Engineers India Ltd - Annual Report 2023-24 Analysis

Overview #

Detailed Analysis #

This analysis examines Engineers India Limited’s (EIL) 2023-24 Annual Report, focusing on key financial metrics, business segments, identified risks, and ESG (Environmental, Social, and Governance) initiatives.

I. Financial Performance:

EIL reported a robust financial performance despite a challenging global environment. Key highlights include:

• Revenue: ₹3232.16 crore (nearly flat compared to ₹3283.76 crore in FY2022-23). This stability is notable given global market uncertainties.
• Profit After Tax (PAT): ₹356.99 crore (a slight increase compared to ₹342.15 crore in FY2022-23). The consolidated PAT showed a significant 29% year-on-year increase to ₹445 crore, largely driven by increased profit share from Ramagundam Fertilisers and Chemicals Limited (RFCL).
• EBITDA: ₹507.94 crore.
• Order Book: ₹7823 crore as of March 31, 2024, providing a strong foundation for future revenue. New orders secured in FY2023-24 totaled ₹3406 crore (₹2907 crore domestically and ₹499 crore overseas). This includes a significant number of OBE/LSTK (Owning, Building, Equipping, Leasing/Lump Sum Turnkey) contracts.
• Debtor Days: Improved to 35 days from 39 days in the previous year, indicating better cash flow management.
• Dividend Payout: The board recommended a final dividend of ₹1 per share (in addition to an interim dividend of ₹2), totaling ₹3 per share. This represents a 47.23% payout of standalone profits.

Key Financial Ratios (Standalone):

• PBT/Turnover: 14.55% (FY2023-24) vs 13.40% (FY2022-23)
• PAT/Turnover: 11.04% (FY2023-24) vs 10.42% (FY2022-23)
• PBT/Capital Employed: 20.35% (FY2023-24) vs 20.90% (FY2022-23)
• PAT/Net Worth: 15.45% (FY2023-24) vs 16.25% (FY2022-23)
• Turnover/Net Worth: 1.40 (FY2023-24) vs 1.56 (FY2022-23)
• Trade Receivables/Turnover: 1.17 months (FY2023-24) vs 1.29 months (FY2022-23)

II. Business Segments:

EIL operates in two primary segments:

• Consultancy & Engineering: This segment focuses on providing design, engineering, and project management services. It saw a 3% year-on-year increase in revenue in FY2023-24.
• Turnkey Projects: This segment handles the execution of projects on an LSTK or OBE basis (Lump Sum Turnkey/Open Book Estimate). Revenue in this segment was slightly lower in FY2023-24 compared to FY2022-23.

The report highlights EIL’s expansion into various sectors like infrastructure, renewables (solar, wind), green hydrogen/ammonia, biofuels (2G Ethanol, SAF), and waste-to-energy. This diversification strategy aims to mitigate risk and capitalize on growth opportunities in emerging markets. The report meticulously outlines many notable projects in each of these sectors, both domestically and internationally.

III. Risks:

EIL’s risk management framework, aligned with ISO 31000 principles, identifies and addresses many key risks:

• Market Volatility: Fluctuations in demand for engineering services and geopolitical instability are addressed through portfolio diversification and flexible project planning.
• Project Execution Challenges: Delays and inefficiencies are mitigated through robust project management and proactive risk management.
• Supply Chain Disruptions: The company is working to develop multiple supplier relationships to mitigate potential disruptions.
• Foreign Exchange Exposure: This risk is managed through internal revenue hedging.
• Liquidity Constraints: EIL maintains robust cash flow management practices.
• Regulatory Compliance: The company has a robust compliance program to minimize compliance risks.
• Technological and Cyber Risks: While the report doesn’t specify mitigation strategies, the creation of a Digital Technology Solutions (DTS) division suggests a proactive approach to address technological advancements and cybersecurity.

IV. ESG Initiatives:

EIL demonstrates a strong commitment to ESG, with many key initiatives:

• Net Zero Target: The company aims to achieve net-zero carbon emissions by 2035, through a multi-phased plan focusing on energy efficiency, renewable energy sources (solar, wind), and the reduction of its overall carbon footprint.
• Environmental Stewardship: Initiatives include rainwater harvesting, sewage treatment and reuse, waste reduction and recycling, and the creation of a Miyawaki forest.
• Social Responsibility (CSR): EIL spent ₹11.87 crore on CSR activities, focusing on healthcare, education, skill development, women’s empowerment, and environmental protection. Significant projects included establishing model Anganwadi centers, providing medical equipment to rural hospitals, and developing a Miyawaki forest.
• Human Capital Development: EIL places strong emphasis on employee well-being, training, and development, with initiatives like mentorship programs, skill development programs, and health and wellness programs. The report highlights efforts to improve workforce diversity and inclusion.
• Corporate Governance: EIL highlights its commitment to transparent and accountable corporate governance practices. The report details Board composition, committee activities, and compliance with relevant regulations. However, there were some minor non-compliances related to board composition and independent director evaluation, which were addressed.

