Monday, June 21, 2010

Engineers India FPO: Strong Performer, But Fully Priced?

Engineers India Ltd (BSE: 532178, NSE: ENGINERSIN) is public sector’s answer to private sector’s Punj Lloyd (BSE: 532693, NSE: PUNJLLOYD) or Thermax (BSE: 500411, NSE: THERMAX). But more profitable than both of them. No wonder, the market patted its back with a price performance of over 120% year-to-date. But not many Indians are part of this game due to an over 90% holding by Government. Now all that is set to change with this over 1200 crore FPO. But with a P/E of nearly 25 years, which is also the industry average, Engineers India looks fully priced. Even worse, having a book value of only Rs. 41, the stock also looks expensive, as the current price is nearly 8 times the book. However, EIL's dramatic financial turnaround in 2008-09 continued to hold in 2009-10 too, and might continue, going forward. Being a PSU it is sort of having some assured business, but this may change in the coming years as the Government reduces its stake. Investors should take a call only by looking at the discount from market price, and with a long range outlook.

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