Engineers India stock is a good buy

The stock market has been quite lacklustre in the last few months and lower foreign institutional investor inflows and huge outflow from the mutual fund segment has not helped matters. The retail investors have been pumping their investment in equity mutual funds but through the systematic investment plan route as they understand that this is the best way to accumulate wealth over other asset classes like gold, fixed income and deposits over long term. The FII feels that India is a bright spot among emerging markets and it is one of the few markets that will see growth acceleration from next year onwards. While there has been a tremendous improvement in terms of macro management, the real challenge will be whether the Indian government is able to push through important reforms to propel long term economic growth. Moreover, with slump in commodity prices across the world, the country will ultimately go for a reform push including a current thrust on 4G, Digital India and smart city projects. While the Samvat 2071 (Diwali 2014 to Diwali 2015) was flat as far as the Index was concerned, investors have still made money through investments in mid cap equity mutual fund schemes. Eventhough the current global environment is choppy, India is likely to get a larger pie of investment from the global community because it is considered to be a safe haven. While the banking sector is full of NPA holes, there is actual transformation happening for credit off take to start. This will be felt in favourite sectors like power transmission and distribution companies, auto companies, oil marketing companies and infra and engineering, procurement, construction (EPC) companies. Engineers India Ltd is one stock which fund managers and brokers are betting on for investment purposes. It has reported better set of numbers in the last quarter on the back of overseas consulting orders and domestic improved margins in the turnkey segment. While revenue and EBIDA increased by 15% and 24% respectively, the net profit grew by 18% y-o-y. The company is more interested in clearing the backlog order book and hence, is only accepting fresh orders where margins are better. Key domestic orders are from the Delhi Jal Board, Mumbai Port Trust, BPCL, etc. The outlook for the company is very bright as it is well placed to benefit from expected revival in the Indian economy. On the valuation front the company has high free cash flows and with superlative operating margins, the Engineers India stock deserves a “buy” rating with a target of Rs 190 based on FY 2016-17 earnings.