Patel Engineering Ltd: Annual Report 2023-24 Analysis

Overview #

Comprehensive Analysis #

This analysis delves into Patel Engineering Ltd.’s (PEL) Annual Report for FY2023-24, covering financial performance, business segments, risk factors, and ESG initiatives.

I. Financial Performance:

PEL demonstrated robust financial growth in FY24, building on the positive momentum of recent years. Key highlights include:

• Significant Revenue Growth: Consolidated revenue from operations increased by 16.78% YoY to ₹45,441.08 million, while standalone revenue grew by 15.59% to ₹44,120.39 million. This growth reflects strong execution across various projects.
• Improved Profitability: Consolidated Operating EBITDA increased by 22.92% YoY to ₹6,902.94 million, and standalone Operating EBITDA grew by 14.73% to ₹6,201.05 million. This indicates improved operational efficiency and margin expansion.
• Substantial Net Profit Increase: Consolidated net profit surged by 70.60% YoY to ₹2,641.00 million, with standalone net profit rising by 84.90% to ₹2,881.80 million. This reflects improved profitability and debt reduction efforts.
• EPS Growth: Basic EPS from continuing operations increased to ₹3.64, indicating enhanced shareholder value.
• Debt Reduction: While gross debt increased slightly to ₹18,855 million, the company actively reduced its net serviceable debt by ₹3,310 million, primarily through settlement of arbitration awards under the Vivad Se Vishwas scheme (₹1,300 million) and an international arbitration award (₹1,500 million in Q1 FY25). A further ₹4,000 million was raised through a Qualified Institutional Placement (QIP) in Q1 FY25, aimed at further debt reduction and working capital improvement. Credit rating upgrades from BBB+ to A- reflect this improved financial position.

II. Business Segments:

PEL operates across diverse infrastructure sectors. Segment-wise revenue break-up (standalone):

• Hydropower (50%): PEL is a significant player in hydropower projects, boasting experience with projects ranging from 3MW to over 2,800MW. They highlight executing approximately 45% of India’s currently developing hydropower projects (around 8GW). Key projects include Dibang Multipurpose (2,880MW), Subansiri (2,000MW), Kiru (624MW), and Kwar (540MW).
• Irrigation (24%): This sector is expanding rapidly due to government initiatives like Jal Jeevan Mission and PMKSY. PEL secured six new irrigation projects in FY24, totaling ₹28,009 million.
• Tunneling (15%): PEL showcases expertise in various tunneling methods, including NATM and TBMs. The completion of the Sela Tunnel (world’s longest bi-lane tunnel at over 13,000 ft) is a major highlight. They also mention ongoing projects in Mumbai and Jammu & Kashmir.
• Roads (5%): PEL participates in road construction projects, contributing to India’s expanding national highway network.
• Urban Infrastructure & Others (6%): This includes projects like the Narmada-Gambhir drinking water scheme and various buildings.

III. Risk Factors:

The annual report identifies several key risk factors:

• Government Contract Dependency: PEL’s heavy reliance on government contracts exposes it to policy changes, potential delays, modifications, or cancellations. However, the report mitigates this by mentioning that many of their clients (Central PSUs) have strong balance sheets and that many contracts include escalation clauses.
• Economic and Political Uncertainty: Global and domestic economic conditions, political instability, and fluctuations in interest and exchange rates pose significant risks.
• Natural Calamities and Communicable Diseases: Events like the 2023 flash floods in Himachal Pradesh and the ongoing impact of pandemics can severely disrupt operations.
• Third-Party Subcontractor Performance: PEL’s reliance on subcontractors introduces risk related to non-performance or poor performance. The report counters this by mentioning long-standing relationships with reliable subcontractors.
• Debt Rating Downgrade: A potential downgrade of India’s debt rating could negatively impact the company’s financial performance. Conversely, the report highlights a credit rating upgrade, showcasing their improved financial health.

IV. ESG Initiatives (Environmental, Social, and Governance):

PEL’s CSR activities focus on community empowerment and sustainability at project sites. Key initiatives include:

• Disaster Relief: Providing aid to flood victims in Himachal Pradesh.
• Community Infrastructure: Improving educational facilities, providing ambulance and bus services, and supplying essential commodities to medical dispensaries in project areas.
• Employment Generation: Creating employment opportunities in remote areas.
• Technological Advancements: Adopting advanced technologies like Roller Compacted Concrete (RCC) and the Tower Belt System to improve efficiency and reduce environmental impact (reducing diesel consumption and pollution).

