EIL can be a multibagger - Buy

Stock Market Listing Details:

Current Market Price: Rs. 362.40
PE Ratio : 11.34
Market Capitalization: 2492.66 Crores
Promoter Holding : 90.40%


About Engineers India Ltd:

Engineers India (EIL) was established in 1965 to provide engineering and related technical services for petroleum refiniries and other industrial projects. However today Engineers India Limited is diversifying into several new areas of business including highways and bridges, IT, Airports, Mass rapid transport system, water and urban development projects and areas such as renewable energy sources.

Thus, EIL's fields of activities include:

• Petroleum Refineries
• Pipeline
• Oil and Gas Processing
• Petrochemicals
• Offshore Structures & Platforms
• Ports & Terminals
• Metallurgy
• Fertilizers
• Power
• Highways & Bridges
• Airports
• Non Conventional / Renewable Energy Sources
• Intelligent Buildings & Urban Development

Financial Analysis:

• Engineers India is a company with strong fundamentals and its year on year sales has witnessed robust growth. The FY 08 EPS of the company was Rs. 34.74 while its cash EPS was Rs. 36.49.

• The company has a strong balance sheet with no equity dilution over the past 4 years and huge reserves and surplus. This also makes it a likely bonus candidate in the near future. The company also has almost zero debt and this is a great advantage in this high interest rate scenario. This also means that the company can leverage itself in the future if required for growth.

• The FY 08 cash and cash equivalents for the company stood at Rs. 1252.6 Crores which is indicative of the good health of the company. Moreover the company has robust operating cash flows which was at Rs. 312.3 Crores at the end of FY 08.

• The stock is current trading at a PE of 13 which suggest decent valuations considering the long term growth prospects of the company. The current economic scenario might bring in some revenue slowdown but long term prospects remain bright.

Business Growth Drivers:

• The current financial turmoil and a period of deleveraging globally means slowdown for the world economy. But in the long run the major part of the growth story for India is yet to come. Growth is however not possible without proper infrastructure and this will engine the growth of the company which is into major infrastructure segments of business.

• Engineers India is also looking into airports as an area of diversification. The huge number of airport modernization projects will help the company get good revenue boost in the near future. Being a government entity it stands to gain from these government issued projects.

• The company is also looking for entry into high growth business areas like renewable energy sources and water related projects. These areas will be the major ones which would fuel revenue growth for the company.

Why Engineers India is a safe Bet:

Companies with high FII holding are the ones which have seen maximum dowside in the recent past. The relentless selling by FII's has clobbered stocks with high FII holding. However, its not the case with Engineers India where the FII holding as on 30th June 2008 was just 1.18%. The promoters hold 90.4% of the company stake and this is the reason why this stock has relatively outperformed in the markets. Being 90.4% stock in the hands of Government, it is one of the best picks as and when Government wants to offload its holdings, it will become a multibagger for all its shareholders.

So with good fundamentals, this stock is also a safe bet and should give good capital gains with a 3-5 year investment perspective.

Disclaimer: Investors and Readers are advised to do their own research before taking positions in any stocks mentioned in the blog. The author of the blog may or may not have positions in the stocks discussed in the blog.