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Punj Lloyd: Uncertainty all around! - Views on News from Equitymaster

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Punj Lloyd: Uncertainty all around!
Jun 1, 2010

Punj Lloyd announced its FY10 results. The company has reported a 12% YoY and 52% YoY decline in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Consolidated sales fall by 12% YoY during FY10, 47% during 4QFY10.
  • Operating margins contract by 1.1% YoY to 1.2% during FY10. This is on the back of higher overall expenses (barring subcontracting expenses; as a percentage of sales).
  • Company reported a net loss of Rs 1 bn in FY10 as against a loss of Rs 2.3 bn during FY09.
  • Order backlog at the end of March 2010 stood at Rs 278 bn (2.7 times FY10 sales).
  • Declares dividend of 15 paisa per share (yield of 0.1%).


Consolidated financial snapshot
(Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
Net Sales 32,228 17,001 -47.2% 118,761 104,478 -12.0%
Expenditure 32,936 22,912 -30.4% 116,028 103,205 -11.1%
Operating profit (EBITDA) (707) (5,911)   2,733 1,274 -53.4%
Operating profit margin (%) -2.2% -34.8%   2.3% 1.2%  
Other income 78 751 860.9% 1,105 1,046 -5.3%
Depreciation 508 680 34.0% 1,771 2,270 28.2%
Interest 751 728 -3.1% 2,208 3,063 38.8%
Extraordinary income/(expense) 22 3,224   154 3,224  
Profit before tax (1,866) (3,345)   13 210 1466.4%
Tax 667 (322)   2,260 1,373 -39.3%
Profit after tax/(loss) (2,534) (3,023) 19.3% (2,247) (1,163) -48.3%
Share in profits/(losses) of associates (82) 30   (68) 95  
Minority interest 59 (16)   62 (17)  
Net profit (2,556) (3,009)   (2,253) †††† (1,084)  
Net profit margin (%) -7.9% -17.7%   -1.9% -1.0%  
No. of shares (m)     303.5 332.1  
Diluted earnings per share (Rs)*#         (13.0)  
P/E ratio (x)*         NA  
* Adjusted for extraordinary items; # On a trailing 12-months basis.

What has driven performance in FY10?
  • Punj Lloyd (PUNL) witnessed a revenue decline of 12% YoY during FY10. Revenues declined by 47% YoY during the fourth quarter. The decline in revenues during the quarter is seemingly on the back of slower execution coupled with forex issues. The company earns a majority of its revenues from projects outside India. Also the possibility of delay in certain projects cannot be ruled out.

  • At the operating level, PUNL reported a contraction in operating margins during FY10, which were already thin in the first place. Consolidated operating margins stood at 1.2% during FY10 as compared to 2.3% last year. While subcontracting charges decreased by 31% YoY in absolute terms, raw material costs and cost of goods sold, employee costs and other expenses rose as percentage of sales. During the year, the company was significantly impacted by cost overruns in a few projects. As per the company, PUNL has taken credit for claim to the tune of Rs 2.4 bn on a contract during the year.

  • PUNL earned an extraordinary income to the tune of Rs 3.2 bn on account of its stake sale in Pipavav Shipyard. As per the company, it would use these funds to retire some debt. Similar to last year, PUNL reported a loss during the year.

What to expect?
The past two years have been very difficult for PUNL considering that the companies it had acquired back in 2006 were giving problems of cost over-runs. Simon Carves, the subsidiary that was facing problems of cost over-runs is believed to have successfully commissioned the project that was giving it problems. PUNLís management has also stated that all of Simon Carves loans and outstanding amounts have been repaid. In fact the company is now expected to have a slow turnaround in the current year. In addition, the company has stated that Simon Carves would now only concentrate on work as an engineering company (as opposed to an EPC player) for the petrochemicals, biofuels and nuclear segments.

Moving on, one strong advantage that PUNL has is its healthy orderbook ratio as it currently stands at about 2.7 times its consolidated FY10 revenues. A key reason for this number to seem so high is the decline in revenues during the year. This indirectly gives a good indication on how big a factor execution is for an engineering firm. While the chances of the scenario improving from here on for the company may seem high, we still feel that it would be better for an investor to stay away from the stock on account of the uncertainty attached with the company.

It must also be noted that there has been a good amount of reshuffle at the top level of the company in recent times. With the company facing issues both internally and externally, it would only make sense to stay away from it as of now.

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