V. Conclusion:

EIL’s 2023-24 Annual Report reveals a company navigating a complex global landscape while maintaining a strong financial position and demonstrating a clear commitment to sustainable growth and ESG principles. The diversification strategy, robust risk management framework, and proactive ESG initiatives position EIL favorably for future success. However, continued monitoring of key risks, especially those related to project execution and the global energy transition, will be essential for sustaining this positive trajectory. The report’s detail and transparency are commendable.

Detailed Analysis #

Balance Sheet #

Asset Analysis #

The values for EIL’s assets, as reported in the Standalone Financial Statements for the year ended March 31, 2024, are as follows (all figures in Indian Rupees in Lakhs):

• Total Assets: ₹477,144.26
• Current Assets: ₹259,122.11
• Cash and Cash Equivalents: ₹24,959.66
• Accounts Receivable (Trade Receivables): ₹31,439.35 (net of allowance for expected credit losses)
• Inventories: ₹56.20

It’s important to note that these figures represent the standalone financial statements. The consolidated financial statements would include the assets of subsidiaries and joint ventures, resulting in different totals.

Liability Analysis #

Based on the Standalone Financial Statements in the provided annual report, here are the liability figures for Engineers India Limited as of March 31, 2024 (all figures in Indian Rupees in Lakhs):

• Total Liabilities: ₹246,016.37 (This is calculated by subtracting total equity from total assets: ₹477,144.26 - ₹231,127.89 = ₹246,016.37)
• Current Liabilities: ₹2,42,407.83
• Long-Term Debt: ₹3,608.54 (This represents lease liabilities and other non-current financial liabilities)
• Accounts Payable (Trade Payables): ₹44,055.34 (This includes amounts due to both Micro, Small, and Medium Enterprises (MSMEs) and other creditors).

It’s essential to remember that these figures are from the standalone financial statements. The consolidated financial statements would include the liabilities of subsidiaries and joint ventures, leading to different totals.

Equity Analysis #

Here are the equity figures for Engineers India Limited as of March 31, 2024, from the Standalone Financial Statements (all figures in Indian Rupees in Lakhs):

• Shareholders’ Equity: ₹231,127.89 (This is the total equity attributable to the owners of the parent company)
• Retained Earnings: ₹16,305.89 (Note that this excludes the accumulated gain/loss on remeasurement of defined benefit plans, which are reported separately within other equity)
• Share Capital: ₹28,102.13

These figures are from the standalone financial statements. The consolidated financial statements would show different values as they include equity from subsidiaries and joint ventures.

Income Statement #

Operating Performance #

Here’s a summary of the revenue, cost of revenue, gross profit, operating expenses, and operating income for Engineers India Limited for the fiscal year ended March 31, 2024, based on the provided standalone financial statements (all figures in Indian Rupees in Lakhs):

• Revenue: ₹3,23,216.50
• Cost of Revenue: ₹2,95,182.00 (This is not explicitly labeled as “Cost of Revenue” but represents the “Cost of Rendering Services” in the income statement, which is the closest equivalent)
• Gross Profit: ₹28,034.50 (Calculated as Revenue less Cost of Revenue: ₹3,23,216.50 - ₹2,95,182.00)
• Operating Expenses: ₹18,192.62 (This represents other expenses and interest, depreciation and amortization)
• Operating Income: ₹9,841.88 (Calculated as Gross Profit less Operating Expenses: ₹28,034.50 - ₹18,192.62)

Remember that these figures are from the standalone financial statements. The consolidated financial statements would provide different values because they include the financial performance of subsidiaries and joint ventures.

Bottom Line Metrics #

Here are the requested financial metrics for Engineers India Limited for the fiscal year ended March 31, 2024, from the standalone financial statements (all figures in Indian Rupees unless otherwise specified):

• Net Income (Profit for the year): ₹3,569.91 lakhs (₹356.99 crore)
• EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): ₹507.94 crores (This is stated directly in the Chairman and MD’s Message, not the financial statements themselves. It’s calculated using the figures presented in the statement of profit and loss)
• Basic EPS (Earnings Per Share): ₹6.35
• Diluted EPS (Earnings Per Share): ₹6.35

These values are from the standalone financial statements. Consolidated financial statements will present different figures as they incorporate the performance of subsidiaries and joint ventures.

Cash Flow #

Cash Flow Components #

Here’s a breakdown of the cash flows for Engineers India Limited for the fiscal year ended March 31, 2024, based on the standalone cash flow statement (all figures in Indian Rupees in Lakhs):

• Operating Cash Flow: ₹20,954.11
• Investing Cash Flow: ₹15,930.00
• Financing Cash Flow: ₹(17,948.84) (Negative signifies net cash used in financing activities)

These figures are from the standalone cash flow statement. Consolidated cash flow statements will present different figures, as they reflect the cash flows of subsidiaries and joint ventures as well.

