Why Patel Engineering Share Price is Rising

The Indian government’s push for renewable energy is rapidly gaining momentum. While this has created significant gains for companies directly involved in the sector like Suzlon Energy, Inox Green Energy, and Inox Wind, the benefits extend beyond these direct players. Companies that indirectly contribute to achieving ambitious clean energy targets are also reaping rewards. One such beneficiary is Patel Engineering, a company whose expertise helps build the infrastructure needed for renewable energy projects.

Recent Surge in Share Price

After a stellar 149% rally in its share price over the past year, Patel Engineering’s performance in 2024 has been relatively muted until recently. In the last five days, however, the company’s share price surged an impressive 13%. Let’s investigate the forces driving this recent rise.

1. Strong Financial Performance

Patel Engineering’s financial performance in FY24 has been exceptional:

• Net Profit: Soared to ₹3 billion, a 109.8% jump compared to FY23’s ₹1.4 billion.

• Net Profit Margin: Nearly doubled, climbing from 3.5% to 6.5%.

• Finance Expenses: Reduced significantly, with interest expenses dropping to ₹3.6 billion from ₹4.1 billion the previous year.

• Revenue Growth: Total revenue reached ₹46.3 billion, reflecting a 15% year-on-year (YoY) increase. Operating revenue mirrored this positive trend, rising 16.8% YoY to ₹45.4 billion.

• Order Book: Valued at a staggering ₹186.6 billion by the end of FY24.

2. Government Initiatives Drive Growth

Patel Engineering is well-positioned to capitalize on the Indian government’s continued emphasis on infrastructure development. Key factors include:

• Hydropower Expansion: The government’s focus on increasing hydropower capacity by at least 50% in the next decade presents significant opportunities for Patel Engineering.

• Pumped Storage Projects (PSPs): National targets of setting up 47 GW of PSP capacity align strategically with Patel Engineering’s capabilities.

• Jal Jeevan Mission: The government’s substantial budget allocation for water infrastructure development opens another avenue for Patel Engineering, which has demonstrated its potential with successful projects like the ₹12.8 billion water supply project.

• Micro-Irrigation Investments: Expected to lead to more infrastructure projects for water distribution networks, where Patel Engineering has proven expertise.

What Next?

Patel Engineering anticipates a significant increase in its order book for FY25, expecting it to reach around ₹250 billion. The company has ambitious plans for tender participation in FY25, targeting bids worth ₹500-600 billion and estimating a 25-30% bid success rate. This could translate to securing an additional ₹100-150 billion in new orders for FY25.

Debt Reduction Strategy

Patel Engineering has successfully implemented a debt reduction strategy over the past few years by monetizing non-core assets, including claims and real estate. This has resulted in a reduction of approximately ₹30 billion in debt over the past five years. Currently, the company’s debt sits at ₹20 billion, of which ₹12 billion is working capital debt, considered manageable for ongoing operations. The remaining ₹8 billion is a term loan that the company plans to further reduce over the next three to four years through the sale of additional non-core assets, specifically focusing on land parcels.

Conclusion

Patel Engineering is well-positioned to benefit from tailwinds in infrastructure and renewables. Their ambitious plans and debt reduction efforts paint a positive outlook for the company. However, ongoing project controversies and high debt levels are factors to watch, as they could potentially hinder future project wins and the efficient completion of existing ones.

Recent Performance

In the past five days, Patel Engineering’s share price has rallied more than 13%. The stock has surged 25% in the past six months and over 149% in the last year. The stock touched its 52-week high of ₹79 on February 6, 2024, and a 52-week low of ₹24.43 on May 25, 2023.

Disclaimer: FinBrook provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.