1

SYNOPSIS

Engineers India Limited (EIL) was set

up in 1965 to provide engineering and

related technical services for

petroleum refineries and other

industrial projects primarily in India.

The company has broadened its

activities in other areas such as

pipelines, petrochemicals, oil and gas

processing, offshore structures and

platforms, fertilizers, metallurgy and

power.

Net Sales and PAT of the company are

expected to grow at a CAGR of 28%

and 21% over 2010 to 2013E

respectively.

During the quarter ended the robust growth of revenue increased by 17% to Rs.7924.96 million.

During the quarter, the company has

reported Net Profit increased to

Rs.1512.61 million from Rs.1224.53

million in previous year same quarter.

Years Net sales EBITDA Net Profit EPS P/E

FY 11 28232.84 8002.98 5225.19 15.51 16.12

FY 12E 35354.61 9607.61 6462.16 19.18 13.03

FY 13E 42071.98 11397.81 7673.84 22.78 10.98

Stock Data:

Sector: Engineering

Face Value Rs. Rs.5.00

52 wk. High/Low (Rs.) 322.50/195.00

Volume (2 wk. Avg.) 62000

BSE Code 532178

Market Cap (Rs.In mn) 84234.00

Share Holding Pattern

1 Year Comparative Graph

Engineering India Ltd BSE SENSEX

C.M.P : Rs.250.00 Target Price : Rs.290.00 Date : 02ndMar 2012 BUY

ENGINEERS INDIA LTD

Result Update: Q3 FY 12

2

Peer Group Comparison

Name of the company CMP(Rs.) Market

Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Engineers India Ltd 250.00 84234.00 15.51 16.12 5.84 100.00

Veritas India 149.80 3626.7 2.69 55.69 4.73 5.00

Artefact Proj 32.10 177.4 2.52 12.74 0.67 7.50

Investment Highlights

Q3 FY12 Results Update

Engineers India Ltd disclosed results for the quarter ended Dec 2011. Net sales

for the quarter moved up 17% to Rs.7924.96 million as compared to Rs.6770.99

million during the corresponding quarter last year. During the quarter, the

company has reported Net Profit increased to Rs.1512.61 million from

Rs.1224.53 million in previous year same quarter. The Basic EPS of the company

stood at Rs.4.49 for the quarter ended Dec 2011.

Quarterly Results - Standalone (Rs in mn)

As At Dec-11 Dec-10 %change

Net sales 7924.96 6770.99 17

PAT 1512.61 1224.53 24

Basic EPS 4.49 3.63 24

3

Basic EPS of the company stood at Rs. 4.49

4

Break up of Expenditure

Expenditure for the quarter stood at Rs.6102.56mn, which is around 17% higher

than the corresponding period of the previous year. Construction Material cost of

the company for the quarter accounts for 32% of the sales of the company and

stood at Rs.2575.42mn from Rs.1699.90mn of the corresponding period of the

previous year. Sub contract Expenses decreased 12% YoY to Rs.1558.11mn from

Rs.1772.13mn and accounts for 20% of the revenue of the company for the

quarter.

OPM and NPM for the quarter stood at 29% and 19% respectively from 28% and

18% respectively of the same period of the last year.

5

Segment Revenue

Board declares Interim Dividend

Engineers India Ltd has declared an Interim Dividend @ 40% of paid up equity

share capital equivalent to Rs. 2/- per share (Face value of Rs. 5/- per share).

Company Profile

Engineers India (EIL), incorporated in 1965, is engaged in the business of providing

engineering and related technical services for petroleum refineries and other

industrial projects. The company has broadened its activities in other areas such as

pipelines, petrochemicals, oil and gas processing, offshore structures and platforms,

fertilizers, metallurgy and power.

EIL has emerged as Asia's leading design and engineering company that offers

complete range of project services. In order to offer its services, EIL has explored new

areas such as highways and bridges, IT, airports, mass rapid transport systems,

ports and terminals, power projects, non-conventional / renewable energy sources,

6

specialist materials and maintenance services, intelligent buildings, water and urban

development projects.

The company has received ISO 9001:2000 certifications for quality management.

Headquartered in New Delhi, company has branches offices located at Mumbai,

Kolkata, Chennai and Vadodara. Internationally company’s offices are located at

London, Abu Dhabi, Kuwait, Qatar, Malaysia and Australia.