The report highlights specific projects demonstrating their commitment to ESG principles, like the eco-friendly construction methods used in the Kiru Hydroelectric Project. However, a more detailed quantitative impact assessment of these CSR initiatives would enhance transparency. The report mentions the inclusion of Business Responsibility and Sustainability Reporting (BRSR) but doesn’t include it directly.

V. Overall Assessment:

PEL’s annual report reveals a company experiencing significant growth and improved financial health. Strategic debt reduction, coupled with a diversified order book and focus on large-scale infrastructure projects, positions them well for future growth. However, reliance on government contracts and exposure to macroeconomic and geopolitical uncertainties remain significant risks. Strengthening the disclosure and quantitative measurement of their ESG impact would enhance the report’s overall credibility and appeal to investors concerned about sustainable investing. The absence of the full BRSR report is a significant limitation to this assessment.

Detailed Analysis #

Balance Sheet #

Asset Analysis #

The values for the requested line items from Patel Engineering Ltd.’s Consolidated Financial Statements as of March 31, 2024, are:

• Total Assets: ₹89,961.25 million
• Total Current Assets: ₹58,174.23 million
• Cash and Cash Equivalents: ₹3,387.54 million (Note that this is the current portion; the report doesn’t give a separate line item for total cash and cash equivalents)
• Accounts Receivable (Trade Receivables): ₹8,667.80 million (current) + ₹2,956.40 million (non-current) = ₹11,624.20 million (total)
• Inventories: ₹37,918.59 million

Important Note: These figures are from the consolidated financial statements, which include the financial performance of subsidiaries. The standalone financial statements would show different values, reflecting only the Company’s own assets and liabilities. Always specify whether you are referring to the consolidated or standalone financials when discussing these values.

Liability Analysis #

Based on Patel Engineering Ltd.’s Consolidated Financial Statements as of March 31, 2024:

• Total Liabilities: ₹58,343.97 million
• Total Current Liabilities: ₹40,165.56 million
• Long-Term Debt: ₹18,178.40 million (This includes borrowings, lease liabilities, trade payables, and other financial liabilities that are non-current.)
• Accounts Payable (Trade Payables): ₹6,391.52 million (non-current) + ₹18,366.64 million (current) = ₹24,758.16 million (total)

Important Note: These figures are from the consolidated financial statements. The standalone financial statements will present different figures, representing only the Company’s own liabilities. The total accounts payable is a sum of current and non-current accounts payable. It’s crucial to specify whether you’re referencing consolidated or standalone figures when discussing these values.

Equity Analysis #

Here are the values for shareholders’ equity, retained earnings, and share capital from Patel Engineering Ltd.’s Consolidated Financial Statements as of March 31, 2024:

• Total Equity: ₹31,617.29 million
• Share Capital: ₹773.62 million
• Retained Earnings (Other Equity): ₹30,762.57 million (This represents the accumulated profits less any distributions to shareholders. Note that this figure includes other equity items besides just retained earnings, as the report doesn’t provide separate retained earnings.)

Important Note: These figures are from the consolidated financial statements. The standalone financial statements will show different values. The “Other Equity” line item encompasses more than just retained earnings; a precise retained earnings figure isn’t separately provided in this report. Always clarify whether you are discussing consolidated or standalone data when using these numbers.

Income Statement #

Operating Performance #

Using Patel Engineering Ltd.’s Consolidated Statement of Profit and Loss for the year ended March 31, 2024:

• Revenue: ₹45,441.08 million
• Cost of Revenue (Cost of Construction): ₹38,538.14 million
• Gross Profit: ₹6,902.94 million (Revenue - Cost of Revenue)
• Operating Expenses: This is not explicitly stated as a single line item. Operating expenses are implicitly included within the “Cost of Construction” figure, which is presented as the main expense related to their core business. Additional operating expenses (like employee benefits, depreciation, and other expenses) are also reported separately. Summing these would provide a more complete picture of total operating expenses, but the report does not present this sum directly.
• Operating Income (Operating EBITDA): ₹6,902.94 million (This is presented directly in the report; it’s a key profitability metric before interest, taxes, depreciation, and amortization are deducted.)

Important Note: These figures are from the consolidated statement of profit and loss. Standalone figures will differ. The “Cost of Construction” in this report likely includes several expenses that might be categorized separately as operating expenses in other company reports. Always specify whether you’re referring to consolidated or standalone values when referencing these metrics.

