Engineers India FPO to open on 27th July

Moneylife Digital Team 26 July 2010

The government will raise Rs1,100-Rs1,200 crore by divesting its 10% stake in the engineering company. Is the FPO worth participating?

State-run Engineers India Ltd (EIL) is slated to hit the markets on 27 July 2010 with its follow-on public offer (FPO). EIL is offering 3.36 crore shares with a face value of Rs5 each. The company has set the price band at Rs270-Rs290 per share. On Monday, the stock has plunged 6.2% at Rs316.75 on the Bombay Stock Exchange (BSE).

The issue opens for qualified institutional buyers (QIBs) on 27th July and for retail and non-institutional investors from 30th July. The government is expecting to raise Rs1,100-1,200 crore through a 10% stake dilution. Post-FPO, government's stake will reduce to 80.40% from the current level of 90.4%.

EIL has provided consultancy and project implementation services to refineries, petrochemical complexes, offshore platforms, pipelines, ports, fertilizer and mining and metallurgy projects. In infrastructure, it has provided engineering consultancy services to airports, highways, flyovers, bridges and water projects. While EIL has a good track record and is the pre-eminent engineering and consultancy firm in the country, it continues to be hampered by government controls.

EIL posted a net profit of Rs114.56 crore for the quarter ended 30 June 2010 on net sales of Rs606 crore. For the year ended 31st March 2010, it reported a net profit of Rs439 crore. It had a negative cash flow of Rs130 crore as on 31 March 2010.

Its price earnings ratio (P/E) stands at 20.47 (lower band) and 22 (at the upper band) based on the EPS of 31st March, 2010 and 21.32 (annualised) as per the EPS of quarter ended 31st June, 2010.

Its net profit has dipped by 8% in the first quarter of this fiscal at Rs114 crore compared to Rs125 crore in the fourth quarter of FY 2009-10. Its net sales also saw a decline of 5% in the June quarter 2010 at Rs606 crore from Rs640.34 crore during the fourth quarter of FY2009-10.

Similarly, during the March quarter, EIL's net profit plunged 22% at Rs125 crore compared to Rs159 crore during the corresponding period last year. The company's net sales have grown at an average of 39% over the last five quarters while its operating profit has increased at an average rate of 69% over the same period.

The company has an order book of Rs6,236 crore as on 31 March 2010. HSBC Holdings Plc, ICICI Securities, SBI Capital Markets and IDFC Capital are lead book running managers to the FPO.

The company has set aside 7.12 lakh shares for employees and 1.15 crore shares are reserved for retail investors. Retail investors and employees will be entitled to the same discount through the book building route.

Comments

User

k a prasanna

1 decade ago

After the recent bonus and split - the company had issued bonus shares in the ratio of 2:1, it had also gone for a stock split, with the face value of a unit being cut to Rs 5 from Rs 10, the company has Rs 168.45cr equity capital consisting of 33,69,36,000 equity shares of Rs 5/- each. Assuming that the company achieves a growth of 30% plus for the FY 11, the EPS would be around Rs 17/- The shares are presently quoting around Rs 340 in the exchanges. (28 PE). Because of low floating stock, the valuations are on the high side.

The recent NMDC’s FPO offer is still quoting below the offer price. The BRLMs and the government should realistically price this issue, leaving some thing for the investors.
RECOMMENDATIONS:
If the issue is going to be priced by less than 15 PE of its FY 11 expected earnings – that is less than Rs 240/- APPLY. Other wise skip the issue.