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Punj Lloyd: Stops bleeding at the bottomline - Views on News from Equitymaster

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Punj Lloyd: Stops bleeding at the bottomline
Jan 29, 2010

Performance summary
  • Consolidated sales fall by 7% YoY during 3QFY10; almost flat for 9mFY10.
  • Operating margins stood at 7.2% during the quarter, compared to an operating loss in 3QFY09. This improvement is on the back of a big drop in sub-contracting charges as well as lower other expenditure.
  • Net profits during 3QFY10 stood at Rs 125 m compared to a loss of Rs 2.2 bn in 3QFY09,
  • Order backlog at the end of December 2009 stood at Rs 234 bn (2 times FY09 sales).

Consolidated financial snapshot
(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Net Sales 31,200 29,040 -6.9% 86,948 87,356 0.5%
Expenditure 32,163 26,935 -16.3% 83,070 80,165 -3.5%
Operating profit (EBITDA) (963) 2,105   3,878 7,190 85.4%
Operating profit margin (%) -3.1% 7.2%   4.5% 8.2%  
Other income 237 221 -6.6% 612 418 -31.7%
Depreciation 433 535 23.7% 1,263 1,590 25.9%
Interest 620 923 48.9% 1,479 2,463 66.6%
Profit before tax (1,779) 867   1,748 3,555 103.4%
Extraordinary income/(expense) (72) -   132 -  
Tax 416 771 85.5% 1,593 1,694 6.4%
Profit after tax/(loss) (2,266) 96   287 1,861 548.3%
Share in profits/(losses) of associates 14 53   14 65  
Minority interest (4) (24)   3 (1)  
Net profit (2,256) 125   304 1,925 533.9%
Net profit margin (%) -7.2% 0.4%   0.3% 2.2%  
No. of shares (m)       303.5 332.0  
Diluted earnings per share (Rs)*#         (0.9)  
P/E ratio (x)#         NA  
* Adjusted for extraordinary items   # On a trailing 12-months basis

What has driven performance in 3QFY10?
  • Punj Lloyd’s (PUNL) topline fell by 7% YoY during 3QFY10. Apart from the numerous execution issues that the company has been facing, about 75% of the company’s revenues come from outside India. Thus the appreciation of the rupee in recent times has also had a negative impact on the revenues of the company. As per the company, the impact was to a tune of about 8%.

  • PUNL swung to an operating profit during the quarter compared to an operating loss in 3QFY09. The reason for this expansion is a substantial drop in the company’s subcontracting charges as well as a drop in other expenditure as a percentage of sales.

  • PUNL recorded net profit of Rs 125 m during the quarter compared to a loss of Rs 2.2 bn in 3QFY09.

What to expect?
PUNL continues to face challenges with regards to the performance of its wholly owned subsidiary Simon Carves UK, where the company still continues to book cost overruns on certain projects. The write off in the case of Simon Carves during 3QFY10 amounted to about Rs 1.7 bn.

Another reason for its lukewarm performance on the topline front has been that the big orders from Libya that the company is executing have has a slow start. Further, orders from the Middle East market have slowed down which is a cause of concern. A lot now depends on oil prices going forward which cannot be predicted at this point of time, leaving scope for a lot of uncertainty.

We hold a cautious view on the stock, mainly on account of recurring and unexpected problems and cost overruns that the company’s various projects have constantly been facing and continue to face. These perennial issues seem to have become a regular feature for the company, which makes for a very uncertain future at this point of time.

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