Bottom Line Metrics #

From Patel Engineering Ltd.’s Consolidated Statement of Profit and Loss for the year ended March 31, 2024:

• Net Income (Profit for the year): ₹3,022.10 million (This includes the profit from discontinued operations) The net profit for owners is ₹2,641 million.
• EBITDA (Operating EBITDA): ₹6,902.94 million
• Basic EPS: ₹3.64
• Diluted EPS: ₹3.54

Important Note: These are consolidated figures. The standalone statement will present different values. The net income figure includes the impact from discontinued operations; a figure for net income excluding discontinued operations is not explicitly provided. Always specify whether you are using consolidated or standalone data when referencing these values.

Cash Flow #

Cash Flow Components #

Based on Patel Engineering Ltd.’s Consolidated Cash Flow Statement for the year ended March 31, 2024:

• Cash Flow from Operating Activities: ₹6,878.25 million
• Cash Flow from Investing Activities: ₹(1,323.37) million (Negative cash flow indicates net cash used in investing activities)
• Cash Flow from Financing Activities: ₹(4,291.89) million (Negative cash flow indicates net cash used in financing activities)

Important Note: These are consolidated cash flow figures. The standalone statement will present different values. Always specify whether you are referencing consolidated or standalone figures when discussing these cash flows.

Cash Flow Metrics #

Patel Engineering Ltd.’s annual report does not explicitly state free cash flow. To calculate free cash flow (FCF), we would need more information than is readily available in the provided text. A typical FCF calculation subtracts capital expenditures from operating cash flow. However, the report provides:

• Capital Expenditure: This is not explicitly stated as a single figure. The cash flow statement shows net cash used in investing activities, including capital expenditures, as ₹(1,323.37) million. However, this figure also includes other investing activities like the purchase and sale of investments and changes in loans to JVs/associates. A precise number for only capital expenditure is not available.

• Dividends Paid: The report explicitly states that no dividend was paid for the financial year 2023-24.

To accurately calculate free cash flow, we would need a detailed breakdown of the investing cash flows to isolate capital expenditures specifically. This information isn’t directly provided in the supplied annual report excerpt.

Financial Ratios #

Profitability Ratios #

Profitability ratios for Patel Engineering Ltd. based on its consolidated financial statements for the year ended March 31, 2024. Note that precise calculations may vary slightly depending on rounding and the exact figures used. These are approximations based on the information provided:

• Gross Profit Margin: (Operating EBITDA / Revenue) * 100 = (₹6,902.94 million / ₹45,441.08 million) * 100 = 15.19%
• Operating Profit Margin: (Operating EBITDA / Revenue) * 100 = (₹6,902.94 million / ₹45,441.08 million) * 100 = 15.19% (This is the same as Gross Margin because the report presents Operating EBITDA. A different operating margin would result if we had operating income or profit before tax)
• Net Profit Margin: (Net Profit / Revenue) * 100 = (₹3,022.10 million / ₹46,330.16 million) * 100 = 6.52%
• Return on Equity (ROE): (Net Profit / Average Shareholder’s Equity) * 100 = (₹3,022.10 million / [(₹28,879.56 million + ₹31,536.19 million) / 2]) * 100 = 10.04% (approximately)
• Return on Assets (ROA): (Net Profit / Average Total Assets) * 100 = (₹3,022.10 million / [(₹87,570.90 million + ₹89,961.25 million) / 2]) * 100 = 3.41% (approximately)

Important Considerations:

• Consolidated vs. Standalone: These ratios are calculated using consolidated financial data. Standalone ratios, reflecting only the Company’s performance, would be different.
• EBITDA vs. Net Income: The gross and operating profit margins use EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). A different margin would result if we used operating income or profit before tax.
• Average Equity and Assets: ROE and ROA calculations use the average of the beginning and ending balance sheet values for equity and total assets, respectively.
• Rounding: Slight variations may occur due to rounding in the provided financial figures.

Always clearly state whether you are using consolidated or standalone data when presenting these ratios. Using the appropriate data is critical for accurate financial analysis.

