Engineers India FPO Analysis: Avoid



Engineers India Limited is coming up with its FPO to offer 33,693,660 equity shares of face value 5 each from 6th February, 2014. The issue details are as follow:

Offer Size: 33,693,660 Equity Shares of face value of 5 each
Price Band : 145 - 150 (Discount of 6 for Eligible Employees and Retail Individual Investors)
Issue Opens on Feb 6, 2014
Issue Closes on Feb 10, 2014
Lot Size : 100 Equity Shares and in multiples of 100 Equity Shares thereafter (Min Investment Rs.14500 to Rs.15000)

Should one apply to this FPO?

The straight answer is "NO" as the company is witnessing falling revenues and profitability. Also the price at which the issue is being offered is very close to the current market price which is Rs.150. As far as valuations are concerned the stock @150 is trading at 11 times FY-14 earnings. 

The declining sales and profitability trend for the company since past 4 years warrant such PE multiples and poses a reasonable risk of price erosion in future. The company definitely provides good dividend yield at current market price (at around 4%) but the risk of fall in dividend payout in future is quite high if there is significant fall in profits in coming years. 

Engineers India FPO in past has been devastating for investors. In July 2010, Govt of India divested 10% in the company at Rs.290. Today they are offering it at Rs.144 to retail investors (if the issues is subscribed at Rs.150) which is a straingt 50% wealth destruction in 4 years.



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