Cash Flow Metrics #

The provided annual report doesn’t explicitly state the free cash flow. However, we can calculate it and determine the capital expenditure and dividends paid using the information provided:

• Capital Expenditure (CAPEX): The report states that capital expenditure primarily includes expenses on office renovation, furniture, fixtures, R&D, and IT assets. A precise figure for CAPEX isn’t directly given in the main financial statements, but from the Standalone Cash Flow Statement, we can see that purchases of property, plant, equipment, investment property, intangible assets and intangible assets under development (including capital work-in-progress) totaled ₹3,336.16 lakhs. This is a good proxy for CAPEX.

• Dividends Paid: The report states that ₹16,861.27 lakhs in dividends were paid during the year.

• Free Cash Flow (FCF): Free cash flow is a metric that indicates the cash a company has available for distribution to its shareholders or reinvestment in the business after covering its operating expenses and capital expenditures. There’s no direct figure presented in the report. However, we can estimate it as follows:

  FCF ≈ Operating Cash Flow - Capital Expenditures

  Therefore, an estimated Free Cash Flow would be:

  ₹20,954.11 lakhs - ₹3,336.16 lakhs = ₹17,617.95 lakhs

Important Considerations:

• This FCF calculation is an approximation. A more precise calculation would require a more detailed breakdown of capital expenditures and possibly adjustments for changes in working capital.
• The report provides a consolidated PAT and revenue figures which is higher than the Standalone PAT and Revenue. It’s recommended to calculate a more accurate FCF figure using the Consolidated Cash Flow Statement if available.

Therefore, while precise figures are unavailable for all three metrics from the standalone statement, we can derive reasonable estimates based on the information presented. Refer to consolidated statements for a more complete picture.

Profitability Ratios #

To calculate the profitability ratios for Engineers India Limited for the fiscal year ended March 31, 2024, we’ll use the standalone financial statement figures. Remember, these will differ from consolidated figures. All values are calculated using figures in Indian Rupees in Lakhs.

• Gross Margin: This is calculated as (Revenue - Cost of Revenue) / Revenue.

  (₹3,23,216.50 - ₹2,95,182.00) / ₹3,23,216.50 = 8.65%

• Operating Margin: This is calculated as Operating Income / Revenue.

  ₹9,841.88 / ₹3,23,216.50 = 3.04%

• Net Profit Margin: This is calculated as Net Income / Revenue.

  ₹3,569.91 / ₹3,23,216.50 = 1.10%

• Return on Equity (ROE): This is calculated as Net Income / Average Shareholders’ Equity. We need to calculate the average shareholders’ equity:

  Average Shareholders’ Equity = (Beginning Shareholders’ Equity + Ending Shareholders’ Equity) / 2 Average Shareholders’ Equity = (₹2,10,566.05 + ₹2,31,127.89) / 2 = ₹2,20,846.97

  ROE = ₹3,569.91 / ₹2,20,846.97 = 1.61%

• Return on Assets (ROA): This is calculated as Net Income / Average Total Assets. We need to calculate the average total assets:

  Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2 Average Total Assets = (₹4,51,189.88 + ₹4,77,144.26) / 2 = ₹4,64,167.07

  ROA = ₹3,569.91 / ₹4,64,167.07 = 0.77%

Important Note: These calculations use the standalone figures. Using the consolidated financial statement data would yield different results. Also, the “Cost of Revenue” is inferred from the statement of profit and loss as it does not explicitly present the figure in that manner. There might be minor discrepancies depending on rounding and which figures are used.

Liquidity Ratios #

To calculate the liquidity ratios for Engineers India Limited for the fiscal year ended March 31, 2024, we’ll use the standalone financial statement figures. Remember that these ratios will differ from those calculated using consolidated financial statement data. All values are calculated using figures in Indian Rupees in Lakhs.

First, we need to identify the necessary components from the balance sheet:

• Current Assets: ₹2,59,122.11
• Current Liabilities: ₹2,42,407.83
• Inventory: ₹56.20
• Cash and Cash Equivalents: ₹24,959.66

Now, we can calculate the liquidity ratios:

• Current Ratio: This is calculated as Current Assets / Current Liabilities.

  ₹2,59,122.11 / ₹2,42,407.83 = 1.07

• Quick Ratio (Acid-Test Ratio): This is calculated as (Current Assets - Inventory) / Current Liabilities.

  (₹2,59,122.11 - ₹56.20) / ₹2,42,407.83 = 1.07 (The inventory value is negligible in this instance, thus there is no significant difference in the current and quick ratios)

• Cash Ratio: This is calculated as (Cash and Cash Equivalents) / Current Liabilities.

  ₹24,959.66 / ₹2,42,407.83 = 0.10

Important Note: These ratios are based on the standalone balance sheet. Using the consolidated balance sheet would result in different values. The ratios provide a snapshot of the company’s ability to meet its short-term obligations. A current ratio above 1 is generally considered favorable, indicating that current assets exceed current liabilities. However, the interpretation of these ratios should always be done in the context of the company’s industry and business model.