Liquidity Ratios #

To calculate liquidity ratios for Patel Engineering Ltd., we’ll use its consolidated financial statements as of March 31, 2024. Remember that standalone figures will differ. Also note that precise calculations might vary slightly based on rounding. These are approximations based on the available information:

• Current Ratio: Current Assets / Current Liabilities = ₹58,174.23 million / ₹40,165.56 million = 1.45

• Quick Ratio: (Current Assets - Inventories) / Current Liabilities = (₹58,174.23 million - ₹37,918.59 million) / ₹40,165.56 million = 0.50

• Cash Ratio: (Cash and Cash Equivalents) / Current Liabilities = ₹3,387.54 million / ₹40,165.56 million = 0.08

Important Considerations:

• Consolidated vs. Standalone: These ratios are calculated using consolidated financial data. Standalone ratios would differ.
• Rounding: Minor discrepancies might arise due to rounding of the figures provided in the report.

It’s crucial to always specify whether you’re using consolidated or standalone data when discussing these liquidity ratios. The information provided in the report doesn’t directly give total cash and equivalents but only the current portion. A more precise cash ratio calculation may result if the total cash and equivalents were available.

Efficiency Ratios #

Calculating efficiency ratios for Patel Engineering Ltd. requires using its consolidated financial statements for the year ended March 31, 2024. Remember that standalone ratios will be different. These calculations are approximations, as precise figures may vary slightly due to rounding:

• Asset Turnover: Revenue / Average Total Assets = ₹45,441.08 million / [(₹81,314.27 million + ₹89,961.25 million) / 2] = 0.53 (approximately)

• Inventory Turnover: Cost of Revenue / Average Inventory = ₹38,538.14 million / [(₹36,762.97 million + ₹37,918.59 million) / 2] = 1.03 (approximately)

• Receivables Turnover: Revenue / Average Accounts Receivable = ₹45,441.08 million / [(₹5,038.74 million + ₹5,539.21 million)/2] = 8.59 (approximately)

Important Considerations:

• Consolidated vs. Standalone: These ratios are based on consolidated financial data. Standalone values will be different.
• Average Values: The calculations for asset turnover, inventory turnover, and receivables turnover use the average of the beginning and ending balances for the respective line items.
• Rounding: Minor discrepancies may exist due to rounding of the numbers presented in the report.
• Inventory Turnover Interpretation: The relatively low inventory turnover ratio (1.03) might indicate that the company is holding onto inventory longer than might be considered optimal, this however is consistent with the industry norms.

It’s essential to always specify whether you are using consolidated or standalone data when you present and discuss these efficiency ratios.

Leverage Ratios #

Let’s calculate the leverage ratios for Patel Engineering Ltd. using its consolidated financial statements as of March 31, 2024. Remember that standalone figures will differ, and these are approximations due to rounding:

• Debt-to-Equity Ratio: Total Debt / Total Equity = ₹18,854.92 million / ₹31,617.29 million = 0.60

• Debt-to-Assets Ratio: Total Debt / Total Assets = ₹18,854.92 million / ₹89,961.25 million = 0.21

• Interest Coverage Ratio: Earnings Before Interest and Taxes (EBIT) / Interest Expense = This calculation requires EBIT. The report provides EBITDA and Profit Before Tax (PBT). To approximate, we can use PBT, but the true interest coverage will be higher as PBT excludes depreciation and amortization expenses. Using PBT as an approximation: (₹4,051.12 million) / ₹3,620.94 million = 1.12 (approximately)

Important Considerations:

• Consolidated vs. Standalone: These ratios are based on consolidated financial data. Standalone ratios will be different.
• EBIT Approximation: The interest coverage ratio is approximated using PBT. Using EBIT would provide a more accurate figure. The report doesn’t include EBIT separately.
• Rounding: Small discrepancies can arise due to rounding in the financial statement figures.

Always clearly state whether you’re using consolidated or standalone data when presenting these leverage ratios. The approximation for the interest coverage ratio should be noted.

Market Analysis #

Market Metrics #

The provided annual report excerpt does not contain information on market capitalization, price-to-earnings (PE) ratio, price-to-book (PB) ratio, dividend yield, or dividend payout ratio. These are market-based ratios that require the company’s stock price and the number of outstanding shares, which are not included in the provided text. To calculate these ratios, you would need to obtain the current market price of Patel Engineering Ltd.’s shares from a financial website such as Google Finance, Yahoo Finance, or Bloomberg. You would then use the following formulas:

• Market Capitalization: Market Price per Share * Number of Outstanding Shares

• Price-to-Earnings Ratio (PE Ratio): Market Price per Share / Earnings per Share (EPS)

• Price-to-Book Ratio (PB Ratio): Market Price per Share / Book Value per Share (BVPS) (BVPS is calculated as total equity/number of outstanding shares)

• Dividend Yield: (Annual Dividend per Share / Market Price per Share) * 100

• Dividend Payout Ratio: (Total Dividends Paid / Net Income) * 100

The annual report does state that no dividends were paid in FY2023-24, which means the dividend yield and payout ratio would both be 0%. However, to obtain the market cap, PE ratio, and PB ratio, you must look up the current market price and use the appropriate formulas.

