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Punj Lloyd: Falling sales take a toll - Views on News from Equitymaster

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Punj Lloyd: Falling sales take a toll

Feb 9, 2011

Punj Lloyd posted a 28% YoY decline in net sales and reported a net loss of Rs 621 m during 3QFY11. Here is our analysis of the results.

Performance summary
  • Consolidated sales fall by 28% YoY during 3QFY11.
  • Operating margins halved to 3.4% during the quarter, compared to 7% in 3QFY10.
  • During 3QFY11, the company reported a net loss of Rs 621 m as compared to a profit of Rs 125 m in 3QFY10.
  • Order backlog at the end of December 2010 stood at Rs 278 bn, which is almost 4 times its FY10 topline. Order inflows for 9mFY11 stood at Rs 93 bn.


Consolidated financial snapshot
(Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Net Sales 29,016 20,936 -27.8%  87,306 56,574 -35.2%
Expenditure 26,982 20,231 -25.0%  80,292 54,272 -32.4%
Operating profit (EBITDA)   2,035 706    7,014 2,303 -67.2%
Operating profit margin (%) 7.0% 3.4%   8.0% 4.1%  
Other income   245 330 34.7%  467 1,979 323.7%
Depreciation   535 674 25.9%  1,590 1,993 25.3%
Interest   877 845 -3.6%  2,336 2,579 10.4%
Profit before tax   867   (484)    3,555  (290) -108.2%
Extraordinary income/(expense)  - -   -  -  
Tax   771 116 -85.0%  1,694  399 -76.5%
Profit after tax/(loss) 96   (599) -723.1%  1,861  (689) -137.0%
Share in profits/(losses) of associates 53   24      65    50  
Minority interest   (24)  (46)   (1)   (49)  
Net profit   125   (621) -597.8%  1,925  (688) -135.7%
Net profit margin (%) 0.4% -3.0%   2.2% -1.2%  
No. of shares (m)       332.0 332.1 0.1
Diluted earnings per share (Rs)*#          (9.2)  
P/E ratio (x)#          NA   
* Adjusted for extraordinary items   # On a trailing 12-months basis

What has driven performance in 3QFY10?
  • Punj Lloyd's revenues declined by 35% during 9mFY11. Nearly 68% of the sales during 9mFY11 were derived from international operations. As per the management there were two major reasons for the lukewarm performance in the topline. The first reason is of some projects being in their initial phases thereby delaying the revenue booking on them. Secondly, there was extra work in addition to the original scope of the project being carried out for the some government and public sector projects for which the revenues would be recognized only once the claims are passed by relevant government departments. In addition, select power projects moved slowly.

  • Punj Lloyd's operating margins halved to 3.4% during the quarter. This is because it had to bear the fixed overheads relating to the projects that were in the initial phase.

  • Going forward, the management expects the momentum of order inflows in the energy and infrastructure sectors to continue. The infrastructure orders continue to account for more than half of the order backlog.

What to expect?
At present, the company's trailing twelve month earnings per share stands at a negative Rs 9.2 (adjusted for extraordinary items). Punj Lloyd reported a net loss of Rs 688 m during 9mFY11. As per the management, the company’s operating margins were depressed as the company had to bear fixed overheads on projects in the early stage for which it was too early to book revenues. The management expects the performance to improve in the next financial year. It aims to keep an operating margin of 9% for FY12 amidst the competitive pressures and execution delays in some projects. The management expects the delayed Libyan projects to gather pace from the next year. However, the average execution cycle for its Libyan orders is nearly 4 years. In the Middle East, it continues to see aggressive competition from the Koreans and expects the trend to continue for FY12. The Koreans took away a majority of the orders in the Middle East during the current financial year. The company also looks to expand its operations to Iraq.

The management expects the momentum of order inflows in the energy and infrastructure sectors to continue. The infrastructure orders continue to account for more than half of the order backlog. Though the company boasts of a strong order book, however the execution issues cannot be ignored easily.

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