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Patel Engineering – SBI Caps

August 11, 2008

SBI Caps Equity Research has initiated coverage on Patel Engineering with a BUY Rating. Patel Engineering has retained its focus on high margin sectors such as hydropower plant construction. Assuming an implementation rate of 50 percent and 7 crore per MW to be the cost of hydropower generation, there is a demand of 43,750 crore on an annual basis. Hence PEL hydropower segment is geared for immense growth in the years to come.

Power Plant and Real Estate Foray:
Patel engineering is in the process of setting up a 1,200 MW thermal power plant. PEL will monetize its historical land bank and channel the revenues back into asset ownership. PEL has more then 1,000 acres of land bank situated in Maharashtra, Bangalore, Chennai and Hyderabad. Nearly 200 acres of land are situated in etropolitan cities like Mumbai, Chennai and Bangalore etc. The company plans to develop 12.10 million sq. ft. in its first phase with available FSI on land bank.

Patel engineering is expected to report and EPS of Rs 29.5 and Rs 32.3 for FY09 and FY10 respectively. SBI Caps retails a BUy with a Target price of Rs 575.

Sum of the parts valuation:
Multipurpose Engineering – Rs 253
Irrigation Projects – Rs 75
Transport – Rs 64
Land Bank – Rs 131
Subsidiaries – Rs 70

Kotak has a BUY recommendation with a Target of Rs 727.

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