Business Analysis #

Segment Analysis #

Patel Engineering Ltd.’s annual report provides some, but not all, of the information requested regarding its business segments. A complete picture requires information not directly provided in the excerpt. Here’s what we can ascertain:

Business Segments:

The report identifies the following business segments:

1. Hydropower:

• Name: Hydropower Projects
• Revenue (FY24 Standalone): ₹22,060 million (50% of standalone revenue)
• Growth Rate (FY24 Standalone): Not explicitly stated, but overall standalone revenue growth was 15.59%. Hydropower likely grew at a similar or higher rate given its significant share of revenue.
• Operating Margin: Not explicitly stated for this segment.
• Market Share: The report claims PEL executes approximately 45% of India’s current hydropower projects under development (around 8GW). This is a claim, and independent verification would be necessary.
• Key Products/Services: Dams, powerhouses (surface, underground, subsurface), intake structures, gate structures, penstocks, switchyards, and associated civil works.
• Geographic Presence: Projects are spread across multiple Indian states (Jammu & Kashmir, Himachal Pradesh, Arunachal Pradesh, etc.) and Nepal.

2. Irrigation:

• Name: Irrigation Projects
• Revenue (FY24 Standalone): ₹10,589 million (24% of standalone revenue)
• Growth Rate (FY24 Standalone): Not explicitly stated.
• Operating Margin: Not explicitly stated for this segment.
• Market Share: Not explicitly stated.
• Key Products/Services: Canals, dams, micro-irrigation systems, and related civil works.
• Geographic Presence: Projects are spread across multiple Indian states (Maharashtra, Telangana, Madhya Pradesh, etc.).

3. Tunneling:

• Name: Tunneling Projects
• Revenue (FY24 Standalone): ₹6,618 million (15% of standalone revenue)
• Growth Rate (FY24 Standalone): Not explicitly stated.
• Operating Margin: Not explicitly stated for this segment.
• Market Share: Not explicitly stated. The report highlights their achievement of building India’s highest tunnel.
• Key Products/Services: Road tunnels, rail tunnels, water conveyance tunnels, and underground station caverns.
• Geographic Presence: Projects are spread across multiple Indian states (Jammu & Kashmir, Maharashtra, etc.).

4. Roads:

• Name: Road Projects
• Revenue (FY24 Standalone): ₹2,206 million (5% of standalone revenue)
• Growth Rate (FY24 Standalone): Not explicitly stated.
• Operating Margin: Not explicitly stated for this segment.
• Market Share: Not explicitly stated.
• Key Products/Services: Highways, roads, bridges.
• Geographic Presence: The report mentions projects in high-altitude regions and Maharashtra.

5. Urban Infrastructure & Others:

• Name: Urban Infrastructure & Other Projects
• Revenue (FY24 Standalone): ₹1,908 million (6% of standalone revenue)
• Growth Rate (FY24 Standalone): Not explicitly stated.
• Operating Margin: Not explicitly stated for this segment.
• Market Share: Not explicitly stated.
• Key Products/Services: Buildings, water supply systems, and other miscellaneous infrastructure projects.
• Geographic Presence: The report mentions projects in Madhya Pradesh and Jammu & Kashmir.

Missing Information:

The report excerpt lacks detailed information on:

• Segment-wise operating margins: Only the overall operating EBITDA margin is provided.
• Precise growth rates: Only overall revenue growth is given.
• Market share data: The only market share explicitly claimed is for hydropower.

To obtain a more thorough understanding of PEL’s segment performance, one would need to consult additional financial reports and industry analyses.

Risk Management #

Risk Assessment #

Patel Engineering Ltd.’s annual report identifies several key risk factors. While the report doesn’t explicitly categorize them or provide numerical likelihood and impact severity assessments, we can analyze them based on the descriptions provided:

Key Risk Factors:

The following is an interpretation of the key risk factors presented in the annual report, structured for clarity:

Note: The “Impact Severity” and “Likelihood” are qualitative assessments based on the descriptions in the report and are not specific numerical values provided by PEL. The mitigation strategies are also based on information presented within the annual report. Trends are interpreted from the report and the current situation of the Indian economy and infrastructure sector.

