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Punj Lloyd: A brief overview - Views on News from Equitymaster

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Punj Lloyd: A brief overview

Jul 6, 2007

Punj Lloyd Ltd. (PLL) is one of the largest engineering construction companies in India providing integrated design, engineering, procurement, construction (EPC) and project management services for energy industry and infrastructure projects. To augment its engineering and project management skills and transform itself into a complete EPC player, the company recently acquired Singapore based SembCorp and its UK based subsidiary Simon Carves. SembCorp has significant E&C capabilities ranging from master planning to detailed engineering design to project and construction management across a wide variety of segments including speciality buildings, industrial parks, airports, jetties, mass rapid transport systems and tunneling. Simon-Carves has significant EPC capabilities in petrochemical and refinery plants.

Business segments
PLL has four main business divisions. Here is a brief description of the same.

Pipelines: Pipelines are the largest segment for PLL, accounting for about half of the companyís annual revenues. The company has extensive execution experience in pipeline construction, having laid around 7,730 km of cross-country pipelines in various regions across the world. It is one of the few companies in the world with expertise in laying large-diameter gas pipelines and operational experience in shallow water and swampy terrain. Given the capital intensity of the business, the company has increased focus on larger length and larger diameter pipelines. Margins in this segment are significantly higher on account of the lower competition and the companyís extensive experience in executing such projects.

Storage tanks and terminals: In addition to strong capabilities in pipeline laying, the company has significant expertise in construction of storage & terminals. PLLís experience in tankage and terminals extends from the construction of cryogenic to floating and fixed roof storage tanks for oil, gas, and water, and EPC capabilities, including insulation in LNG Tanks. This enables it to offer a complete oil & gas transportation solution to clients. PLL has built more than 6 million cubic metres of storage capacity in its tankage and terminal construction business.

Infrastructure and civil works: PLL provides engineering and construction services for various infrastructure projects including highways, flyovers, bridges and elevated roadways. Highway projects in the state of Assam and Rajasthan accounted for bulk of the infrastructure order book. In addition to rich execution experience in NHAI road projects, it has also executed projects for the Delhi metro system.

Process plants and power projects: PLL has experience in executing contracts in a wide variety of applications including gas compressor and process facilities, specialised process facilities for refineries like sulphur recovery, crude distillation, hydrocrackers and vacuum distillation units. The company can undertake the entire gamut of activities like fabrication of steel structures, erection of heavy equipment, piping, instrumentation, insulation and fire proofing services.

PLL is engaged in engineering and construction services for power plants. The company has also executed gas turbine based power plants and piping works for nuclear power plants. The power business is project specific and the value of each project is around Rs 18 bn to Rs 20 bn.

Geographical presence
PLL earns around 60% of its revenues form offshore operations and has significant presence in the Middle East, the Caspian region, Asia Pacific region and in South Asia. Going forward, the company intends to strengthen its foothold in strategically important locations like Africa. These regions have significant oil and gas reserves and enormous potential for large engineering construction projects in the energy and infrastructure sector.

Order book position
The consolidated order book position of PLL as on 31st March 2007 was around Rs 180 bn. Punj Lloyd has enjoyed huge order follows in the FY07 on account of buoyancy in segments like pipelines and terminals. These sectors have contributed about a half of order inflows during FY07. Expansion into newer geographies like Africa has helped the order intake momentum. Entry into upstream oil & gas through acquisition of SembCorp, which has significant expertise and pre-qualification, has broken L&Tís virtual monopoly in the domestic market. The company has increased the average order size from US$ 30 m in FY06 to US$ 100 m in FY07. This has also helped company to address the people problem.

(Rs m) South-East Asia Middle East & Africa Rest of the world Total
Petrochemicals 10,263 7,379 4,502 22,144
Oil and gas 51,188 41,265 16,980 109,433
Civil infrastructure and power 41,760 7,381 - 49,141
Total 103,211 56,025 21,482 180,718
* The order backlog is unexecuted value of orders as on 1st January 2007 and the value of orders received thereafter.

We shall analyse the companyís financial history in the second part of this article.

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