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Punj Lloyd: Execution delays impact performance - Views on News from Equitymaster

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Punj Lloyd: Execution delays impact performance
Aug 5, 2010

Punj Lloyd reported a 42% YoY decline in sales and a loss at the net level during the quarter ended June 2010. Here is our analysis of the results.

Performance summary
  • Consolidated sales decline by 42% YoY during 1QFY11.
  • Operating margins contract by 2.6% YoY to 7.7% during the quarter. This is on the back of higher employee and other expenses (as a percentage of sales).
  • The company reported a net loss of Rs 300 m during the quarter as against a profit of around Rs 1.3 bn during 1QFY10.
  • Order backlog at the end of the quarter stood at Rs 256 bn (2.5 times its FY10 sales).

Consolidated financial snapshot
(Rs m) 1QFY10 1QFY11 Change
Net Sales 29,728 17,339 -41.7%
Expenditure 26,670 15,998 -40.0%
Operating profit (EBITDA) 3,058 1,341 -56.1%
Operating profit margin (%) 10.3% 7.7%  
Other income 63 41 -35.1%
Depreciation 541 640 18.3%
Interest 707 810 14.6%
Profit before tax 1,872 (69)  
Tax 622 235 -62.1%
Profit after tax/(loss) 1,250 (304)  
Share in profits/(losses) of associates (19) 21  
Minority interest 41 (23)  
Net profit 1,272 (306)  
Net profit margin (%) 4.3% -1.8%  
No. of shares (m) 303.5 332.1  
Diluted earnings per share (Rs)*#   (17.7)  
P/E ratio (x)*   NA  

What has driven performance in 1QFY11?
  • Punj Lloyd's (PUNL) woes seem never-ending. The company reported a dismal performance (yet again) during the quarter ended June 2010. Its consolidated revenues declined by 42% YoY. The company saw revenues decline for all its business segments. For instance, its pipeline business saw a decline of 53% YoY. This segment contributed to about 32% of the total sales topline as compared to 40% in 1QFY10. Revenues from the process plant and infrastructure segments declined by 41% YoY and 24% YoY respectively. However, their contribution to overall revenues increased on the back of a sharp decline in revenues of the pipelines segment.

  • As per PUNL's management, revenues and profitability for the quarter ended June 2010 were impacted due to client related delays in execution of some of the projects. This included the large-sized order that the company had bagged in Libya. The management expects revenues from this order to show from the current quarter (2QFY11) as work on the same has commenced. During the quarter, PUNL's domestic revenues contributed to about 42% of total revenues as compared to 26% during the corresponding quarter last year.

  • PUNL's operating profits declined by a sharp 56% YoY as the fall in expenses was lesser as compared to the fall in revenues. Operating margins stood at 7.7% during 1QFY11 as compared to 10.3% in 1QFY10. While cost of goods sold, raw material expenses and sub contracting expenses - the major expense heads of the company - declined significantly in absolute terms as well as a percentage of sales, employee and other expenses increased substantially (also as percentage of sales), thereby impacting the overall margins.

  • PUNL recorded a loss at the net level on the back of a poor operating performance coupled with higher depreciation and interest costs. In fact, because of rise in these charges, the company recorded a loss at the profit before tax (PBT) level itself.

What to expect?
At present, the company's trailing twelve month earnings per share stands at a negative 17.7 on a consolidated basis (adjusted for extraordinary items). The company would need to churn out a very strong performance over the next few quarters to turn this negative EPS into a positive one. While PUNL has a strong order book of about Rs 255 bn, which is about 2.5 times if FY10 revenues, one cannot easily ignore the execution issues. More so for a company that has had a very difficult past two years! While the company has some large sized orders in its kitty, execution of the same would be a task by itself considering that they are international projects.

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