Strategic Overview #

Management Assessment #

Patel Engineering Ltd.’s (PEL) management highlights several key aspects regarding its strategies, competitive advantages, market conditions, challenges, and opportunities in the annual report:

I. Key Strategies:

• Focus on Core Competencies: PEL emphasizes strengthening its execution capabilities and optimizing resources within its core areas of expertise: hydropower, irrigation, tunneling, and urban infrastructure. This is a strategic choice to effectively compete in projects aligned with government investment priorities.

• Technological Advancement: The company actively invests in and implements cutting-edge technologies to improve efficiency, reduce costs, and enhance project quality. Examples include mass block blasting, RCC, micro-tunneling, and the innovative Tower Belt System. This strategy aims to gain a competitive edge and reduce environmental impact.

• Debt Reduction and Financial Health: Management clearly prioritizes reducing debt levels to improve the company’s financial health and unlock shareholder value. This involves settlements of pending disputes, improved working capital efficiency and strategic fundraising initiatives.

• Project Execution Excellence: The report emphasizes the timely and quality execution of ongoing projects, highlighting specific milestones and achievements in several major projects.

II. Competitive Advantages:

• Extensive Experience: PEL’s long history (since 1949) provides a significant competitive advantage, giving them a deep understanding of the infrastructure sector and established relationships with clients and subcontractors.

• Technological Expertise: Their early adoption and mastery of advanced technologies provides a competitive edge in bidding for complex projects.

• Strong Client Relationships: PEL’s long-term relationships with government agencies and PSUs, particularly in hydropower, secure their project pipeline.

• Geographical Diversification: The presence across multiple states in India and in Nepal further reduces risk and enhances market reach.

III. Market Conditions:

• Government Focus on Infrastructure: The Indian government’s continued emphasis on infrastructure development, supported by significant budget allocations, presents favorable market conditions for PEL’s core competencies. Specific initiatives like the National Infrastructure Pipeline (NIP), PM Gati Shakti, Jal Jeevan Mission, and PMKSY are cited as drivers of growth.

• Growth in Specific Sectors: The report highlights specific strong growth areas like hydropower (including pumped storage projects or PSPs), irrigation, and tunneling. The sector expects a robust pipeline of projects in the coming years, especially in the renewable energy space.

• Increased Competition: The report doesn’t explicitly address competition but implicitly acknowledges that it’s a factor given the considerable increase in funding for the sector.

IV. Challenges:

• Government Contract Risks: Delays, modifications, or cancellations of government contracts remain a significant challenge, requiring robust risk mitigation strategies.

• Economic Uncertainty: Fluctuations in the global and domestic economy impact project timelines and profitability.

• Natural Disasters and Pandemics: Unexpected events can severely disrupt operations.

• Competition: Increased competition for projects is likely given the higher level of public funding, requiring PEL to maintain a strong competitive edge through efficient execution and innovation.

• High Debt Levels: Managing and reducing debt levels requires consistent financial discipline.

V. Opportunities:

• Government’s Infrastructure Push: The substantial government investment in infrastructure creates abundant opportunities for PEL to secure new projects across various sectors.

• Growth in Renewable Energy: The strong emphasis on renewable energy, especially hydropower and pumped storage projects (PSPs), offers significant growth potential.

• Expansion in Irrigation and Tunneling: The report highlights the potential for increased market share in irrigation and tunneling.

• International Expansion: While not explicitly stated as a current strategy, PEL’s history of executing international projects suggests that further expansion into international markets could be considered.

• Monetization of Non-Core Assets: The Company is already actively pursuing strategies to monetize non-core assets, further improving the financial position.

In summary, PEL’s management recognizes a favorable market environment driven by government spending on infrastructure. Their strategy focuses on leveraging their experience, technological capabilities, and strong client relationships to navigate challenges and capitalize on significant growth opportunities within their core segments. Managing debt effectively will be a critical factor in this future growth.

ESG Ratings #

The provided annual report excerpt does not include ESG ratings from any rating agencies. ESG ratings are typically provided by specialized agencies that assess a company’s performance on environmental, social, and governance factors. To find PEL’s ESG ratings, you would need to consult independent ESG rating providers such as:

• Sustainalytics: Provides ESG risk ratings and scores.
• MSCI ESG Research: Offers ESG ratings and key performance indicators (KPIs).
• Bloomberg ESG Data: A comprehensive database of ESG data and scores.
• Refinitiv: Offers ESG scores and analytics.
• ISS ESG: Provides ESG ratings and corporate governance assessments.

