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EIL Profitability shrinks as order book poses challenges

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In the summer of May 2022 Engineering India Limited (EIL) announced a new vision statement for the company with major hype. The Navratna public sector engineering firm changed its earlier vision and sought ‘To be a world-class globally competitive EPC and total solutions consultancy organization‘ with a new one that seeks ‘To be a Global leader offering total energy solutions for a sustainable future‘.

The tweak might have been over-overlooked by the general investors, but the shorts declined in net profit by 78.56 percent (consolidated) in the 3rd quarter of the current financial year and rang an alarm bell, two sharp to feign unheard. The eps (Earnings Per Share) has also nosedived Rs.0.29 from Rs.1.34 of the previous quarter, it closed to a 79% fall. Interestingly, the company has reported another income of Rs.25 Cr. during the same period, which is largely from bank interest and from its deposit.

The shift from ‘Total Solution Consultancy ‘ To ‘Total Energy Solution’ seemed to have started showing its shrapnel to pierce the company’s order books which is less than even the projected Rs.4,000 Crore till 15 Feb.2023. Although the company vaunted that it will accomplish its order target by the end of this fiscal, and the insider, who is on the know, refuses to believe that.  Echoing the same, an investor, who was present in the company’s interaction with investors post Q3, said, “it will be a miracle if the company reaches anywhere near to the target. “

Even if the company finally makes it, the larger question will continue to hammer the investors about the viability of the orders, given the company’s desperate push in the countries in Africa and the Middle East because of ever-dwindling domestic opportunities.  Although the management boosted about recent orders worth Rs.850 Crore, more than half of the total orders,  from the countries like Guyana and Nigeria, the sheer geopolitical challenges in these regions pose a great threat to economic activities. “it is always welcome to have new contracts abroad, but at the same time the company needs to bolster its errors to tape domestic opportunities ”  said another investor.

Apart from its order book squeezing, EIL is also faced with another peril in declining revenues from its core strength which is consultancy.

The company’s 53 % revenues come from high-cost high-cost LSTK (Lump sum turnkey)projects while the revenues from consultancy, where profitability is much larger, have downded to less than 45%. “This is a greater trouble that reflects the inefficiency of the management, “said the investor. A questionnaire from this newspaper till remains unanswered.

The large-scale employee dissatisfaction is also quite palpable when one interacts with the staff members. ” It is not your talent or commitment that will take you through in your career progression. it is the sycophancy and connections that work,” said and give an employee. “only a chosen few are the preferred fews” he quipped.

EIL, many investors believed, is still in the black largely because of dividend is (Numaligarh Refinery), other incomes, and public sector support. but the company, which will step into its Diamond Jubilee celebration one year from now. has to perfect its credibility before it is too late. only changing vision does not make any changes or betterment. it is the accuracy, accountability, and accomplishments that a company needs, to grow with a focused approach. for now, it is missing in EIL. Part-1- “By….Business Desk ” 

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