Five Pillars To Boost Stock

It is a remarkable professional journey. With more than three decades at Engineers India Ltd (EIL), CMA Sanjay Jindal started in an entry-level position, and became Director (Finance) in June 2022. But more important, and more exciting than that is the unbelievable story of the rise and rise in the company’s stock price, ever since he became the finance head. As the Covid pandemic spread globally, stock markets and stock prices initially tanked. EIL too slumped from a high of over Rs 120 (November 2019) to below Rs 60 in March 2020. Thereafter, stocks recovered, and surged. But not EIL. It did cross the Rs 80 mark a few times, but came down below Rs 60 in June 2022.

After that low, there was no stopping the resurgence of the stock. EIL kept going up and up, faster than most stocks, and with greater speed than the Indian indices. In February 2024, it crossed the Rs 260 mark, and was quoted at over Rs 220 at the time of going to press, after having dipped to below Rs 190. From the lowest point to the highest one, it marked a swooning and maddening increase of more than four times. From the low to current price, it still indicated a crazy growth of more than three-and-a-half times. Between March 2020 and now, the Sensex (Bombay Stock Exchange Index) zoomed by around 2.7 times. “Over the years, EIL has significantly enhanced shareholder value, one of the transformative changes in value creation,” says Jindal.

Obviously, one of the key drivers lies in improved financials in the past two years. In 2022-23, the company earned the highest revenue in the past decade. This was after two years of falling revenues, first due to Covid in 2020-21, and several factors in 2021-22. Although profit after tax in 2022-23 was lower than the pre-Covid years, it was more than 30% higher than the figure in Covid year (2020-21). The investors felt that profits were likely to go up. This was because of the strong and robust order inflows, which increased from Rs 1,687 crore in 2021-22 to Rs 4,708 crore in 2022-23, or around three times higher.

In terms of financial ratios, trade receivables, as a measure of number of days of revenues, were down from 47 to 39 days. The working capital position, which was negative in 2021-22, turned positive in 2022-23, with more than 145% increase during the period. Further as on September 30, 2023, the working capital is 192.43 crore. “EIL witnessed a remarkable transformation in its financial landscape. The proactive approach to financial management, encompassing prudent budgeting, contribution to strategic investment decisions, improving financial efficiency, and controlling expenses, fortified the company's financial position and bolstered its resilience against market volatilities,” explains a confident CMA Jindal.

He adds, “I implemented a comprehensive working capital management strategy aimed at optimizing liquidity, efficiency, and profitability. Through streamlined receivables management, and judicious payables practices, the strategy effectively unlocked cash trapped in the company's operations, bolstering its working capital position, and enhancing financial agility.”

Revenues and order books improved due to several reasons. Other income from strategic investments went up. The company bagged projects in new geographies, especially in overseas markets. Its annual report (2022-23) states that these included Dangote Oil Refinery Project in Nigeria with a capital outlay of around $20 billion, “with highest single train refining capacity in the world.” Then there was the Mongol Refinery Project in Mongolia, with a line of credit from the Indian government. EIL forayed into Latin America through an order for consultancy services in Guyana. It strengthened its ongoing ties with Abu Dhabi National Oil Company. “The company achieved geographical diversification through maximization of turnover from foreign projects, as overseas business grew frenetically to more than Rs 600 crore in 2022-23, as against Rs 36 crore earlier,” says Jindal.

Strategic diversification became a focus area. According to the 2022-23 annual report, EIL inked an MoU with Munitions India, a PSU under Ministry of Defence, for “execution of plant modernization and infrastructure projects.” Munitions India is the country’s largest maker of ammunition and explosives for the Army, Navy, Air Force, and Paramilitary Forces. “The MoU heralds EIL’s foray into the Defence sector, giving a fillip to our diversification into newer areas.” Due to such diversifications, EIL procured Rs 33,300 crore worth of goods, services, and works  for various projects in 2022-23. While 46% was procured from the government's e-market portal, 48% was bought from micro and small enterprises to fulfill government’s vision of Atma-Nirbhar Bharat.

“EIL showcased an exemplary model of maximizing shareholder value by strategically focusing on revenue growth. A plethora of growth initiatives fuelled EIL’s geographical expansion trajectory. From identifying lucrative market opportunities, including foreign markets, to fostering strategic partnerships, diversifying revenue streams, and geographical diversification, the initiatives steered the company towards sustained growth and profitability, much to the delight of stakeholders,” explains CMA Jindal.

In addition, as a staunch advocate of transparency and accountability, Jindal championed rigorous corporate governance practices by fostering a culture of integrity and ethical conduct. This instilled trust and confidence among investors, paving the way for sustained value creation and long-term sustainability. By implementing robust corporate governance practices, enhancing transparency, and fostering effective communication with investors through various channels such as investor calls, EIL witnessed a remarkable surge in its share price. Clear and transparent communication with investors about the company's performances, strategies, and prospects helped to build trust, especially among institutional investors. Actively engaging with analysts, participating in conferences, and conducting roadshows increased visibility and attracted institutional investors.

In summary, the company effectively leveraged the five pillars of Diversification, Alliances, Expanding Geographies, Innovation through Technology, and Operational Excellence to drive profitable growth and maximize shareholder value, resulting in a positive impact on the share price by moving it upwards. These pillars provide a strong framework for strategic decision-making and sustainable business success. Demonstrating a strong position advantage and market leadership attracted investor interest and supported a higher valuation. Strong corporate governance practices and ethical standards increased trust and confidence. Innovating technology advancement/upgradation, services, or processes differentiated the company from others, and attracted investors seeking growth opportunities. Through strategic alliances EIL drove growth, synergies, and market expansion, potentially leading to share price appreciation. These propelled EIL to unprecedented heights of success. The strategic foresight, coupled with a relentless pursuit of excellence, not only catalyzed the company's growth trajectory but significantly augmented shareholder value.