Round nut caulking process optimization and crack elimination
Eil Fpo Update
1. Visit us at www.sharekhan.com July 27, 2010
Engineers India
FPO Fact Sheet
Issue details Object of the issue
Issue opens : July 27, 2010 The object of the offer is to carry out the divestment of
Issue closes 33,693,660 equity shares by the selling shareholder.
- For QIB category : Thursday, July 29, 2010 Accordingly, EIL will not receive any proceeds from the offer
- For retail and HNI : Friday, July 30, 2010 and all of the proceeds, less the expenses of the offer, shall
Offer size : 33,693,660 shares be received by the selling shareholder.
Face value : Rs5 each
Company background
Break-up of offer for sale
- QIB’s portion : 50% Incorporated in 1965, EIL is an engineering consultancy
- Retail portion : 35% company providing design, engineering, procurement,
- Non-institutional portion : 15% construction and integrated project management services.
Issue size : Rs909.7-977.1 crore It is focused on the oil and gas, and petrochemical industries
Price band : Rs270-290 per share
in India and abroad.
Discount to retail investor : 5% on price band The company has provided a range of engineering
consultancy and project implementation services for more
Engineers India Ltd (EIL), a government owned leading than 49 refinery projects, including eight greenfield
engineering consultancy company, is coming with a public refinery projects, seven petrochemical complexes, 35 oil
offering of 3.4 crore equity shares of Rs5 each through an and gas processing projects, 205 offshore platforms
offer for sale. This includes a reservation of 7.12 lakh equity projects, 37 pipeline projects, 11 ports and storage and
shares for its employees. The company will be raising terminals projects, eight fertiliser projects, and 26 mining
Rs909.7 crore at the lower price band of Rs270 and Rs977.1 and metallurgy projects.
crore at the higher price band of Rs290. The offering would
constitute 10% of the paid-up capital of the company. As In the infrastructure space, it has provided a range of
this is an offer for sale, the issued, subscribed and paid-up engineering consultancy services for more than 26
share capital of the company will remain unchanged after projects, including for airports, highways, flyovers,
the completion of the offer. bridges, water and sewer management, as well as for
energy-efficient “intelligent” buildings.
Shareholding pattern
Particulars Pre-offer Post-offer
No of shares % holding No of shares % holding
President of India, 304,594,200 90.4 270,900,540 80.4
acting through the MoPNG
Institutions 17,103,093 5.1 17,103,093 5.1
Bodies corporate 2,211,782 0.7 2,211,782 0.7
Public and others 13,027,525 3.9 13,027,525 3.9
Public (pursuant to the offer) 33,693,660 10.0
Grand total (A)+(B) 336,936,600 100.0 336,936,600 100.0
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2. sharekhan fpo flash Engineers India
The company has also completed 16 turnkey projects, Petroleum refineries: EIL has worked on over 49 refinery
including refinery and petrochemical projects and projects, with a combined refining capacity of 100 million
offshore platforms. tonne per annum (TPA). These include eight greenfield
refinery projects, 22 expansion projects and nine diesel
Key positives hydrodesulphurisation projects, as well as several fuel
Robust order book specification upgrade and modernisation projects for
EIL has strong order book of Rs6,236.8 crore as on March various energy majors in India.
31, 2010, which is 3.1x its FY2010 revenues. Petrochemical complexes: EIL has been involved in the
establishment of seven mega petrochemical complexes
A majority of its order book as of March 31, 2010
in India. It was engaged by Indian Petrochemicals
comprised five projects, including three for Mangalore
Corporation Ltd (IPCL; now merged with Reliance
Refinery and Petrochemicals Ltd (MRPL), and revenues
Industries Ltd [RIL]) to provide engineering consultancy
for all these have been recognised using the cost-progress
services for its aromatic and olefin projects at Vadodara.
method.
The successful completion of these projects led to the
Order book break-up subsequent award of major petrochemical projects for
IPCL at Nagothane and Dahej.
Consultancy and Pipelines: EIL have provided engineering consultancy
engineering services for more than 10,000km of pipeline projects
Lumpsum turnkey projects segment
projects segment 47%
in India and abroad. It carried out the configuration
53% optimisation and sizing of the HBJ pipeline for Gas
Authority of India Ltd (GAIL), leading to a number of
subsequent pipeline projects for GAIL including the
longest liquefied petroleum gas (LPG) pipeline in India
Robust financials
(the 1,269 km Jamnagar-Loni pipeline).