Efficiency Ratios #

To calculate the efficiency ratios for Engineers India Limited for the fiscal year ended March 31, 2024, we’ll use the standalone financial statement figures. Remember, these ratios will differ if calculated using the consolidated financial statements. All calculations use values in Indian Rupees in Lakhs.

First, we need the following data from the financial statements:

• Revenue: ₹3,23,216.50
• Average Total Assets: (₹4,51,189.88 + ₹4,77,144.26) / 2 = ₹4,64,167.07
• Average Inventory: (₹109.03 + ₹56.20) / 2 = ₹82.62 (Note: This is a very rough approximation, using only the year-end values from the standalone statements)
• Average Accounts Receivable: (₹35,294.02 + ₹31,439.35) / 2 = ₹33,366.69 (Net of allowance for credit losses)

Now, we can calculate the efficiency ratios:

• Asset Turnover: This measures how efficiently a company uses its assets to generate sales. It’s calculated as Revenue / Average Total Assets.

  ₹3,23,216.50 / ₹4,64,167.07 = 0.70

• Inventory Turnover: This measures how many times a company sells and replaces its inventory during a period. It’s calculated as Cost of Goods Sold / Average Inventory. The annual report does not provide a clear figure for Cost of Goods Sold (COGS) for standalone statements; therefore, it is not possible to calculate the Inventory Turnover Ratio for standalone accounts. Refer to Consolidated accounts for the same.

• Receivables Turnover: This measures how efficiently a company collects its receivables. It’s calculated as Revenue / Average Accounts Receivable.

  ₹3,23,216.50 / ₹33,366.69 = 9.68

Important Note: These calculations use the standalone figures, which may differ from the consolidated values. Additionally, the inventory turnover ratio couldn’t be calculated due to a lack of necessary standalone data (COGS). The average asset, inventory and accounts receivable values are calculated using only the beginning and ending balances; a more precise calculation would require data for each quarter. The interpretation of these ratios needs to be considered within the context of EIL’s industry and business model. Lower asset turnover is typical in capital-intensive industries like EIL’s. A higher receivables turnover indicates quicker collection of receivables.

Leverage Ratios #

To calculate the use ratios for Engineers India Limited for the fiscal year ended March 31, 2024, we will use the standalone financial statement figures. Remember that these will differ from those calculated using consolidated financial statement data. All calculations will use figures in Indian Rupees in Lakhs. However, calculating some ratios proves difficult due to data limitations in the provided standalone report.

First, we need the following data from the standalone financial statements:

• Total Debt: ₹3,608.54 (This represents the sum of lease liabilities and other non-current financial liabilities)
• Shareholders’ Equity: ₹2,31,127.89
• Total Assets: ₹4,77,144.26
• Profit Before Interest and Taxes (PBIT): This figure is not explicitly provided in the standalone financial statements. We can approximate it using: PBIT ≈ Profit Before Tax (PBT) + Interest Expense. From the standalone Statement of Profit and Loss, PBT = ₹47,040.72 lakhs and interest expense (finance costs) = ₹299.53 lakhs. Therefore, PBIT ≈ ₹47,040.72 lakhs + ₹299.53 lakhs = ₹47,340.25 lakhs.

Now, let’s calculate the use ratios:

• Debt-to-Equity Ratio: This measures the proportion of a company’s financing that comes from debt relative to equity. It’s calculated as Total Debt / Shareholders’ Equity.

  ₹3,608.54 / ₹2,31,127.89 = 0.016 or 1.6%

• Debt-to-Assets Ratio: This indicates the proportion of a company’s assets financed by debt. It’s calculated as Total Debt / Total Assets.

  ₹3,608.54 / ₹4,77,144.26 = 0.0076 or 0.76%

• Interest Coverage Ratio: This measures a company’s ability to pay its interest expenses. It’s calculated as Earnings Before Interest and Taxes (EBIT) / Interest Expense. Using our approximated PBIT value, we can estimate it as follows:

  Since PBIT includes interest expense, we will calculate the interest coverage ratio with the help of earnings before interest and tax figure approximated above: ₹47,340.25 Lakhs/ ₹299.53 Lakhs = 158.02

Important Notes:

• These calculations rely on the standalone financial statements. The use of the consolidated financial statements would provide different results.
• The Interest Coverage Ratio calculation is an approximation because the standalone statement does not directly provide EBIT. The PBIT was estimated. A more precise calculation would require the explicit EBIT figure.
• The low debt ratios indicate that EIL has a conservative capital structure with minimal reliance on debt financing. The high interest coverage ratio reflects a strong ability to meet its interest obligations. However, this needs to be analysed with regard to industry benchmarks.

Always remember to interpret these ratios within the context of EIL’s industry and business model. A low debt level is not unusual for a company like EIL, but it’s important to know whether this is appropriate for the sector or indicates other strategic choices about investment or capital acquisition.

