India Infrastructure Push Will Expand Prospects Amid Margin Risks

Key Takeaways

• Expanding into non-traditional sectors and embracing digital capabilities de-risks growth and strengthens positioning in the energy transition.
  
• Strong order inflow, international growth, and a focus on higher-margin services enable sustained earnings quality and potential shareholder return upside.
  
• Shifting toward riskier, lower-margin turnkey projects, mixed management signals, and heavy dependence on public sector clients pose threats to growth, profitability, and order visibility.

Catalysts

An engineering consultancy company, provides design, engineering, procurement, construction, and integrated project management services for oil, gas, fertilizers, steel, railways, power, infrastructure, and petrochemical industries worldwide.

• The company's all-time high order book and strong ongoing domestic/international order inflow, particularly from government infrastructure modernization and refinery/petchem projects, position EIL to benefit from India's large-scale infrastructure and energy security push, supporting sustained revenue growth over the next several years.
  
• EIL's increasing order diversification into non-oil & gas sectors (now 35-45% of the book) such as data centers, institutional buildings, and upcoming nuclear (SMR), biofuel, and hydrogen projects offer new opportunities aligned with the energy transition and green investment wave, likely supporting top line expansion and de-risking from hydrocarbon cyclicality.
  
• Management expects consulting and engineering services (which carry higher margins of 20-25%) to continue growing, with international business (notably from Middle East, Abu Dhabi, and Kuwait) expected to rise, providing scope for steady or improved net margins and higher earnings quality as this mix increases.
  
• Adoption of digital engineering, project management, and high-tech EPCM capabilities positions EIL to capture more sophisticated contracts both domestically and overseas, helping defend or expand margins amid rising client expectations for specialized, value-added services.
  
• EIL's large cash reserve and 50%+ dividend payout ratio, alongside robust execution in value-added segments and early participation in long-duration government initiatives like SMRs and deep-sea projects, point to potential upside to both earnings and shareholder returns if current undervaluation persists.

Engineers India Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Engineers India's revenue will grow by 17.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 16.6% today to 9.2% in 3 years time.
• Analysts expect earnings to reach ₹5.0 billion (and earnings per share of ₹8.74) by about September 2028, down from ₹5.5 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 39.8x on those 2028 earnings, up from 20.5x today. This future PE is greater than the current PE for the IN Construction industry at 20.9x.
• Analysts expect the number of shares outstanding to grow by 0.16% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.91%, as per the Simply Wall St company report.

Engineers India Future Earnings Per Share Growth

Risks

• Increasing exposure to turnkey (LSTK/EPC) projects-which carry higher execution and cost overrun risks compared to the more profitable consultancy segment-could compress overall net margins and profitability if project management inefficiencies or unforeseen expenses arise.
  
• Management guidance and internal communication show significant inconsistency in revenue growth projections (ranging from a conservative 15% to as high as 35%), indicating possible lack of clarity or alignment on future order execution, which could lead to overestimation of earnings growth and investor disappointment.
  
• Although diversification into non-oil and gas infrastructure is underway, the majority of large-ticket orders are still sourced from PSU/government clients in the hydrocarbons sector; this dependence may pose revenue risks if public sector capex slows or if government policy shifts toward renewables and private sector participation accelerate.
  
• Margins in turnkey and newly entered non-oil infrastructure businesses (typically 5–7%) remain much lower than the 20–25% consultancy segment, and a higher share of such lower-margin contracts in the order mix could dilute EBITDA and depress overall return ratios long-term.
  
• Heightened competitive intensity for both domestic and international projects-from both local and global EPC and consulting firms-threatens future order inflows and pricing power, potentially leading to slower order book growth, reduced revenue conversion rates, and downward pressure on net earnings.

Valuation

• The analysts have a consensus price target of ₹234.2 for Engineers India based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹269.0, and the most bearish reporting a price target of just ₹205.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹54.5 billion, earnings will come to ₹5.0 billion, and it would be trading on a PE ratio of 39.8x, assuming you use a discount rate of 14.9%.
• Given the current share price of ₹201.93, the analyst price target of ₹234.2 is 13.8% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.