Engineers India sees spurt in hydrocarbon orders

India's decision to move to Euro-VI emission norms has put state-run engineering company Engineers India in a sweet spot of order book windfall. The company has met its annual order book guidance in a quarter's time.

The company saw fresh order inflow of Rs 2,058 crore in June quarter, leading to an outstanding order book of Rs 5,467 crore. The rise in order inflow has also sent the company's stock prices on an upward rally. The stick has risen 63 per cent in the past six months.

The current order book is likely to keep the company busy for the next three years or so. Bullish on further order inflows, the company has revised its current financial years' order inflow guidance. However, analysts opine there may not be much upside left in terms of big ticket domestic orders for the next financial year.

An email query sent to Engineers India remained unanswered.

"The company had guided for an order inflow for Rs 2,000 crore in the current financial year. However, with Rs 2,058 crore order inflows reported in the June quarter itself, it has revised its guidance to Rs 3,500 crore for the entire financial year," said Santosh Yellapu, analyst, Angel Broking.

The company has seen a significant spurt in its order inflow from domestic companies in the hydrocarbon segment. State-run oil refiners are required to upgrade their facilities to meet product specifications as per the Euro-VI emission norms by 2021. Engineers India has bagged a good amount of orders related to these upgrades, putting it in a sweet spot.

"The company has not been in such a sweet spot of order book to last twelve-month (LTM) sales ratio of four times in the past few years," Yellapu added.

However, there is a word or two of caution. "The company is expecting another order for the upgrades at Hindustan Petroleum Corporation's (HPCL) Vizag facility, but after that there is no big order in the line-up. That can impact the visibility in terms of growth in revenue and order inflow for financial year 2017-2018 and going forward, that is the risk we see," said a second analyst from a domestic brokerage firm, who did not wish to be named.

Several analysts pointed out that plans for a West Coast mega refinery of 60 million tonnes could bring further order inflows, but the project is still at planning stage.

The company, analysts said, also plans to look at overseas orders.

If these fructify, some analysts expect, it could give further upside to the stock. "West Coast orders and orders from overseas like the African continent and the Middle East markets could lead to surprise in the order inflow expectation and could give some upside to the stock," Yellapu added.

But not everyone is bullish and optimistic on the company's overseas thrust. "International orders come with a risk of being delayed and big ticket orders from these markets are unlikely," said an analyst.

Rohit Natarajan, analyst with IDBI Capital, in his August 25 note wrote: "Few years back, Engineers India pencilled in orders from Bahrain, an archipelago in GCC with highest fiscal break-even price for crude oil. The downstream plans, then, we were told, will be funded by upstream profits. With rout in crude oil prices, those drawing board plans vanished in thin air. Engineers India is pencilling again. Though we give the management the benefit of doubt, we keep our fingers crossed."

Orders from home may help the company ride this risk. "These are domestic orders and are unlikely to face the same fate," said a third analyst from a foreign brokerage firm who did not wish to be identified. About 65 per cent of the company's order book comprises of the consultancy orders and 84 per cent of its consultancy orders are domestic. Consultancy projects, unlike turnkey projects, do not face execution delay risks.

SWEET SPOT

• Engineers India Ltd saw fresh order inflow of Rs 2,058 crore in June quarter leading to an outstanding orderbook of Rs 5,467 crore
   
• The company's stock prices has risen 63%
   
• The current orderbook is likely to keep the company busy for the next two to three years time
   
• Bullish on further order inflows, the company has revised its current financial years' order inflow guidance
   
• Analysts say, the company plans to look at overseas orders