These agencies use different methodologies and scoring systems, so ratings from different providers may vary. You should consult multiple sources to get a comprehensive understanding of PEL’s ESG performance. The report’s mention of including a BRSR (Business Responsibility and Sustainability Report) suggests that such a report may contain some relevant information, but the full report is not part of this excerpt.

ESG Initiatives #

Patel Engineering Ltd.’s (PEL) annual report provides limited detail on its environmental, social, and governance (ESG) performance. The information available is qualitative rather than quantitative, lacking specific metrics and targets. Here’s a summary based on the provided excerpt:

I. Environmental Initiatives:

The report emphasizes the use of technologies aimed at reducing environmental impact:

• Roller Compacted Concrete (RCC): Using a mix of fly ash and cement in dam construction reduces cement consumption and the associated carbon emissions.
• Tower Belt System: This system replaces diesel-powered dumpers with an electric conveyor belt system for concrete transportation, reducing fuel consumption and pollution.
• Energy-efficient technologies: The report mentions the use of various energy-efficient technologies, such as VFD starting systems for ventilation and cranes, and the use of larger diameter ducts and optimized electric compressors. However, no specific data on energy consumption reduction or CO2 emissions is provided.

II. Carbon Footprint:

The annual report does not provide a quantitative assessment of PEL’s carbon footprint. This is a significant omission given the growing importance of carbon accounting and disclosure in ESG reporting.

III. Social Initiatives:

The report highlights several social initiatives focusing on community development and empowerment around project sites:

• Disaster Relief: Providing aid to flood victims.
• Infrastructure Development: Improving local schools and other community facilities.
• Healthcare Support: Supplying essential commodities to medical dispensaries.
• Transportation: Providing ambulance and bus services to improve access to healthcare and transportation.
• Educational Support: Providing educational aid to children from low-income families.

While these initiatives are commendable, the report lacks specific metrics and details on the scale and impact of these programs.

IV. Governance Practices:

The annual report emphasizes adherence to good corporate governance principles, including:

• Board Composition: The board includes a mix of executive and non-executive directors, with a significant number of independent directors.
• Committees: The existence of various committees (Audit, Nomination & Remuneration, Stakeholders’ Relationship, Risk Management, CSR) indicates a structured approach to corporate governance.
• Compliance: The report mentions compliance with applicable laws and regulations, including the SEBI Listing Regulations and the Companies Act, 2013. However, it also notes an instance of non-compliance resulting in an administrative warning from SEBI related to the timing of Risk Management Committee meetings.

Again, a comprehensive evaluation of governance practices requires more detailed information, including the specifics of committee activities and the company’s internal controls.

V. Sustainability Goals:

The report does not explicitly state specific, measurable, achievable, relevant, and time-bound (SMART) sustainability goals. While the company showcases certain environmental initiatives, the absence of clear, quantified sustainability targets is a significant limitation. The promised BRSR (Business Responsibility and Sustainability Report) likely contains more details on this, but that information isn’t included in the excerpt.

Overall Assessment:

PEL’s annual report touches upon various ESG aspects but lacks the detailed quantitative data and specific, measurable targets needed for a comprehensive ESG assessment. The information provided is largely descriptive and qualitative, limiting the ability to fully evaluate their ESG performance. The absence of the full BRSR is a notable gap. To get a fuller picture, one would need to obtain the complete BRSR and consult independent ESG rating agencies.

Additional Information #

Operational Metrics #

The provided annual report excerpt does not specify the exact R&D expenditure for Patel Engineering Ltd. While the report mentions R&D efforts in improving construction methods and adopting new technologies, no numerical value for R&D spending is given.

Regarding employee count:

• Permanent Employees (as of March 31, 2024): 4,580
• Other Employees (as of March 31, 2024): 7,934
• Total Employment (as of March 31, 2024): 12,514

To find the R&D expenditure, you would need to consult other financial documents or company releases beyond the provided excerpt.

Key Events #

The Patel Engineering Ltd. annual report highlights several significant events during FY2023-24:

• Completion of the Sela Tunnel Project: This landmark project, inaugurated by Prime Minister Modi, is a major achievement for the company, showcasing its capabilities in challenging high-altitude environments.

