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Monday, October 22, 2007

Patel Engineering: Powered by high margin businesses


Patel Engineering’s consolidated results for the quarter-ended September 2007 reflects the company’s increasing focus on high-margin businesses as well as the gaining traction of its subsidiaries.

While consolidated revenues rose 39 per cent to Rs 340 crore, net profits also grew by 39 per cent. Operating profit margins jumped by 130 basis points to 16.4 per cent. On a standalone basis, the OPMs stood at close to 18 per cent for the quarter, indicating increased contribution of high margins projects from the hydro power sector. With hydro power projects continuing to account for 56 per cent of the current order-book of Rs 5,400 crore, the company is likely to enjoy strong profit margins in future too.

That the subsidiaries have been ramping up their revenues is evident from the Rs 100 crore increase in consolidated sales (relative to standalone sales).

The company’s realty subsidiary may soon accelerate the earnings growth rate, what with plans already underway for the land bank.

Interestingly, unlike a few other infrastructure companies which hold land bank, but through their subsidiaries, Patel has chosen to retain all its land bank in the parent company and has instead granted development right to the subsidiary Patel Realties India. Therefore the benefit arising out of the land could well percolate into the per share earnings of the parent company, thus benefiting shareholders. While the company’s foray into power generation (thorough its subsidiary) as an independent power producer in Gujarat for 1,200 MW for thermal power is at a preliminary stage, this segment may also add to revenues over the long term.