Engineers India is key beneficiary of refinery upgrades

The company has exceeded its FY17 order inflow target of Rs 3,500 crore

Ever since Engineers India Limited increased its order inflow target for FY17 from Rs 2,000 crore to Rs 3,500 crore in August 2016, the stock has been on an upward trend, gaining 36 per cent. Nearly three per cent of those gains came on Tuesday, on the back of a Rs 2,500-crore order from Hindustan Petroleum Corporation, which is upgrading its refinery facility in Visakhapatnam. This order win helps Engineers India Limited exceed its FY17 order inflow target. Another Rs 4,000–5,000 crore of project wins are awaited from refineries in Maharashtra. In fact, with its expertise in the oil and gas sector, Engineers India Limited has been one of the biggest beneficiaries of oil refineries, having to upgrade their refineries to make fuels which are BS-VI-compliant.

While the meeting of its order inflow target has been the trigger for the stock, Engineers India Limited is also among the few stocks in the industrials space where public investors have significantly risen their stake in 2016. Total public holding in December 2015 stood at 30.6 per cent, with institutional investors holding 20 per cent. These numbers have significantly risen and public holding in the stock increased to 41.13 per cent as on December 31, 2016, with mutual funds hiking their stake in Engineers India Limited from three per cent in December 2015 to nine per cent in December 2016. 

Analysts feel Engineers India Limited could remain on investment radar going ahead, given the convincing manner in which it is fulfilling its FY17 order inflow targets. But from here on the Street would closely watch how well Engineers India Limited executes its projects. With an order book of over Rs 7,000 crore and 64 per cent of order backlog skewed towards high-margin consultancy business, unless the pace of execution improves, sustaining the optimism on its stock could be difficult. In fact, Engineers India Limited has already underperformed the Street expectations on the earnings front in June 2016 and September 2016 quarters. Save for massive provision write-backs in the turnkey division, net profit growth too would have been elusive. In fact, analysts at Prabhudas Lilladher have marginally trimmed their earnings expectation by two-four per cent for FY18 on the back of weak execution. So for now, while order flows could keep the stock busy, all eyes will be on execution from here on.