Target: ₹76

CMP: ₹48.89

Patel Engineering (PEC) founded in 1949, is into construction of complex civil infra work like hydro power plant, tunnelling, Urban Infra, irrigation and others. It has seen multiple capex cycle in India, and currently has an order book of ₹19,100 crore (which is 4x TTM revenue).

Up-cycle in its order inflow has started post Covid and in FY23 it has received highest ever annual order inflow of ₹7,800 crore. Company is one the major beneficiary of Infra capex for hydro plant & it expect bidding opportunity of 30GW+ in sector. After reporting revenue CAGR in double digit at 18 per cent over FY20-23, its YTDFY24 revenue increased by 20 per cent y-o-y. Leverage in PEC has tapered off to 0.6x in 9MFY24 vs about 1x before covid. This is led by internal accrual, non-core asset sale & equity raise in the last 4 years.

PEC has reported positive OCF in the last 4 years and its working capital days is 100 with large part coming from sticky arbitration claims and land. Out of ₹1,200 crore arbitration awards it expects recovery of ₹200-300 crore in the next one year & receive ₹200-300 crore from sale of land in the next 2 years. Both will enable it to reduce leverage & provide funds for working capital.