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Cash Market: Patel Airtemp

Patels Airtemp was incorporated in 1973. It fused technical expertise with innovative to achieve a remarkable growth and an efficacious nationwide presence. The growth saga was further strengthened in 1993, when it became a Limited entity and thus was born, Patels Airtemp (India) Limited.
PAT was the result of the conscious and dedicated efforts of a team of committed Engineers and Promoter - Directors. As experienced of over three decades in the field of design and manufacturing was instrumental in its upbringing. Today, PAT stands proudly as one of the leading manufacturers of high quality engineering products.

The Success in attaining its strategic objective of nationwide presence, was made possible due to the expansion and diversification policies.      
The journey began with a single manufacturing unit in 1973, and presently the company has two manufacturing units - both equipped with stat-of-the-art production facilities. Expansion facilitated PAT to concentrateon a much wider range of products that include:

 Heat Exchanger (Shell and Tube Type - Finned Tube Type)
 Air Cooled Heat Exchangers
 Columns and Pressure Vessels
 Refrigeration and Air Conditioning equipment
 HVAC Projects (Turnkey Projects)

 All these products cater to a broad spectrum of clientele. Spread over 45,000 squares meter of land with a covered area of 6,100 square meters; PAT has attained a key position as one of the leading suppliers to the core industrial sectors like -

 :: Power projects :: Refineries :: Fertilizers :: Cements :: Petrochemicals :: Pharmaceuticals :: Textile :: Chemical  ::  Engineering etc.

·   Q1FY2012 results—disappointing: In Q1FY2012 the top line of Patels Airtemp (PAT) fell by 30% year on year (YoY). The sales were sluggish and lower than the company’s expectations on account of the continued delay in the execution of orders by its clients. The effect of the rise in its raw material and employee costs was partly offset by the rise in its inventory. Hence, the operating profit margin (OPM) was robust at 24% for the quarter as compared to 21.2% reported in Q1FY2011. Further, marred by higher interest and depreciation charges, the net profit fell by 23.0% YoY in the quarter. 

·   Order book at Rs72 crore: The company’s order book stood at Rs72 crore at the end of Q1FY2012 as compared to Rs68 crore in Q4FY2011. PAT is witnessing a slowdown in order finalisation in the oil & gas, power and refinery sectors. It is also facing delays in receiving payments from clients which could stress its working capital cycle going ahead. PAT is looking forward to foraying into the nuclear power space but feels that the nuclear power development activities in India would take some time to pick up. 
·   Estimates downgraded: We have downgraded our earnings estimates for FY2012 and FY2013 in view of the slower than expected execution of orders by the company’s clients and the lower margin outlook. We expect the top line of PAT to grow at a compounded annual growth rate (CAGR) of 13.2% over FY2011-13, backed by robust execution of its order book and order inflow. However, on account of the impending margin pressure and working capital borrowings, we expect its net profit to register a flattish growth over the same period. 
·   Buy maintained: In line with the revised estimates, we have revised our price target for the company to Rs84 (5x FY2013 EPS). At the current market price the stock is available at 3.2x FY2013E earnings. Given its healthy dividend yield of 3.7% and robust return on net worth of 23.4% (for FY2011), the stock’s valuations appear to be quite attractive. We maintain our Buy reco on the stock.