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Punj Lloyd: Provision spoils the show, again

May 19, 2009

Performance summary
  • Consolidated sales grow by 54% YoY during FY09 and 37% YoY during 4QFY09.
  • Higher contract charges and other expenditure lead to lower operating margins during the year. Company records operating level losses during the quarter.
  • Profits during the quarter are impacted by the provision for £ 28.5 m (Rs 2.2 bn) towards performance and advance payment guarantee claims by SABIC.
  • Company records losses of Rs 2.2 bn during FY09, Rs 2.6 bn during 4QFy09.
  • Order backlog at the end of March 2009 stood at Rs 208 bn (1.7 times its FY09 sales).
  • Board declares dividend of Rs 0.3 per share for FY09.

Consolidated financial snapshot
(Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
Net Sales 23,463 32,173 37.1% 77,525 119,120 53.7%
Expenditure 20,981 32,958 57.1% 71,122 116,028 63.1%
Operating profit (EBITDA) 2,482 (785) - 6,403 3,093 -51.7%
Operating profit margin (%) 10.6% -2.4% 8.3% 2.6%
Other income (179) 134 - 815 745 -8.6%
Depreciation 409 508 24.1% 1,462 1,771 21.1%
Interest 326 729 124.0% 1,292 2,208 70.9%
Profit before tax 1,568 (1,888) - 4,464 (140) -
Extraordinary income/(expense) - 22 371 154 -58.6%
Tax 374 667 78.3% 1,235 2,260 83.0%
Profit after tax/(loss) 1,194 (2,534) - 3,600 (2,247) -
Share in profits/(losses) of associates (17) (82) (17) (68)
Minority interest 0 59 1 62
Net profit 1,177 (2,556) - 3,584 (2,253) -
Net profit margin (%) 5.0% -7.9% 4.6% -1.9%
No. of shares (m) 303.5
Diluted earnings per share (Rs)*# (7.4)
P/E ratio (x)# -
* Adjusted for extraordinary items; # On a trailing 12-months basis.

What has driven performance in FY09?
  • Punj Lloyd (PUNL) recorded a strong 54% YoY growth in revenues during FY09. This performance is attributable to strong growth in its pipeline, process plants and infrastructure segments, which grew by nearly 68% YoY, 54% YoY and 51% YoY respectively. On the other hand, revenues from its tankages division declined by 22% YoY during FY09. However, the latter contributed to only 3% of the revenues.

    Regionwise revenue breakup Segmentwise Revenue breakup
    Source: Company Source: Company

  • During 4QFY09, PUNL won orders worth almost Rs 12 bn. As compared to the earlier quarters, the company was not able to win any significant large sized orders during the quarter. The two largest orders it won were - Rs 3.1 bn order from Bangalore Rail Corporation for construction of eight metro stations in Bangalore. In addition, the company also expanded its order book by Rs 6 bn for an order it won from Housing Infrastructure Board, Tripoli, Libya. This order was earlier won by the consortium the company has with Public Works company (in which PUNL had a share of 60%). PUNL has now increased its stake in the consortium from 60% to 85% as a result of which its share has been increased from Rs 14.5 bn to Rs 20.6 bn.

  • During the quarter, PUNL made provision for the entire amount of £ 28.5 m (Rs 2.2 bn) in the profit and loss statement for the quarter and year ended March 31, 2009. This provision is on account of SABIC calling the performance and advance payment bank guarantees that were issued by Simon Carves, a subsidiary of PUNL. The company had earlier decided to seek the views of an adjudicator as to the grounds upon which SABIC terminated the contract. The adjudication decision has been received which is in favour of SABIC. The company has stated that this is an interim decision and is looking to approach the court to begin the next stage of dispute resolution.

  • In 3QFY09, the company was impacted by a provision of £ 26 m (Rs 2 bn) it made towards cost overruns for the same SABIC order.

  • Also read - Punj Lloyd in a legal tangle

  • During the year, PUNLís operating margins dropped by 5.7% YoY. This was on account of higher contractor charges (due to provisions) and other expenditure (as a percentage of sales). However, employee expenses and raw material costs declined on a YoY basis by 0.7% and 5% respectively. PUNLís operating profits declined by 52% YoY. On account of a poor operating performance coupled with higher interest and tax charges, the company posted a loss of Rs 2.3 bn for FY09.

What to expect?
On adjusting the provisions for the year, the companyís margins have declined on a year on year basis. In fact, even on adjusting the provisions during 4QFY09, the company has recorded a loss. Also considering that PUNLís order inflow has been slow (an increase of 6% YoY) and that a large number of order face the risk of execution delays due to various reasons, the outlook for the company does look tough.

The companyís management has stated that it plans to switch its strategy from expanding business rapidly (which in turn brought down margins), to focus on improving profits. As per the management, it expects the current order backlog to receive margins around the level of 9% going forward. As for the order inflow, the company currently has outstanding bids of around US$ 8 to 9 bn.

Order breakup
Source: Company
Sembawang Engineers and Constructors (SEC) and Simon Carves, PUNLís subsidiaries, recorded mixed results. SEC recorded a revenue growth of 95% and a margin of 7.7% as against 4.9% in FY08. This is a good positive for the company considering it executed some of its lower margins legacy projects. Simon Carves on the other hand, recorded a revenues de-growth of 5% YoY. In addition, the company also recorded a loss of £ 81 m as against a profit of £ 5.6 m in the previous year. This was mainly on account of higher cost of sales (administrative expenses). To improve conditions in this company, the management has drawn out certain initiatives. Firstly, the company plans to shift base of Simon Carves from Manchester (UK) to Abu Dhabi. Secondly, it plans to reduce its staff strength, both permanent and contractual, as part of its staff rationalisation program. In addition, the management intends to integrate Simon Carvesí operations with the business processes of PUNL.

Giving its view on the international business, the management has stated that the situation has improved as compared to earlier and it expects the international business to grow faster than the domestic business. It also added that the company expects to win some huge orders in the next 4 to 6 weeks.

During FY09, the company did a capex of about Rs 5 bn. For FY10, it intends to spend about US$ 50 m to 60 m (Rs 2.5 bn to 3 bn), for which it plans to raise no extra debt. Currently, the company has a debt of about Rs 33 bn (debt-equity ratio of 1.4 to 1), of which around 80% to 90% is for meeting its working capital requirements.

The stock is currently trading at a price of Rs 167. We shall soon update our view on the stock.

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Dec 13, 2019 11:17 AM


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