Patel Engineering Stock Set For 54% Upside, Says IDBI Capital As It Initiates Coverage With 'Buy'

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IDBI Capital Report

A strong order book, with visibility at four times the trailing twelve months revenue, anticipated inflows from the Hydro segment, and strategic diversification across geographical and sectorial lines, are set to drive the company's topline growth.

The company's robust construction capabilities, backed by extensive experience in executing highly technical and advanced projects, are expected to play a pivotal role in its growth trajectory. Operating margins are expected to remain stable, supported by a significant portion of the order book in the Hydro segment. Additionally, a low debt-to-equity (debt/equity) ratio and improving return ratios reflect the company’s strong financial position.

At current market price, the stock is trading at valuations of 16x FY25E PE, 13.5x FY26E PE, and 11.5x FY27E PE. We have employed the sum-of-the-parts valuation methodology, assigning a PE of 12 times FY27E for the core construction business, resulting in a valuation of Rs 63 per share.

Additionally, we have valued the land assets at Rs 3 per share, other investments at Rs 3 per share, and recoveries from arbitration claims at Rs 14 per share.

Combined, the investments contribute Rs 20 per share, which, after applying a 65% valuation factor, translates to Rs 14 per share. In total, this yields a target price of Rs 76 per share, offering a potential upside of 53%. Based on these valuations, we initiate coverage on the stock with a Buy rating.

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