Target: ₹80

CMP: ₹62.84

Patel Engineering is an EPC player which specialises in technology intensive areas like hydro, tunnelling, irrigation, water supply, urban infrastructure and transport.

The company enjoys an order book of ₹19,134 crore (Including L1 Orders) as of Q3-FY24, implying 4.3x book to bill. We highlight that order inflow momentum had slowed down in H2FY24, amid elections. We expect the order momentum to pick up post Q1-FY25 (post-election results).

Hydro power, tunnelling and irrigation segment constitute about 93 per cent of the Company’s Orderbook. The company foresees a strong ordering opportunity ahead in the above-mentioned segments such as 19 GW of HEP projects concurred by CEA, State-run hydropower major pursuing pumped storage projects (PSPs) of more than 20,000 megawatts (MW) capacity across states, huge pipeline of 875 tunnels, spanning a length of around 2,600 km and Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) for 2021-26 outlay allocation of ₹ 93,068 crore.

Given the strong opportunity from the key segment driving the topline and earnings growth visibility coupled with stable balance sheet, we initiate coverage with a Buy rating on the stock and assign a target price of ₹80, thereby valuing it at 16x FY26 P/E.