• Breakthroughs at Various Project Sites: Significant milestones were achieved in several hydropower and tunneling projects, demonstrating progress on major infrastructure endeavors. These breakthroughs include the Kwar Hydroelectric Project’s diversion tunnel, the Arun-III Hydroelectric Project’s Head Race Tunnel, and the Tunnel T-15 Project in Jammu & Kashmir.

• Completion of Keoti-Antagarh-Taroki New Rail Line (Phase 2): This project, passing through a challenging Naxalite-affected area, demonstrates the company’s ability to execute projects of national importance in complex environments.

• Successful Arbitration Awards: The company successfully settled several arbitration awards, generating significant cash inflows and contributing to debt reduction. Notably, this included settlement under the Vivad Se Vishwas scheme and an international award.

• QIP Funding: A successful Qualified Institutional Placement (QIP) raised ₹4,000 million, enhancing the company’s financial position and providing resources for debt reduction and working capital improvements.

• Change in Chairmanship: Following the passing of Mr. Rupen Patel, Ms. Janky Patel assumed the role of Chairperson.

• Management Changes: The report notes several changes in senior management positions throughout the year.

• Adoption of Ind AS 115 and Ind AS 1: The company adopted the new accounting standards impacting revenue recognition and accounting policy disclosure. These standards did not materially alter accounting policies, but rather the disclosures.

• Credit Rating Upgrade: The company received credit rating upgrades from multiple agencies reflecting improved financial performance and risk profile.

These events demonstrate a year of significant progress for PEL, marked by major project milestones, effective financial management, and adaptation to new accounting standards.

Audit Information #

Auditor’s Opinion:

The independent auditor, Vatsaraj & Co., issued an unqualified opinion on both the consolidated and standalone financial statements of Patel Engineering Ltd. for the year ended March 31, 2024. This means the auditors found the financial statements to be presented fairly, in all material respects, in accordance with Indian Accounting Standards (Ind AS) and other generally accepted accounting principles in India.

However, the auditor’s report includes emphasis of matter paragraphs drawing attention to:

• Material Uncertainty Related to Going Concern: The financial statements of certain subsidiaries (Hera Realcon Private Limited, Shreeanant Construction Private Limited, and Energy Design Private Limited) include auditor’s statements that draw attention to material uncertainties relating to going concern which may cast significant doubt on the respective company’s ability to continue as a going concern. However, the financial statements of these subsidiaries are prepared on a going concern basis. The auditor’s opinion is not modified in respect to this matter.

• Material Uncertainty Related to Dirang Energy Private Limited: The auditor’s report also highlights the temporary halt in operations of Dirang Energy Private Limited. The financial statements of this subsidiary are prepared on a going concern basis, and the auditor’s opinion is not modified in respect to this matter.

Despite these emphasis of matter paragraphs, the overall auditor’s opinion on the consolidated and standalone financial statements remains unqualified.

Key Accounting Policies:

The annual report outlines several key accounting policies used in preparing the financial statements. These include, but are not limited to:

• Basis of Preparation: Historical cost convention, going concern basis, accrual basis of accounting.
• Principles of Consolidation: Full consolidation of subsidiaries, proportionate consolidation of joint ventures, equity method for associates.
• Current/Non-Current Classification: Based on a 12-month operating cycle.
• Property, Plant, and Equipment: Cost model for most assets; revaluation model for land. Depreciation methods vary depending on the asset and are consistent with the industry practices.
• Intangible Assets: Amortised over their useful lives.
• Impairment of Assets: Tested annually for impairment using the recoverable amount approach.
• Inventories: Valued at the lower of cost or net realizable value.
• Revenue Recognition: Ind AS 115 is applied. Revenue is recognized over time for long-term construction contracts and at a point in time for other contracts.
• Foreign Currency Transactions: Translated at the exchange rates prevailing at the transaction date.
• Financial Instruments: Classified and measured in accordance with Ind AS 109, using amortized cost, fair value through profit or loss (FVTPL), and fair value through other comprehensive income (FVOCI).
• Employee Benefits: Short-term benefits expensed as incurred; defined contribution plans recognized at the amount of contribution; defined benefit plans accounted for using the projected unit credit method.
• Taxation: Both current and deferred taxes are recognized.
• Provisions: Recognized when an obligation is probable and can be reliably measured.
• Leases: Right-of-use assets and lease liabilities are recognized under Ind AS 116.

This is not an exhaustive list, and the report contains further details within its notes to the financial statements. Always refer to the full annual report for complete and precise details.