a normal scenario.
•         Post FY25, as the fixed quantum falls the net profit margins would continue to expand if the company maintains the current level of growth.

Opinion & Conclusion 

• The business would be a turnaround play as it became more focused on its main line of business. By selling off land and paying down debt, the corporation's profitability would increase in the future.
• The company obtained orders for the largest hydroelectric project in India valued at Rs. 7720 crores in FY23, compared to Rs. 2320 crores in FY22. This gives the business visibility into its growth.
• The business on the base expects to grow by 15% over the following two years while retaining its present operational profitability. Due to fixed costs being the same, net profit would increase as the business scales and grows.
• The company could increase its PE and enhance its return ratios if it keeps up its current track record of managing the balance sheet.• I assign a "BUY" call based on the firm's plans and existing performance. The price share has witnessed a tremendous rise from Rs. 13 to Rs. 50, but has since corrected to Rs. 43 levels. The company is trading at a PE of 18.2.