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Punj Lloyd: Provision spoils the show - Views on News from Equitymaster
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Punj Lloyd: Provision spoils the show
Jan 27, 2009

Performance summary
  • Consolidated sales grow by 47% YoY during 3QFY09 and 61% YoY during 9mFY09.
  • Higher contract charges and other expenditure leads to loss at the operating level. For 9mFY09, operating margin stands at 4.5%.
  • Performance impacted on account of an Rs 2,072 m provision made on the SABIC order (more on this later in the report). In addition, the company also made a loss of Rs 779 m on forex loans taken by Simon Carves, its UK subsidiary.
  • Records a net loss during 3QFY09 on account of the damage caused at the operating level. Order backlog at the end of December 2008 stood at Rs 219 bn (2.8 times FY08 sales).


Consolidated financial snapshot
(Rs m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
Net Sales 21,170 31,200 47.4% 54,062 86,948 60.8%
Expenditure 20,126 32,163 59.8% 50,141 83,070 65.7%
Operating profit (EBITDA) 1,045 (963) -192.2% 3,921 3,878 -1.1%
Operating profit margin (%) 4.9% -3.1% 7.3% 4.5%
Other income 459 237 -48.3% 994 612 -38.5%
Depreciation 365 433 18.5% 1,053 1,263 19.9%
Interest 284 620 118.1% 967 1,479 53.0%
Profit before tax 854 (1,779) -308.3% 2,895 1,748 -39.6%
Extraordinary income/(expense) 371 (72) 371 132
Tax 308 416 34.8% 861 1,593 85.1%
Profit after tax/(loss) 917 (2,266) -347.2% 2,406 287 -88.1%
Share in profits/(losses) of associates 0 14 - 14
Minority interest - (4) 1 3
Net profit 917 (2,256) -346.0% 2,407 304 -87.4%
Net profit margin (%) 4.3% -7.2% 4.5% 0.3%
No. of shares (m) 303.5
Diluted earnings per share (Rs)*# 4.4
P/E ratio (x)# 21.0
* Adjusted for extraordinary items;
# On a trailing 12-months basis.

What has driven performance in 3QFY09?
  • Punj Lloyd (PUNL) recorded a 47% YoY growth in revenues during 3QFY09. This performance is attributable to strong growth in its pipeline and infrastructure segments, which grew by nearly 106% YoY and 62% YoY respectively. The companyís process division grew by nearly 7% YoY while its tankages segmentís sales declined by 44% YoY. However, the latter contributed only 3% to the revenues. It may be noted that during the quarter, the companyís auditors in their report have invited attention to deduction made/ amount withheld by some customers, aggregating to almost Rs 475 m and also work in progress inventory of Rs 64 m. As per the companyís result press release, PUNLís management is taking appropriate steps for recovery of these deductions/withheld amounts.

  • During 3QFY09, PUNL won orders worth Rs 23 bn, which include two large value orders Ė Rs 8.2 bn infrastructure order from Libya and Rs 6.3 bn infrastructure order from Housing & Infrastructure Board (HIB) Tripoli. The management has stated that orders worth Rs 39 bn are currently facing issues on account of various reasons such as delays in financial closure, delay in payments, land acquisition problems or project deferment.

  • During the quarter, PUNLís performance was impacted by a provision of Rs 2,072 m it made towards the SABIC order, which was originally being executed by it UK subsidiary, Simon Carves (SCL) prior to its acquisition. In addition, it also incurred a foreign exchange loss of Rs 779 m on loans taken by SCL. In total, PUNL has made a provision for £ 26 m this quarter. This order has gone in litigation with SABIC. As such, the auditor qualification which was first made in the financial statement of 4QFY08 (and subsequent other quarters) has been removed. As per the companyís press release the management is confident of recovery of £ 28.5 m.

  • Also read - Punj Lloyd in a legal tangle

What to expect?
At the current price of Rs 93, the stock is trading at a multiple of 21 times its trailing 12-month earnings. While the capital goods/engineering sector has been at the receiving end on the back of a grim economic outlook, it is this legal tangle that has made PUNLís stock drop considerably as compared to its peers.

Buoyed by its large order book, the company has been recording a strong growth in its topline over the past year. PUNLís order book has increased by 37% YoY over the past year. Out of its current order book, the pipelines segment contributes to nearly 32% of the backlog (20% last year). Further, nearly 33% is added by its infrastructure segment (29% last year), while 31% is contributed by its process & other plants segment (46% last year). The balance 4% is brought in by the tankages segment (5% last year).

The value of orders of the pipelines segment has grown by nearly 120% as compared to last year. This gives strong a revenue visibility for the company considering that pipeline projects take lesser time to execute as compared to other segments. In addition, the backlog is also well spread across the different segments. This will help the company not to highly depend on a particular segment.

During the quarter, PUNL signed a memorandum of understanding (MoU) with Thorium Power, a non-proliferative nuclear fuel technology developer which also provides advisory services for emerging nuclear programs. This development has allowed PUNL to embark into the nuclear power sector.

We are currently in the process of trying to meet the companyís management. We will put up our updated view on the stock post the same.



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