Patel Engineering (PATEN)

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Company Background Patel Engineering is a prominent player in the hydro power and irrigation space. The company's strength in terms of technology and experience is likely to ensure that it has an edge over competitors in this space. Riding on its experience in constructing tunnels and pump houses for hydropower projects, Patel has also strengthened its position in the irrigation sector. Its project basket includes tunnels, dams, underground hydroelectric and irrigation projects, water conductor systems, nuclear and thermal power projects, bridges and marine works, highways, and residential and commercial complexes. The company has carved out a niche in underground works in the hydroelectric, transport and urban infrastructure space with its technical expertise in RCC works and micro tunneling. Source: ICICIdirect Research Patel Engineering Multipurpose power Irrigation Projects Transportation 56% of current order book (Rs 3,080 crore) 21% of current order book (Rs 1,155 crore) Share holding pattern Shareholder % holding Promoters 54.31 Institutional investors 19.37 General Public 26.15 Promoter & Institutional holding trend (%) 60 50 40 30 20 10 0 23% of current order book (Rs 1,265 crore) EBITDA: 17-22% EBITDA: 10-13% EBITDA: 7-9% Source: Company, ICICIdirect Research ICICIdirect | Equity Research Q3 2007 Q2 2007 Q1 2007 Q4 2006 Promoters Institutions General Public 2 | P age Real Estate 15.6 million sq ft developmental plan in phase 1 EBITDA: 45-50%
INVESTMENT RATIONALE • To capitalise on increased thrust on infrastructure Patel’s core competence is construction of dams and powerhouses. With the increased focus on enhancing power generation capacity, the company's strength in terms of technology and experience is likely to ensure that it has an edge over competitors. The 11th Five-Year Plan (2007-2012) has envisaged $492 billion for infrastructure spending. Through its subsidiaries in the US, Patel has access to technology that gives it an advantage to bid for new projects. Roller Compacted Concrete (RCC) technology for building dams reduces project execution time and cost by replacing cement with fly ash. RCC is internationally accepted and has already been used by the company in Maharashtra. Exhibit 3: Order-book break-down by segment (FY07) 22% 19% Source:: Company, ICICIdirect Research 12% Exhibit 4: Hydropower opportunity Particulars 11 3 | Page th Five Year Plan 12 th Five Year Plan Total MW 20,000 50,000 70,000 Implementation ratio (%) 40 40 40 Cost per MW (Rs crore) 5 5 5 Total cost (Rs crore) 40,000 100,000 140,000 Patel’s market share (%) 22 22 22 Opportunity size for Patel(Rs.crore) 8,800 Source: Planning Commission, ICICIdirect Research 22,000 30,800 16% 31% Power Roads Real estate Water and irrigation Others Hydro and thermal power: A huge opportunity The Central government plans to increase power generation capacity by 20,000 MW in the 11th Five Year Plan, and 50,000 MW in the 12th Plan. Currently, Patel has a 22% market share in hydro and thermal power projects. At an investment of Rs 5 crore per MW and assuming a 40% implementation ratio, we believe the potential opportunity size for the company is Rs 30,800 crore. Patel is already a major player in the hydropower space and has contributed to a total of 7,000 MW out of the country’s total operating hydropower capacity of 32,000 MW. Patel is present in power, roads, and irrigation segment and will be a major beneficiary of the increased thrust on infrastructure
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Page 17 and 18: Cash Flow statement FY07 FY08E FY09

Patel Engineering (PATEN)

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