EIL operates a wholly-owned subsidiary namely, EIL Asia Pacific Sdn Bhd in Malaysia

and Certification Engineers International that is engaged in the business of

undertaking independent certification and third party inspection assignments.

The company has formed strategic alliances with various companies such as UK-

based VAI Industries for iron and steel plants; Deutsche Montan Technologies GmbH

of Germany for coke oven-by product plants/gas cleaning systems; IOCL (R&D) for

technology and catalyst for DHT and hydrotreater projects in India; GAIL India for

overseas projects in LPG extraction and Pipeline transfer and many more.

EIL has set up 50:50 joint venture companies with Tata Projects viz., TEIL Projects

for undertaking EPC projects for hydrocarbon, power and other sectors has already

been incorporated. For executing EPC projects in UAE, the company has formed a JV

with Tecnimont S.p.A., Italy.

Services

EIL provides complete range of services needed to conceptualise, design, engineer and

construct projects to meet the specific requirements of its clients.

Pre project Services

Feasibility Studies.

Environment Impact Assessment.

Technology & Process Licensor Selection.

Cost Estimation.

7

Project Implementation Services

Project Management.

Process Design.

Detailed Engineering.

Procurement.

Construction Management.

Commissioning and Plant Start-up Assistance.

Specialist Services

Heat and Mass Transfer Equipment Design.

Environment Engineering.

Information Technology.

Specialist Materials and Maintenance.

Plant Operations & Safety including HAZOPS & Risk Analysis.

Refinery Optimization Studies.

Yield & Energy Optimization Studies.

Turnkey Contracts

Engineering.

Procurement.

Construction & Commissioning.

8

Financial Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in million) FY10A FY11A FY12E FY13E

12m 12m 12m 12m

Description

Net Sales 19937.97 28232.84 35354.61 42071.98

Other Income 1836.71 1603.66 2023.75 2226.12

Total Income 21774.68 29836.50 37378.35 44298.10

Expenditure -15027.94 -21833.52 -27770.74 -32900.29

Operating Profit 6746.74 8002.98 9607.61 11397.81

Interest -12.91 -14.67 0.00 0.00

Gross Profit 6733.83 7988.31 9607.61 11397.81

Depreciation -129.05 -142.97 -117.57 -129.33

Profit before Tax 6604.78 7845.34 9490.04 11268.48

Tax -2249.03 -2620.15 -3027.88 -3594.65

Profit after Tax 4355.75 5225.19 6462.16 7673.84

Equity Capital 561.56 1684.68 1684.68 1684.68

Reserves 10585.5 12736.51 19198.67 26872.51

Face Value(Rs.) 10.00 5.00 5.00 5.00

Total No. of Shares 56.16 336.94 336.94 336.94

EPS 77.57 15.51 19.18 22.78

*A=Actual, *E=Estimated

9

Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in million) 30-Jun-11 30-Sep-11 31-Dec-11 31-Mar-12

3m(A) 3m(A) 3m(A) 3m(E)

Description

Net Sales 8536.00 8274.20 7924.96 10619.45

Other Income 417.74 539.59 444.34 622.08

Total Income 8953.74 8813.79 8369.30 11241.52

Expenditure -6738.56 -6646.45 -6102.56 -8283.17

Operating Profit 2215.18 2167.34 2266.74 2958.35

Interest 0.00 0.00 0.00 0.00

Gross Profit 2215.18 2167.34 2266.74 2958.35

Depreciation -29.82 -28.72 -28.11 -30.92

Profit before Tax 2185.36 2138.62 2238.63 2927.43

Tax -704.61 -672.18 -726.02 -925.07

Profit after Tax 1480.75 1466.44 1512.61 2002.36

Equity Capital 1684.68 1684.68 1684.68 1684.68

Face Value(Rs.) 5.00 5.00 5.00 5.00

Total No. of Shares 336.94 336.94 336.94 336.94

EPS 4.39 4.35 4.49 5.94

*A=Actual, *E=Estimated

10

Key Ratio

Particulars FY10 FY11 FY12E FY13E

EPS (Rs.) 77.57 15.51 19.18 22.78

EBITDA Margin (%) 33.84% 28.35% 27.17% 27.09%

PAT Margin (%) 21.85% 18.51% 18.28% 18.24%

P/E Ratio (x) 3.69 16.12 13.03 10.98

ROE (%) 39.08% 36.23% 30.94% 26.87%

ROCE (%) 59.37% 54.50% 45.44% 39.46%

EV/EBITDA (x) 2.39 10.53 8.77 7.39

Book Value (Rs.) 198.50 42.80 61.98 84.76

P/BV 1.44 5.84 4.03 2.95

Charts:

11

12

13

Outlook and Conclusion

At the current market price of Rs.250.00, the stock is trading at 13.03 x FY12E and 10.98 x FY13E respectively.

