Increase in order book provides some hope for Patel Engineering

MUMBAI: Mumbai based Patel Engineering was one of the worst affected by the bleak macro-economic environment in the construction industry. While denial of environmental clearance on few of its projects impacted revenue visibility, higher interest and working capital led to fall in profits. Although the company’s turnaround looks unlikely in the near term, the recent order inflow provides something to cheer for the investors.

At present, the company has an order book of Rs 12,000 crore, which is over thrice its trailing twelve-month revenues. This gives a healthy revenue visibility over the next three years. However, the company’s debt and elongated working capital is a matter of concern. Because of this the company’s interest cost was 77% of its operating profits, which is onre of the highest in the industry.

In the December 2012 quarter, the company’s revenues increased by 27% on the back of healthy execution of the projects. However, this could not be translated to profits due to higher debt. Its profits in the same period fell by 13% to Rs 17 crore.

At current market price, the stock is trading at a Price-to-book value of 0.3. Any softening of interest rates would improve the earnings of the company.