ISGEC Heavy Engineering shares hover near highs after Q4 results

ISGEC Heavy Engineering Ltd rose by 5% on Friday on the National Stock Exchange. The shares are hovering near their new 52-week highs of ₹825 apiece seen on 30 June.

ISGEC is a diversified heavy engineering firm engaged in manufacturing and EPC projects business. The company’s March quarter results were decent. Earnings before interest, tax, depreciation and amortization (Ebitda) expanded by 290 basis points year-on-year to 7.4%. One basis point is one-hundredth of a percentage point. “This was led by recovery in product segment margins to 14% while EPC margins increased 30 basis points year-on-year to 4.5% supporting 67% year-on-year Ebitda growth to Rs97.4 crore,” said analysts from ICICI Securities Ltd in a report on 29 June.

Note that this comes at a time when revenues have increased by just 1.5% year-on-year. Even so, Ebitda margin has contracted by 45 basis points compared to the December quarter.

As on 31 March, ISGEC had an order book of Rs6765 crore, which translates into 1.2 times financial year 2021 (FY21) revenues. In FY21, the company derived 82% of its sales from India while sales from outside India contributed around 18% of total revenue.

“Company was able to reduce standalone debt by Rs1700 crore and is likely to turn net-cash FY22E onwards at the standalone level. Given the better-than-expected margins and cash flows, we raise FY21E and FY22E earnings estimates by 12.8% and 12.7% respectively,” points out ICICI Securities’ analysts.

Meanwhile, the near-term outlook is tough given the second covid wave. In its latest earnings presentation, commenting on the covid update for the current June quarter, the company said, “Work in factories had got impacted in April 2021- mainly due to acute shortage of oxygen. The situation has improved now.” Further, the pace of work in project sites got adversely impacted due to huge migration of labour. The company also faced delays in supplies of materials.