Market Analysis #

Market Metrics #

The provided annual report does not contain current market capitalization, P/E ratio, P/B ratio, dividend yield, or dividend payout ratio. These are market-based metrics that are not part of the company’s financial statements. They require the current market price of EIL’s shares and other market data, which are not included in this document. You would need to consult a financial website (like Google Finance, Yahoo Finance, or Bloomberg) to obtain these figures. They will vary depending on the current trading price of EIL’s stock.

Business Analysis #

Segment Analysis #

The Engineers India Limited (EIL) annual report identifies two main business segments: Consultancy & Engineering and Turnkey Projects. However, the report does not provide sufficient detail for a complete breakdown of all requested metrics for each segment. Some data is simply unavailable, while other data requires calculations that are not entirely straightforward due to the structure of the financial reporting.

Here’s what we can glean from the report:

1. Consultancy & Engineering:

• Name: Consultancy & Engineering Projects
• Revenue (FY2023-24): ₹1,45,429 lakhs (₹1454.29 crore)
• Revenue (FY2022-23): ₹1,41,791 lakhs (₹1417.91 crore)
• Growth Rate (FY2023-24 vs FY2022-23): Approximately 2.6%
• Operating Margin (FY2023-24): 22.37% (This is calculated by dividing the segment’s profit from operations by its revenue: ₹32,531 lakhs / ₹1,45,429 lakhs. Note this is based only on operating profit; interest, other expenses, taxes and other non-operating items are excluded.)
• Operating Margin (FY2022-23): 27.04%
• Market Share: The report does not provide specific market share data.
• Key Products/Services: This segment delivers a broad range of engineering consulting and project management services across various sectors, including Upstream Oil and Gas, Pipelines, Petroleum Refining, Petrochemicals, Storage of Crude Oil and Petroleum Products, Metallurgy, Infrastructure, and Airports.
• Geographic Presence: The report indicates a national presence across India, and an international presence in the Middle East, Africa, Southeast Asia, and Latin America. The breakdown of revenue by region is not provided for this segment alone; the total revenue is presented in the disaggregated revenue table.

2. Turnkey Projects:

• Name: Turnkey Projects
• Revenue (FY2023-24): ₹1,77,787 lakhs (₹1777.87 crore)
• Revenue (FY2022-23): ₹1,86,585 lakhs (₹1865.85 crore)
• Growth Rate (FY2023-24 vs FY2022-23): Approximately -4.7%
• Operating Margin (FY2023-24): 5.76% (This is calculated by dividing the segment’s profit from operations by its revenue: ₹10,242 lakhs / ₹1,77,787 lakhs. Note this excludes other non-operating items)
• Operating Margin (FY2022-23): 2.79%
• Market Share: The report does not provide specific market share data.
• Key Products/Services: This segment delivers engineering, procurement, and construction management (EPCM) services and Lump Sum Turnkey (LSTK) projects, including refineries, petrochemical plants, and other industrial facilities.
• Geographic Presence: Similar to the Consultancy & Engineering segment, the report indicates both domestic and international presence; the total revenue is presented in the disaggregated revenue table.

Missing Information:

The annual report lacks specific details on market share for both segments and a breakdown of revenue and operating margin by geography within each segment. It also doesn’t break down revenue by specific project or product within the segments. This makes it challenging to provide a more granular analysis.

Overall:

While the report outlines EIL’s activities across various sectors, the presentation of segment-specific data is limited, hindering a more complete analysis. The company’s diversification strategy is apparent, but the relative financial success of each area within the broader segments is not fully transparent.

Risk Management #

Risk Assessment #

The Engineers India Limited (EIL) annual report identifies many key risk factors, but the level of detail provided varies. The report does not consistently provide a numerical assessment of likelihood and impact severity for each risk. Therefore, the following analysis provides a qualitative assessment based on the information presented.

I. Key Risk Factors:

The report categorizes risks broadly into Strategic, Operational, Financial, Compliance & Regulatory, and Technological & Cyber Risks. However, many risks cross these categories.

II. Risk Factor Analysis:

III. Trends:

The overall trend suggests an increase in the complexity of projects and the need for more complex risk management due to global market volatility and heightened regulatory scrutiny, especially in the ESG domain. The report indicates a clear move toward clean energy solutions and sustainable technologies as growth drivers, increasing both the risk and the potential rewards for EIL. The company’s initiatives to address digitalization and cybersecurity indicate a recognition of evolving technological risks and opportunities.

Disclaimer: This analysis is based on the information provided in the annual report. It’s a qualitative assessment, and precise numerical values for likelihood and severity are not explicitly provided in the report itself. Further independent research and analysis would be beneficial for a complete understanding of the risks facing EIL.

Strategic Overview #

Management Assessment #

Engineers India Limited (EIL) management outlined many key strategies, competitive advantages, market conditions, challenges, and opportunities in their annual report for FY2023-24. Here’s a summary:

I. Key Strategies:

EIL’s strategic growth plan is built upon five key pillars:

1. Strategic Alliances: Collaborating with technology licensors, equipment manufacturers, other PSUs, and academic institutions to use expertise and expand capabilities. This includes MoUs to support technological innovation in areas like biofuels and green hydrogen.