Debt-free status and robust growth: The company has
a robust financial position with a debt-free balance Turnkey projects: EIL has also expanded its operations
sheet. Its total income has increased at a compounded into engineering, procurement and construction (EPC)
annual growth rate (CAGR) of 47.28% over FY2007-10 projects in the hydrocarbon industry. It has completed
to Rs2,196.96 crore in FY2010. The profit after tax (PAT) 16 EPC turnkey projects, including the EPCC packages 1
increased at a CAGR of 47.31% over the same period to and 2 for Integrated PX-PTA Project at Panipat for Indian
Rs4,44.34 crore. Oil Corporation Ltd (IOCL), the Panipat Naphtha Cracker
Project - LLDPE/ HDPE Swing Unit (EPCC 3 package) for
Sound dividend paying policy: The company has paid IOCL, the Mumbai High North Water Injection cum Gas
dividend of 110%, 185% and 1,060% of the par value of Compression Platform (MNW) for Oil and Natural Gas
the equity share in FY2008, FY2009 and FY2010 Corporation (ONGC), the N-11 and N-12 Well Platforms
respectively. Going by the past trend, the stock is projects for ONGC, and the Water Injection Pipelines
expected to pay out ~30% of earnings as dividend going Replacement project (WIPRP) Phase I for ONGC.
forward.
Operations in diverse industries and economies
Leadership position across the value chain in the
Leveraging its track record in the hydrocarbon industry,
hydrocarbon industry in India
EIL has also diversified its operations to the other sectors,
EIL was established by the Government of India (GoI) for particularly non-ferrous mining, metallurgy and
the enhancement of design, engineering and project infrastructure.
implementation competencies, and the development of
technology capabilities for the hydrocarbon industry in India. Technology-driven integrated turnkey and total
Over four decades, the company developed indigenous solutions consultancy services
technology and expertise for offshore platforms, oil and EIL is one of the leading engineering consultancy companies
gas processing, oil refining, petrochemical and pipeline in India providing a range of services covering the entire
projects. spectrum of activities from conceptualisation to
commissioning of a project. It also executes projects on a
Sharekhan 2 July 2010
3. sharekhan fpo flash Engineers India
turnkey basis. It is a technology driven organisation with a The loss of one or more of its major clients could have
qualified and professional employee base with over 3,300 an adverse impact on its business, finances and
permanent employees as of March 31, 2010, including more operations. In the Lumpsum Turnkey Projects segment,
than 2,730 employees with technical and professional the total income from a single client frequently contributes
qualifications. a considerable portion of its segment income.
Increasing focus on international operations Outlook and valuations
EIL has also steadily expanded its international operations The company has a robust execution record, with the public
and provided consultancy engineering services for various sector undertakings from the hydrocarbon sector forming
key projects outside India, including those in the Middle the major clientele. Its operating profit margin has also
East, North Africa and South East Asia. This will enable the been high (an average of 32.5% for the past four financial
company to further diversify its revenue streams from the years) mainly driven by its high-margin consultancy
other geographical regions and jurisdictions. business. The company also has a strong balance sheet
with debt-free status and robust cash balance. It is present
Key concerns in a low-capital business; its future requirement for funds
A large part of EIL’s business transactions are with also looks limited. In future its revenue will be driven by
government entities or agencies, which may expose it its ability to bag big-ticket projects, particularly in the
to risk, including additional regulatory scrutiny, delayed hydrocarbon space, and its overseas expansion initiatives.
receipt of collectibles and pricing pressure. Its business The company is not having any direct competitors (of
is also dependent on infrastructure projects undertaken comparable size and business exposure) in the listed space.
by governmental authorities funded by either the The stock is trading at 22.2x on its FY2010 earnings at the
governments themselves or international and upper end of the price band.
multilateral development finance institutions.
As per the consensus estimate, the earnings are expected
Its inability to compete effectively could cause it to lose to grow at a CAGR of 18.6% over FY2010-12. At the upper
market share and adversely affect its business and end of the price band, the stock trades at 18.6x its FY2011
operations. and 15.9x its FY2012 consensus earnings estimates.
Financials
Profit & Loss account Rs (cr)
Particulars FY2006 FY2007 FY2008 FY2009 FY2010
Consultancy & engineering 439.4 499.3 637.2 844.2 1075.5
Lump sum turnkey projects 364.9 82.3 116.3 707.9 938.5
Total operating income 804.2 581.6 753.5 1552.1 2014.0
% yoy growth -27.7 29.6 106.0 29.8
Total expenditure 405.7 429.9 518.0 1040.6 1211.1
Operating profit 398.5 151.7 235.5 511.4 802.9
% yoy growth -61.9 55.2 117.1 57.0
Operating margin (%) 49.6 26.1 31.3 33.0 39.9
Other income 71.9 106.0 134.1 221.6 183.0
EBITDA 470.5 257.8 369.7 733.0 985.9
Depreciation 9.5 8.3 10.6 10.9 13.2
PBT 460.9 249.5 359.1 722.0 972.7
PAT 384.5 180.4 255.2 539.6 746.2
% yoy growth -53.1 41.5 111.5 38.3
PAT margin (%) 47.8 31.0 33.9 34.8 37.0
Transferred from general reserve 0.0 0.0 0.0 0.0 561.6
Total profit available for appropriation 384.5 180.4 255.2 539.6 1307.7
Total dividend paid 44.9 53.3 61.8 103.9 595.3
As a % of profit available 11.7 29.6 24.2 19.3 45.5
for appropriation
Sharekhan 3 July 2010
4. sharekhan fpo flash Engineers India
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Sharekhan 4 July 2010