This PSU Stock Under Rs 250 is Sitting on a Rs 114 Billion Order Book

Are you tired of looking at the road construction signboard 'work in progress', and orange barrels everywhere on the road?

Well, be ready for some more construction.

In the previous financial year, on average, 34 km of roads were constructed per day, the second-highest rate of National Highway (NH) construction in the country's history.

Not only roads, but the entire infrastructure segment is witnessing growth at a rapid pace. India's infrastructure segment has witnessed significant advancement in the last 10 years.

This includes the expansion of the National Highways (NH) network by 1.6x, electrification of 94% of the rail network, operationalization of 100 high-speed Vande Bharat trains, modernization of 1,318 railway stations, and expansion of metro rail network by 4x.

Unshackling India's Infrastructure Potential

India's infrastructure sector is poised for strong growth, with planned investments amounting to US$ 1.4 trillion (tn).

The government's ambitious National Infrastructure Pipeline (NIP) program outlines the injection of massive capital into various sub-sectors, including energy, roads, railways, and urban development.

India also made headway in its plans for infrastructure development through a sovereign wealth fund known as the National Investment and Infrastructure Fund (NIIF).

Increased Infrastructure Focus by the Government

The government has prioritised infrastructure in its overall spending. The government has doubled its spending on infrastructure over the last three years.

The 2024-25 Interim Budget allocated Rs 11.1 tn for capital investment in infrastructure, an 11% increase from the previous year. This allocation is 3.4% of India's projected GDP for 2024-25.

This surge and shift in paradigm in infra spending is almost like winning a lottery for the infrastructure companies who are beneficiaries of this move. One of the biggest infra companies that crosses my mind is Engineers India Limited (EIL).

EIL is a leading global engineering consultancy and project management company. Established in 1965, EIL provides engineering consultancy and EPC services principally focused on the oil & gas and petrochemical industries.

It has diversified into sectors like infra, water and waste management, solar and nuclear power, and fertilisers.

Why is EIL Stock Rising?

With a market capitalisation of Rs 125.7 billion (bn), EIL has risen around 140% in just a year.

Let's look at the reason behind this rally.

#1 Highest Order Book

The bulk of orders received by EIL in the current year is a mix of infrastructure and oil & gas.

EIL has secured new orders worth Rs 46.8 bn in the first 5 months of FY25, a 37% rise compared to the value of orders it got in the full period of FY24.

The company had got orders worth Rs 34 bn in FY24. On 31 August 2024, the total order book touched around Rs 113.5 bn. The company has bagged order inflows in speciality chemicals of Rs 3.5 bn in the current financial year, as compared to less than Rs 1 bn in FY23.

New projects in the area of speciality and niche chemicals, and gas storage, are behind the latest increase in orders. The company's infrastructure portfolio, beyond the traditional oil and gas, has also grown significantly.

The company has a sizable allocation of budget in the infrastructure sector. In FY23, their infrastructure business inflow was about 5%. But in FY24, their order inflow from infrastructure zoomed to 25%.

#2 Foraying into New Geographies

EIL has registered a nearly two-fold increase in international orders within the first two months of the current financial year.

In the past few years, the company's international business grew hardly about 10-12%.

EIL has been pursuing an aggressive expansion strategy in geographies where it either already has a strong presence or those offering potential for its future growth.

The company which added Guyana in South America as a new region in FY23, is particularly targeting more revenue from Abu Dhabi and Africa for its outward push in the coming years.

In a key move, the company is providing PMC services for the first-ever power plant in Guyana.

In Mongolia, the company is providing PMC services for a 1.5 million metric tonnes per annum (MMTPA) refinery, the proceeds of which come from taking a line of credit from the government. The mechanical completion of the project is expected in FY26 end.

The rising orders from the Middle East (Abu Dhabi region) were due largely to an upside in investments directed at enhancing the production of oil & gas before the transition to new and renewable sources of energy peaked globally.

The company is very well-positioned in the Middle East because of the long relationship with their clients there.

The company's focus is the re-entry of several key industry verticals across nations in the Gulf region. EIL has strengthened its Abu Dhabi office, resulting in an increase in business inflow to Rs 1.4 bn in FY24, up 57% from Rs 0.9 bn in FY23.

Till 31 August, the order inflow from the Abu Dhabi office has touched Rs 1.4 bn and the company is anticipating a lot of assignments from the Abu Dhabi National Oil Company (ADNOC).