2. Diversification: Expanding into new sectors beyond the core oil & gas portfolio, focusing on areas like renewables (solar, wind), green hydrogen/ammonia, biofuels (2G ethanol, SAF), and waste-to-energy. This is a key strategy to reduce reliance on traditional energy and capture opportunities in emerging, sustainable markets.

3. Innovation through Technology: Investing in R&D to develop and commercialize cutting-edge technologies, leading to greater efficiency and competitiveness. This includes the creation of its own digital tools (EngAICosting, EngProjectView, EngCO2).

4. Expanding Geographies: Growing the international footprint by securing projects in Africa, Asia, the Middle East, and Latin America. This aims to reduce reliance on the domestic market and access new growth avenues.

5. Operational Excellence: Continuously improving internal operations through initiatives such as quality circles, Six Sigma methodologies, and digitalization.

II. Competitive Advantages:

EIL highlights many competitive advantages:

• Decades of Experience: A strong track record spanning nearly six decades in the Indian hydrocarbon sector and a broader range of industries.
• Comprehensive Services: Offering “total solutions” from concept to commissioning, covering design, engineering, procurement, construction, and integrated project management.
• Technological Prowess: Development of proprietary technologies and strong in-house R&D capabilities, especially in areas like green energy technologies.
• Global Reach: Established presence in key international markets, demonstrating the ability to execute projects in various geographic locations.
• Strong Government Backing: Being a Navratna PSU (Public Sector Undertaking), which provides financial stability and access to government-backed projects.

III. Market Conditions:

• Robust Domestic Market: Continued strong demand for engineering and project management services in India due to its rapid economic growth and infrastructure development initiatives (like NIP, Gati Shakti). The report emphasizes the government’s focus on gas-based economy and energy transition to cleaner and sustainable solutions.
• Global Energy Transition: A significant shift towards renewable energy, green hydrogen, and other sustainable technologies creates both challenges and opportunities. The global energy crisis has heightened the focus on energy security and clean energy transitions across the world. Developing countries are prioritizing the diversification of their energy mix and increasing their gas and renewable energy infrastructure.
• Increased Competition: The report doesn’t explicitly mention specific competitors, but notes the increasingly competitive nature of the global engineering and construction sectors.
• Geopolitical Uncertainty: Global political instability and regional conflicts create uncertainty and potential risks for international projects.

IV. Challenges:

EIL acknowledges many challenges:

• Geopolitical Risks: Uncertainty and potential disruptions in international projects due to global political instability.
• Market Volatility: Fluctuations in the demand for engineering services and competition within a crowded market.
• Supply Chain Disruptions: Potential interruptions in the availability of materials and equipment.
• Regulatory Changes: Adapting to evolving environmental, safety, and other regulations.
• Talent Acquisition and Retention: Attracting and retaining skilled professionals in a competitive job market.

V. Opportunities:

EIL sees significant opportunities in:

• India’s Infrastructure Development: The substantial investment planned under the National Infrastructure Pipeline (NIP) and other government initiatives.
• Energy Transition: Providing engineering and project management services for renewable energy, green hydrogen, biofuels, and other sustainable technologies.
• International Expansion: Securing projects in high-growth markets abroad, leveraging their established presence and expertise.
• Technological Innovation: Developing and commercializing their own innovative technologies and digital solutions.
• Strategic Partnerships: Collaborating with other organizations to improve capabilities and secure business opportunities.

VI. Conclusion:

EIL’s management presents a well-defined strategy focused on leveraging its core competencies while adapting to the evolving energy landscape and expanding into new and sustainable sectors. The focus on innovation, international growth, and operational excellence reflects an awareness of the challenges and opportunities presented by global energy transition and the Indian economic development context. The success of their strategies hinges on their ability to mitigate the risks associated with market volatility, geopolitical uncertainty, and supply chain issues.

ESG Ratings #

The provided annual report for Engineers India Limited (EIL) does not include ESG ratings from any external rating agencies. While the report details EIL’s ESG initiatives extensively, it does not provide any scores or ratings from organizations like MSCI, Sustainalytics, Refinitiv, or others that commonly publish ESG ratings for publicly traded companies. To find ESG ratings for EIL, you would need to consult the databases of those rating agencies directly or refer to financial data providers like Bloomberg or Refinitiv.

ESG Initiatives #

Engineers India Limited’s (EIL) 2023-24 Annual Report details its commitment to Environmental, Social, and Governance (ESG) factors. Here’s a breakdown of their initiatives, targets, and performance:

I. Environmental Initiatives:

EIL’s environmental initiatives focus on reducing its carbon footprint and promoting sustainable practices throughout its operations and projects:

• Net-Zero Emissions Target: EIL has set an ambitious goal to achieve net-zero carbon emissions by 2035. This involves a multi-phased approach with short-term, medium-term, and long-term goals.

• Energy Efficiency: EIL is implementing energy-efficient measures across its facilities, including the use of Building Management Systems (BMS) to optimize HVAC operations and expanding solar power generation capacity. A pilot wind power project is also underway.

