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Punj Lloyd: Is the revival for real? - Views on News from Equitymaster
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Punj Lloyd: Is the revival for real?
Jul 27, 2009

Performance summary
  • Consolidated sales grow by 12% YoY during 1QFY10.
  • Operating margins expand by 1.9% YoY to 9.9% on the back of lower employee, contracting and other expenses (as percentage of sales).
  • Net profits increase by 14% YoY. On excluding the extraordinary item earned in 1QFY09, profits are higher by 39% YoY.
  • Order backlog at the end of June 2009 stood at Rs 279 bn (2.3 times its FY09 consolidated sales).


Consolidated financial snapshot
(Rs m) 1QFY09 1QFY10 Change
Net Sales 26,488 29,551 11.6%
Expenditure 24,371 26,634 9.3%
Operating profit (EBITDA) 2,116 2,918 37.9%
Operating profit margin (%) 8.0% 9.9%  
Other income 94 239 154.0%
Depreciation 392 541 38.2%
Interest 368 744 102.0%
Profit before tax 1,451 1,872 29.0%
Extraordinary income/(expense) 204 -  
Tax 530 622 17.3%
Profit after tax/(loss) 1,124 1,250 11.2%
Share in profits/(losses) of associates (10) (19)  
Minority interest 4 41  
Net profit 1,119 1,272 13.7%
Net profit margin (%) 4.2% 4.3%  
No. of shares (m)   303.5  
Diluted earnings per share (Rs)*   16.8  
P/E ratio (x)*   14.5  
* Adjusted for extraordinary items; # On a trailing 12-months basis.

What has driven performance in 1QFY10?
  • Punj Lloyd (PUNL) reported a 12% YoY increase in revenues during 1QFY10. Growth was largely led by the company’s pipelines segment, which contributed to nearly 40% of revenues and grew by almost 55% YoY in absolute terms. It may be noted that during FY09, this segment contributed to nearly 29% of the company’s total revenues. Revenue from the company’s other two business segments – tankages and infrastructure – fell on a year on year basis. While revenues from the former fell by 45% YoY, revenues from the latter fell by 13% YoY. However, the company’s process plants and other segments witnessed a revenue growth of 6% YoY.

    Segment wise revenues during the quarter
    Pipeline segment acts during 1QFY10
    Source: Company

  • At the end of the quarter, PUNL had an order backlog of Rs 279 bn, which stands at nearly 2.3 times its FY09 consolidated earnings. During the quarter, the company had a strong order intake of almost Rs 100 bn. It won some big orders, with the largest being a Rs 59 bn order from IISCO (Libya) to build commercial and residential projects in Libya. The company also won a Rs 18.7 bn order from the Housing and Infrastructure Board for designing, procurement, installation and commissioning of utilities for three towns of Libya. These huge order intakes come in as a good sign for the company considering that it had seen a considerable slowdown in order intake in the previous few quarters.

    Break up of order backlog
    Infrastructure takes the cake
    Source: Company

  • PUNL put up a good operating performance during the quarter, wherein it managed to expand its operating margins by 1.9% YoY to 9.9%. This led to the company’s operating profits to increase by 38% YoY. Barring raw material & cost of goods sold, the company was able to reduce its other costs heads as percentage of sales.

  • PUNL’s net profits increased 14% YoY during 1QFY10. During 1QFY09, PUNL had sold of its ISP division. As such, it had reported an extraordinary income of Rs 204 m during the quarter. Now, on excluding this gain, the company’s net profits have increased by 39% YoY during 1QFY10. While the company was impacted by higher depreciation and interest costs during the quarter, it was able to offset a certain portion of the impact on account of a 154% YoY increase in other income.

What to expect?
As the company had reported a huge loss in FY09, calculating the price to earnings ratio based on its trailing 12-months earnings is not possible. As such, we have calculated the ratio on the basis of PUNL’s annualised 1QFY10 earnings, and at the current price of Rs 240, the same comes to around 14.5 times.

Speaking on the general business environment currently, Punj Lloyd’s management expressed during its conference call that it continues to see a lot of activity in the North African market (primarily Libya) at present. It also remains positive on opportunities from the oil & gas and infrastructure sectors in general. Roads and power are two areas in India where it expects a good amount of push from the Indian government. As far as costs are concerned, PUNL’s expenses were pushed up during the quarter on account of overhead costs associated with the retrenchment/downsizing that it is in the process of doing at its subsidiary Simon Carves.

These rationalisation initiatives pushed up the company’s expenses by roughly 4 m pounds (approx. Rs 318 m) during the quarter, and may incur further expenses of a similar magnitude over the next 2 quarters as this exercise continues. The company has got an approval from its shareholders to raise upto Rs 15 bn and it will probably look at a QIP (Qualified Institutional Placement) for raising these funds.

Based on the current composition of the order book of the company, it expects its margins to be in the range of 9.5% to 10% during FY10. As for its capital expenditure plans, PUNL plans to invest about US$ 60 m to 70 m during the current year for its EPC business. Capex for its defense business would be decided as per the finalisation of orders as and when it happens.

The management has enunciated its intention of now moving its emphasis from sales (which it had since the past 3 years) towards bottomline growth, profitability and cash flows going forward. Moreover, it expects to become a cash flow positive company within the next 1 to 2 years.

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