In Kuwait, EIL is a consultant for the revamping of an existing unit at the Mina Al Ahmadi refinery, while in neighbouring Bahrain, it is doing the design package preparation for a desalination plant.

Overall EIL is looking to explore its options in different geographies for its expansion.

#3 Investor Expectations

Investors are optimistic that the government will announce infrastructure initiatives that will benefit EIL. It's involved in the National Infrastructure Pipeline, which aims to invest US$ 1.4 tn in infrastructure by 2025.

The company's aim to increase its presence around the world also fuels investor expectations of EIL business growth.

#4 Opportunities for the Company

The company is doing geological studies in its search for salt caverns in Rajasthan, where crude oil can be stored.

It is also in talks with the Petroleum Ministry to set up two limited-capacity compressed biogas plants.

The company is especially looking at opportunities in the oil & gas sector in the Middle Eastern region before the effects of the transition to new and renewable sources of energy start kicking in.

What's in Line for EIL?

EIL is working on green hydrogen projects in the steel, fertilizer, refinery, and CGD (city gas distribution) sectors.

They are also providing consultancy services for India's first long-distance hydrogen pipeline.

EIL is working towards net-zero technologies to become a leading technology company in the energy sector. The company is looking to enter into strategic alliances to achieve its growth objectives.

EIL is also looking to diversify into sunrise sectors. The company has been expanding its presence in sectors like infrastructure, water, and renewable energy, which are expected to see increased investments in the coming years.

EIL has a robust balance sheet, with low debt and healthy cash reserves, which provide it with the financial flexibility to undertake new projects and weather any economic downturn.

How the Stock Has Performed Recently

Over the past year, EIL has shown remarkable performance with a 137.1% increase in its stock price. In comparison, the Sensex has only seen a 23.1% increase during the same period.

In the last three years, the stock gave a return of 215.1%.

The stock touched its 52-week high of Rs 303.9 on 12 July 2024 and a 52-week low of Rs 116.5 on 26 October 2023.

Financials of EIL

On a standalone basis, the company has registered a turnover of Rs 32.3 bn in comparison to Rs 32.8 bn in the last year ended 31 March 2023.

The turnover from the consultancy and engineering segment stood at Rs 14.5 bn and from the turnkey segment was Rs 17.7 bn.

In the fourth quarter of FY24, the company achieved a turnover of Rs 7.9 bn with turnover from the consultancy and engineering segment amounting to 3.3 bn and Rs 4 bn in the turnkey segment.

In 4Q FY24, the company earned a net profit of Rs 0.9 bn in comparison to Rs 0.5 bn earned in the previous quarter ended 31st December 2023.

In the full year FY24, the company earned a net profit of Rs 3.5 bn in comparison to a similar profit of Rs 3.4 bn in the previous year.

On the consolidated front, the company earned a net profit of Rs 4.4 bn in FY24 in comparison to Rs 3.4 bn earned during FY23. This was a YoY increase of around 29% in the consolidated profit.

Conclusion

As India marches towards achieving a GDP of US$ 5 tn, the significance of the infrastructure business is growing as it caters to growth across several sectors.

This unprecedented push is expected to spawn associated industries, create jobs, and stimulate the economy.

Specific focus areas are expanding public digital infrastructure, clean and renewable energy projects, and establishing resilient urban infrastructure. This ambitious undertaking seeks to enhance India's global competitiveness and improve quality of life.

EIL stands to benefit from the government's focus on infrastructure.

Based on its expertise and experience in various fields, EIL is a leading design and engineering company providing a wide range of services to its clients. Its services and projects have made a significant impact on the development of petroleum refineries, petrochemicals, and other industries.

Given the current market environment and emerging business opportunities both in the core sector and diversified areas of operations, EIL is embarking upon a new journey with a vision of a Rs 50 bn turnover company by 2025.

It is imperative for a company like EIL to be at the forefront of the technology curve to be competitive in the rapidly changing business environment where technology can provide a huge competitive advantage.

To achieve this, EIL is working towards net-zero technologies and aims to renovate itself as a leading and preferred technology company in the energy sector.

To realise this vision, the company is developing clear and executable strategies based on five pillars of growth entering into strategic alliances, swift diversification in sunrise sectors, expanding international business, focusing on innovation through technologies, and achieving operational excellence.

EIL has played a key role in developing offshore oil and gas projects, including Mumbai High and other fields on India's west and east coasts.

However, it's important to note that the company's performance can be influenced by factors such as project execution, competition, and macroeconomic conditions.

Investors should conduct their research and consult with financial advisors before making investment decisions.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...