• Renewable Energy: The company has significantly increased its solar power generation capacity, aiming for further expansion.

• Waste Management: EIL emphasizes waste reduction, segregation, and recycling, and has installed a compost facility at its Gurugram office. The company also utilizes treated sewage for horticultural purposes at many of its offices.

• Water Conservation: EIL utilizes rainwater harvesting and has implemented water-efficient measures across its offices. Its sewage treatment plants recycle treated water for use in its landscaping.

• Biodiversity Enhancement: The creation of a Miyawaki forest at its Gurugram office aims to improve air quality and biodiversity.

• Emission Reduction Platform (EngCO2): Development of a web-based software tool (EngCO2) for estimating greenhouse gas emissions (Scope 1 and 2) across various industries.

• Integrating Sustainability in Design: EIL is incorporating sustainability principles into its engineering designs for projects, focusing on energy conservation and minimizing environmental impacts. This includes strategies for biorefineries, carbon capture, and waste-to-energy projects.

II. Carbon Footprint:

While the report doesn’t provide a single, overall carbon footprint figure for the entire company, it does offer data related to its energy consumption and greenhouse gas emissions (Scope 1 & 2):

• Scope 1 Emissions (Direct): 269 MT CO2e
• Scope 2 Emissions (Indirect from Electricity): 6648 MT CO2e
• Total Scope 1 & 2 Emission Intensity (MT CO2e/₹ crore turnover): 0.000000214 (based on standalone turnover)
• Total Scope 1 & 2 Emission Intensity (MT CO2e/₹ crore turnover) adjusted for Purchasing Power Parity (PPP): 0.0000000499

III. Social Initiatives:

EIL’s Corporate Social Responsibility (CSR) activities focus on:

• Healthcare and Nutrition: Providing access to healthcare services in underprivileged communities, including support for mobile medical vans and Anganwadi centers.
• Education: Enhancing school infrastructure in rural areas and providing educational support to underprivileged children.
• Skill Development: Contributing to vocational training initiatives to improve employment opportunities.
• Women’s Empowerment: Promoting menstrual hygiene awareness and related health programs for women in rural areas.
• Environmental Protection: Supporting initiatives like the development of Miyawaki forests and green campaigns.

The total CSR expenditure for FY2023-24 was ₹1187.27 lakhs.

IV. Governance Practices:

EIL’s commitment to good corporate governance is reflected in:

• Board Composition: A various board comprising executive, non-executive, and independent directors.
• Board Committees: Functioning Audit Committee, Nomination and Remuneration Committee, Stakeholders’ Relationship Committee, Risk Management Committee, and CSR Committee.
• Code of Conduct: A detailed code of conduct for Board members and senior management, emphasizing ethical behaviour and compliance.
• Whistleblower Policy: A mechanism for reporting ethical concerns.
• Risk Management: A robust risk management framework to identify, assess, and mitigate potential risks to the business.
• Compliance: Strict adherence to all applicable laws, regulations, and corporate governance standards.

V. Sustainability Goals:

The overarching sustainability goal is to achieve net-zero carbon emissions by 2035. This is supported by numerous intermediate targets, including:

• Reducing power demand.
• Phasing out fossil fuel vehicles.
• Expanding renewable energy capacity.
• Maximising electric vehicle use.
• Implementing resource-efficient and waste reduction measures.

The report showcases ongoing efforts and sets further goals for the coming years in each of these areas.

Overall:

EIL’s report provides detailed information regarding its environmental and social initiatives, including quantitative data on many key metrics, aligning with broader sustainability goals. The company has outlined a clear and detailed pathway towards its Net Zero objectives, and the ambitious nature of these plans along with their detailed description are commendable. Their emphasis on corporate governance and transparency demonstrates a robust commitment to ESG factors. However, future progress reports should include a detailed carbon footprint calculation, and a more detailed reporting of ESG performance against external benchmarks would improve transparency and stakeholder confidence.

Additional Information #

Operational Metrics #

Based on the provided annual report:

• R&D Expenditure: ₹549.94 lakhs (₹5.5 crore) for FY2023-24.

• Employee Count: The total employee count (including permanent and other than permanent) as of March 31, 2024, was 2,661. The report also notes that approximately 2,368 of the employees were professionally qualified, and roughly 11.6% were women.

It’s important to note that these are figures from the standalone report. Consolidated figures would include employees and R&D spending from subsidiaries and joint ventures, leading to potentially larger totals.

Key Events #

The Engineers India Limited (EIL) annual report for FY2023-24 highlights many significant events:

• Commissioning of Dangote Refinery: The successful commissioning of the Dangote Refinery & Petrochemical Project in Nigeria, the world’s largest single-train refinery complex, demonstrated EIL’s project execution capabilities on a global scale.

• Entry into New Markets: EIL’s re-entry into the Algerian and Kuwaiti markets with new consultancy assignments highlights its expanding geographic reach.

