UB Engineering Limited
BSE Code: 509992
NSE Code: UBENGG
UB Engineering Limited (UBE), a flagship Company of 'UB Group' Engineering Division is one of the foremost Indian Engineering Companies in the field of installation of industrial plants.
The sphere of UBE's activities encompasses challenging onsite fabrication, installation, Overhauling and maintenance, refurbishment of large industrial plants. Catering to diverse strong growth sectors including power, oil & gas, offshore platforms, steel, cement, fertilizers and petrochemicals, UBE is well placed to benefit from huge investments lined up for infrastructure development.
Business:
With current strong order book of around Rs. 800 crores, the company operates through three primary business units – Projects, Turnkey and Overhaul & Maintenance. UBE has strong operations in domestic as well as international markets. Strategically addressing different clients like BHEL, RPL, Mitsubishi Heavy Industries,
Projects division: Contributing to over 70% of UBE's turnover, the Project division has been the mainstay of the company’s business both in
The activities typically include Installation, testing and commissioning of mechanical, electrical, control and instrumentation works for industrial plants in power, petrochemical, refineries, fertilizers, oil and gas, desalination and metallurgical segment. It also undertakes site fabrication of structures, ducts, stacks, tanks, piping under this segment.
With UBE having executed projects valued at more than Rs480 crores in the past five years, this segment would continue to flourish, capitalizing on the ongoing infrastructure boom.
Turnkey division: Through this division, UBE focuses on EPC projects for power, fertilizers, oil & gas, agrotech and other sectors. Contributing around 15% to the topline, the division offers
complete solutions from planning to commissioning. This division offers engineering and design services including complete electrical, civil and structural construction services for all types of industrial and infrastructure projects. It also undertakes EPC contracts for balance of plant for power projects, co-generation plants and HV / EHV sub-stations upto 400 KV Class. Having executed contracts close to Rs110 crores in the past 5 years, this division is expected to clock strong growth in the coming years.
Overhauling and Maintenance division: This division offers Overhauling and Maintenance services to customers in Power, Refinery, Fertilizers, Petrochemicals, Desalination, Cement, Paper & Pulp and Sugar sectors. The O&M Division contributes approximately 10% to sales turnover and has carried out activities valued at over Rs.110 crores in last 5 years. The services offered include Annual Maintenance, testing, inspection, overhauling and repairs of equipments and machinery, diagnostic surveys and refurbishing and upgradation of industrial plants.
Turnaround in business:
UBE has had a troublesome past in terms of profitability and finance due to scarcity of funds and lack of promoter focus. Given the capital-intensive nature of the business, inadequate funds forced the company to raise debt to meet its financial needs. Simultaneously, the fund constraints forced UBE to accept orders even at unfavorable terms – fixed price contracts bid in partnership and subcontracting, leading to margin erosion and mounting losses. Due to inability to generate positive cash flows, UBE was unable to service the borrowings leading to a heavy debt burden. While losses accumulated to Rs49.6 cores by FY07, the company had a negative net worth of Rs37.3 crores as on
However during FY07, promoters infused the much-needed capital of Rs. 44 crores and enabled UBE to clear the huge debt burden by initiating one time settlement with banks. To further recapitalize UBE, the company has raised additional equity of Rs59.7crores through just concluded rights issue which will be utilized to repay promoter debt and finance business operations. With this, UBE is expected to show a positive net worth from FY08. With financial power leading to higher working capital, UBE can now bid for bigger and better projects solely on variable priced contracts basis to be executed in house, leading to higher margins and therefore, a gradual return to profitability. We expect UBE to show profitability in FY08 and achieve a net profit of Rs 36 crores in FY10.
Investment rationale:
With sufficient capital now, we expect it to capitalize on its core competency and revive profitability. With its strong project management skills, vast experience in different sectors and strong order book position, UBE is headed for new strong beginning. With government initiative to develop and improve infrastructure across the segments, UBE is all set to gains share in these high growth sectors.
Concerns:
Any delay in payments by its clients would lead to higher debtors and higher working capital cycle. Being in EPC segment, it also faces stiff competition from players like HCC, L&T, Punj Lloyd Ltd etc. Any delay in commissioning of projects, change in government policies or economic downturn would affect the revenues and margins.
Valuations:
UBE has good long tem growth prospects backed by development of various infrastructure projects, robust industry scenario and strong order book position providing sustainable revenue visibility. UBE margins are set to increase significantly as it would now be able to bid solely on variable price basis. UBE’s revenues are expected to grow at 45% over FY07-FY10E. At CMP of Rs 102.4 it trades at a P/E of 28.84x its FY08 earnings and at 14.17x & 4.89x its FY09 & FY10 earnings respectively.
| Sales and Profit Projections | |||||
| | Q3 | Annual | Annual | Annual | Annual |
| in Rs. Crore | FY08 | FY07 | FY08(E) | FY09(E) | FY10(E) |
| Net sales | 50.01 | 216.30 | 202.00 | 353.00 | 650.00 |
| OP | 3.20 | -68.90 | 11.62 | 22.95 | 58.50 |
| PAT | 1.48 | -26.94 | 6.06 | 12.36 | 35.75 |
| EPS (in Rs.) | 1.20 | 2.13 | 3.55 | 7.24 | 20.94 |
| Capital | 12.33 | 12.33 | 17.07 | 17.07 | 17.07 |
| Price and Value Ratos | |||
| Price | 102.40 | Date | |
| PE | 28.84 | PB | 3.49 |
| Book value per share | 29.37 | EV | 205.60 |
| EV/EBIDTA | 17.72 | Mcap | 174.77 |
| Shareholding Pattern | |
| Share holding | Mar 2008 |
| Promoter owned | 40.74 |
| Public owned | 47.07 |
| FIIs owned | 1.03 |
| Others owned | 11.16 |
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