Price to Book Value of the stock is expected to be at 4.03 x and 2.95 x respectively for FY12E and FY13E.

Earning per share (EPS) of the company’s earnings for FY12E and FY13E is seen at Rs.19.18 and Rs.22.78 Respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 28% and 21% over 2010 to 2013E respectively.

During the quarter ended the robust growth of revenue increased by 17% to Rs.7924.96 million.

During the quarter, the company has reported Net Profit increased to Rs.1512.61 million from Rs.1224.53 million in previous year same quarter.

On the basis of EV/EBITDA, the stock trades at 8.77 x for FY12E and 7.39 x for FY13E.

14

We expect that the company will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.290.00 for Medium to Long term investment.

Industry Overview

The Engineering industry in India primarily deals with the design, manufacture and

operation of structures, machines or devices; design being an integral part of

engineering. The Engineering sector is the largest of all industrial sectors in India and

accounts for about 12 per cent of the gross domestic product (GDP).

Market Size

Engineering Export Promotion Council (EEPC) India, the apex body of engineering

exporters, has stated that engineering exports recorded a remarkable growth during

the first half of 2011. The engineering exports grew by 94 per cent and 60 per cent

during Q1 and Q2 respectively in 2011.

Moreover, EEPC has been urging the Government of India to start direct shipping

services between India and Latin America with a view to optimise trade potential that

is unexploited with the countries such as Colombia, Chile, Brazil and Argentina.

Design & Engineering- Key Developments

• Elecon Engineering Company Ltd’s Material Handling Equipment (MHE)

Division has got an order worth Rs 297.2 million (US$ 6.05 million) from Bharat

Heavy Electrical Ltd (BHEL) for a project in Bihar. The contract entails design,

engineering, manufacturing, supply and erection & commissioning for the 2 x

250 mega watt (MW) expansion project.

• Autodesk Inc, a pioneer in 3D design, engineering and entertainment software,

has launched its product portfolio named AutoCAD 2012 in India. The new

range of products in the portfolio gives immense options for people who deal

with popular design, documentation and collaboration software.

• Many European original equipment (OE) manufacturers are establishing their

design and engineering back offices in India. The move would create job

15

opportunities for the design, hardware and software engineers which would not

only give India a niche position in the global market, but would also diversify its

export basket. Gujarat is increasingly becoming a hub for international and

domestic automobile companies. Apart from ancillary auto hubs in the state,

there is a plan on the cards to develop a precision engineering park in Dahej.

Design & Engineering- Key Investments

• US-based innovative products maker 3M Inc is making an upfront investment

of around Rs 100 crore (US$ 20.38 million) in its Indian research and

development (R&D) facility. The investment has been done to localise a range of

company’s products to satiate burgeoning Indian markets.

• The miscellaneous mechanical and engineering industries’ sector-wise foreign

direct investments (FDI) inflows from April 2000 to July 2011 was calculated at

US$ 2,129.21 million, as per the Department of Industrial Policy and Promotion

(DIPP).

• Chennai is fast emerging as a hub in engineering design, R&D and product

development for a number of global players. Finnish group Stera, has set up its

first factory in India in Chennai at a cost of around US$ 4 million. The company

specialises in production of mechanical and electronic assemblies.

Meanwhile, the National Automotive Testing and R&D Infrastructure Project (NATRiP)

is aiming to complete its work in Chennai by the end of 2012. The project entails

setting up of testing and research centres at automotive hubs in the country.

Engineering Services Outsourcing (ESO)

Almost a decade ago, the nature of engineering work being outsourced involved basic

and conventional services like creating digital models and drawings and sending them

back to the client who would then incorporate those in his designs. But with change in

times, India has progressed immensely from the low-end business process outsourcing

(BPO) work to high-end engineering services outsourcing (ESO) activities.