• Strong Order Book: Securing a total of ₹3406 crore in new contracts during FY2023-24, including a substantial number of domestic OBE/LSTK contracts, showcases a strong market position and growth outlook.

• Continued Success in Domestic Projects: Completion of key domestic projects like the LNG import terminal in Chhara, Gujarat, and the modernization of the HPCL Visakhapatnam Refinery. These demonstrate continued success in domestic projects.

• Progress in International Projects: Significant progress on major international projects, including the Mongol Refinery project, the Dangote Refinery project, and the Guyana NGL and Power project, demonstrating the ability to successfully execute major international projects.

• Expansion into Green Energy: Securing assignments related to green hydrogen, green ammonia, sustainable aviation fuel (SAF), and other clean energy technologies reflects the company’s strategic move toward the sustainable energy sector and aligns with India’s national green initiatives.

• Digitalization Initiatives: The launch of many new digital tools (EngAICosting, EngProjectView, EngCO2) and the ongoing digitalization of internal processes demonstrates the company’s commitment to technology and efficiency.

• Award of Prestigious Awards: The Company received numerous awards for excellence in various areas, including project execution, training, and corporate social responsibility.

• Employee Well-being Initiatives: Various employee welfare initiatives that improve staff well-being and retention.

• Strengthened ESG Commitments: Implementing various initiatives under its CSR policy, focused on healthcare, education, skill development, women’s empowerment, and environmental protection. The company also highlighted its commitment to achieving net-zero emissions by 2035.

These events collectively reflect EIL’s growth, diversification, technological advancements, and commitment to sustainability and corporate social responsibility. They showcase its ability to execute complex projects on a global scale while adapting to the evolving energy landscape.

Audit Information #

I. Auditor’s Opinion:

The independent auditor’s report (Datta Singla & Co.) for the standalone and consolidated financial statements expresses an unmodified (clean) opinion. This means the auditors found the financial statements to present a true and fair view of the company’s financial position and performance in accordance with Indian Accounting Standards (Ind AS) and other generally accepted accounting principles in India. However, there were two emphasis of matter paragraphs highlighting:

1. Revenue Recognition from Construction Contracts: The auditor noted the complexities involved in revenue recognition from long-term construction contracts due to the significant management judgments in assessing contract performance and related estimates. While the auditor concluded the revenue was appropriately recognized, this was flagged as a key audit matter.

2. Contingent Liabilities: The auditor highlighted the existence of numerous commercial claims, employee claims, and tax and legal disputes. The assessment of the potential financial impact of these contingent liabilities involves significant management judgment, which was reviewed by the auditor.

These emphasis-of-matter paragraphs do not modify the auditor’s overall unmodified opinion, but draw attention to significant areas of judgment and estimation involved in the preparation of the financial statements.

II. Key Accounting Policies:

The annual report outlines many key accounting policies employed by Engineers India Limited (EIL). Key aspects include:

• Revenue Recognition: Revenue from contracts with customers is recognized over time based on the percentage of completion method for long-term contracts, and when control of services is transferred to the customer for other contracts. Significant management judgment is involved in estimating the percentage of completion.

• Intangible Assets: Software is capitalized and amortized over three years (or immediately if the cost is less than ₹5 lakhs).

• Property, Plant, and Equipment (PPE): PPE is recorded at cost less accumulated depreciation and impairment losses. Depreciation is calculated using the straight-line method, based on the useful lives of the assets. Capital work-in-progress is accounted for separately.

• Leases: EIL follows IFRS 16 and accounts for leases as either operating or finance leases.

• Investment Properties: These are measured at cost less accumulated depreciation and impairment. Independent valuations are obtained annually.

• Foreign Currency: Transactions and balances are recorded at the exchange rate prevailing on the transaction date or balance sheet date, respectively, and exchange differences are recognized in profit or loss.

• Impairment of Assets: Both financial and non-financial assets are tested for impairment when indicators suggest that the carrying amount may not be recoverable.

• Financial Instruments: Financial assets are classified and measured based on their business model and contractual terms as Fair Value Through Profit or Loss (FVTPL), Fair Value Through Other Detailed Income (FVTOCI), or Amortized Cost.

• Government Grants: These are recognized when there is reasonable assurance of receipt and compliance with conditions. Revenue grants reduce related expenses, while grants related to assets are recognized as deferred income.

• Oil and Gas Exploration Activities: The “successful efforts method” is used for accounting for these activities.

• Income Taxes: Both current and deferred taxes are recognized using the liability method.

• Employee Benefits: Defined contribution plans (like Provident Fund) are expensed when the services are rendered. Defined benefit plans (like gratuity and post-retirement medical benefits) are accounted for using actuarial valuations. Significant judgments and estimations are involved in determining the defined benefit obligations.

These policies are applied consistently across the standalone and consolidated financial statements, except where indicated. The report emphasizes the role of management judgment and estimation in many of these key areas, especially revenue recognition, impairment, and the valuation of contingent liabilities. The independent auditor’s report highlights the importance of the management’s judgment and estimates used for preparing the financial statements.