Eng India Ltd

Engineers India Limited (EIL) is making a further public offer (FPO), through an offer for sale, for 3.37 crore equity shares of Rs.5 each, in the price band of Rs. 270 to Rs. 290 per share. The issue, offering a 5% discount to investors applying under the retail category, represents 10% of the paid-up equity share capital of the company. The issue opens on 27^th July 2010 and closes on 29^th July for QIBs and on 30^th July for the retail and HNI category.

Through the FPO, Government of India (GoI), which presently holds 90.4% in the company, plans to raise between Rs. 894 to 960 crore, depending on the price discovered.  Post the offer, public shareholding in the company will increase to 19.6% from the present 9.6%.

EIL, a leading engineering consultancy company, is primarily focussed on oil and gas and petrochemicals industries and serves clients both in India and globally. For FY10, the company reported consolidated revenues of Rs. 2,014 crore and net profit of Rs. 444 crore, resulting in an EPS of Rs. 13.19 on the present equity of Rs. 168 crore (33.69 crore equity shares of Rs. 5 each). On standalone basis, these numbers were marginally lower; revenues being Rs. 1,993 crore, net profit Rs. 436 crore and EPS at Rs. 12.93.

As on 31^st March 2010, the networth of the company was Rs. 1,152 crore and it had no debts on its books. Cash and bank balance, as on that date, was Rs. 1,795 crore, which amounts to cash of Rs. 53 per share. Its order book as on 31^st March 2010, was Rs. 6,237 crore, which represents over 3 times of FY10 sales.

For the quarter ended 30^th June 2010, on a standalone basis, it reported revenues of Rs. 606 crore and net profit of Rs. 115 crore, with quarterly EPS of Rs. 3.40. It is expected to report FY11 EPS of close to Rs.15.

At the upper end of the price band of Rs. 290, the issue is priced at a PE multiple of 19.33 times, based on FY11 estimated earnings of Rs. 15 per share. After applying the 5% discount for retail investors, the FPO price at the upper end of 290 is discounted by 18.37 times, its forward earnings.

If the cash and bank balance on the company's books is deducted from the share price, the effective price per share for the company's business, clocking annual topline of Rs. 2,000 crore, is Rs. 223, which implies a discount of less than 15 times forward earnings. The same is explained as under:

On comparing the FPO price vis-à-vis the share's current market price of Rs. 318 (Monday's closing price), the pricing looks attractive, inspite of the fact that secondary market price in case of FPO of PSUs are not relevant. Still, on pure fundamentals, share deserves a price of Rs. 300 per share on listing.

After having witnessed poor show for the recent public offerings of PSUs, and keeping an eye on the targeted Rs. 40,000 primary market pipeline for this fiscal, the Government finally seems to have done a fair job with respect to EIL's pricing. The issue is recommended even at the upper end of the price band, as effective cost will be at around 276 per share, thus leaving room for listing gains on table for the prospective investors and good potential of appreciation over the next 6 to 12 months period.