The Engineers India’s stock dropped 14 per cent on August 13, after a 38 per cent year-on-year fall in the company’s net profit to ₹80 crore in the June 2014 quarter.

Poor performance in the consultancy division (constituting 50-60 per cent of total revenue) was the pain point for the company, which also provides design, EPC and project management services. While consultancy revenue dropped 20 per cent, profit margin in this segment came down to 24 per cent from 39 per cent in the year-ago period.

Even as Engineers India faced trouble due to the economic slowdown, the stock has rallied 92 per cent in the last one year, riding on the market preference for cyclical stocks. It now discounts the trailing-12 month earnings by 19 times.

Investors can expect profitability to improve once the economy picks up and industrial capital spends rise.

While the turnkey division revenue could still be lumpy, and its margins not uniformly accruing, the consulting segment would provide more stability to earnings growth.

The latest order book of ₹3,930 crore is tilted 70:30 in favour of the consulting division. The company has won higher-margin international consulting orders during the first quarter, with orders worth ₹1,170 crore coming from countries such as Nigeria and Oman.

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