India is anticipated to play a vital part on global canvas when it comes to outsourcing

of engineering services. India’s vast pool of skilled and young talent coupled with cost-

16

effective ecosystem has made it a hot outsourcing destination. For instance, global

automobile and aerospace giants are increasingly outsourcing engineering services

such as designing to Indian service providers. The country is expected to account for

one-fourth of the global ESO business by 2020, raking in about US$ 40 billion.

Moreover, a joint study by NASSCOM and Booz Allen Hamilton (a strategy and

technology consulting firm) reveals that the global engineering services market is

estimated to touch US$ 1,100 billion mark by 2020, of which the outsourced

component is projected to be around US$ 200 billion.

Government Initiatives

India’s Defence Research and Development Organisation (DRDO) and its British

counterpart Defence Science and Technology Laboratory have signed a ‘Letter of

Arrangement’ to collaborate their efforts in the fields of science and engineering to

work on various projects such as unmanned aerial vehicles and advanced explosives.

India’s Department of Science & Technology is being assisted by The United States

National Science Foundation (NSF) to develop former’s Science and Engineering

Research Board, which will boost the infrastructure and capacity for research in India.

The government of India is also contemplating to increase expenditure on R&D from

current 1 per cent to 2 per cent of gross domestic product (GDP) by the end of 12th

Five Year Plan.

“A US$ 5 billion fund has also been allocated to support the Private Sector in the areas

of innovation, R&D and intellectual property rights (IPR), under the aegis of the

‘National Electronics Mission”, revealed PS Narotra, Senior Director & Head,

International Corporation & Electronics Hardware Industry, Department of

Information Technology, Ministry of Communication & IT, Government of India.

Road Ahead

A study by Frost & Sullivan has stated that the automotive engineering services

market in India is expected to touch US$ 102 million by 2015 as against US$ 74.4

million registered in 2009 with a compounded annual growth rate (CAGR) of 7.9 per

17

cent wherein about 40 per cent of the automotive industry’s engineering activities

would be outsourced to engineering service providers.

According to a report from ‘Research and Markets’, the Computer Aided Engineering

(CAE) market in India is estimated to grow at a CAGR of 23 percent over the period

2010-2014. Increased ability among the engineers for design optimisation and

validation has been growing this segment of Indian engineering industry. Automotive,

Aerospace and Manufacturing industries are the major end-users of CAE in India.

According to a report titled ‘The Futures Report 2011’ by Global Futures and

Foresight, India's Engineering Research & Development (ER&D) providers could corner

a major share (40 per cent) of global offshore revenues in 11 key verticals by 2020.

Further Booz & Co added that overall expenditure on ER&D has increased from US$

980 billion in 2008 to US$ 1.1 trillion in 2009 (12 per cent growth) and is projected to

enhance to US$ 1.4 trillion by 2020. ER&D market is majorly driven by demand from

sectors like computing systems, medical devices, energy, and infrastructure.

_______________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

18

Firstcall India Equity Research: Email – info@firstcallindia.com

C.V.S.L.Kameswari Pharma

U. Janaki Rao Capital Goods

A. Rajesh Babu FMCG

H.Lavanya Oil & Gas

Kushwaha Ashish Diversified

Firstcall India also provides

Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO’s, QIP’s, F.P.O’s,Takeover

Offers, Offer for Sale and Buy Back Offerings.

Corporate Finance Offerings include Foreign Currency Loan Syndications,

Placement of Equity / Debt with multilateral organizations, Short Term Funds

Management Debt & Equity, Working Capital Limits, Equity & Debt

Syndications and Structured Deals.

Corporate Advisory Offerings include Mergers & Acquisitions(domestic and

cross-border), divestitures, spin-offs, valuation of business, corporate

restructuring-Capital and Debt, Turnkey Corporate Revival – Planning &

Execution, Project Financing, Venture capital, Private Equity and Financial

Joint Ventures

Firstcall India also provides Financial Advisory services with respect to raising

of capital through FCCBs, GDRs, ADRs and listing of the same on International

Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and

other international stock exchanges.

For Further Details Contact:

3rd Floor,Sankalp,The Bureau,Dr.R.C.Marg,Chembur,Mumbai 400 071

Tel. : 022-2527 2510/2527 6077/25276089 Telefax : 022-25276089

E-mail: info@firstcallindiaequity.com

www.firstcallindiaequity.com