Punj Lloyd: Strong topline performance - Views on News from Equitymaster

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Punj Lloyd: Strong topline performance

Oct 23, 2008

Performance summary
  • Consolidated sales grow by 55% YoY during 2QFY09 and 70% YoY during 1HFY09.

  • Operating margins expand by 0.5% YoY during the quarter on the back of lower raw material expenses. However, for 1HFY09, operating margin remains flat at 8.7%.

  • During 2QFY09, net profits grow by 60% YoY on the back of expansion in operating margins.

  • Order backlog at the end of September 2008 stood at Rs 217 bn (2.8 times FY08 sales).

Consolidated financial snapshot

(Rs m) 2QFY08 2QFY09 Change 1HFY08 1HFY09 Change
Net Sales 18,942 29,261 54.5% 32,892 55,748 69.5%
Expenditure 17,277 26,536 53.6% 30,015 50,907 69.6%
Operating profit (EBITDA) 1,666 2,724 63.6% 2,877 4,841 68.3%
Operating profit margin (%) 8.8% 9.3%   8.7% 8.7%  
Other income 305 280 -8.1% 535 375 -30.0%
Depreciation 334 439 31.5% 688 830 20.7%
Interest 394 490 24.6% 682 859 25.8%
Profit before tax 1,243 2,076 66.9% 2,041 3,526 72.7%
Extraordinary income/(expense) - -   - 204  
Tax 349 647 85.3% 552 1,177 113.1%
Profit after tax/(loss) 894 1,429 59.8% 1,489 2,553 71.5%
Share in profits/(losses) of associates - 9   - (0)  
Minority interest 0 3   1 7  
Net profit 895 1,441 61.1% 1,490 2,560 71.8%
Net profit margin (%) 4.7% 4.9%   4.5% 4.6%  
No. of shares (m)       290.9 303.5  
Diluted earnings per share (Rs)*#         14.1  
P/E ratio (x)#       11.6  
* Adjusted for extraordinary items; # On a trailing 12-months basis

What has driven performance in 2QFY09?
  • Punj Lloyd’s (PUNL) topline grew by 55% YoY during 2QFY09. This robust performance is attributable to its process and infrastructure segments, which grew by nearly 118% YoY and 72% YoY. The company’s pipelines division grew by nearly 11% YoY while its tankages segment’s sales declined by 46% YoY. However, this segment contributed 3% to the revenues.


  • During the last quarter, PUNL won orders worth Rs 56 bn. It won two large value EPC orders –Rs 10 bn order from GVK Power and Rs 36.4 bn pipeline order from Qatar Petroleum. In addition to this, Punj Lloyd Upstream (its offshore arm) signed a contract worth Rs 1.9 bn with Waha Oil Company in Libya for the deployment of two onshore rigs.

  • PUNL’s operating profits increased by 64% YoY during the quarter. The operating margins expanded by 0.5% on the back of lower raw material expenses (as a percentage of sales).

  • On the back of a strong operating performance, PUNL recorded a strong growth in its bottomline (up 61% YoY). The main reason for slower growth rate in its net profit (compared to its operating profits) is due to lower other income and higher tax outgo.

    What to expect?
    At the current price of Rs 164, the stock is trading at a multiple of 5.8 times our estimated FY10 earnings. The company has seen its order book ramp up swiftly over the last two and a half years – from Rs 52 bn in FY06 to Rs 217 bn in 1HFY09. As such, the management is banking on the same to drive growth going forward. Coming to matters of funding these projects, the management has stated that it is not finding any difficulty towards acquiring working capital loans. The company borrowed funds worth Rs 8 bn towards meeting its working capital requirements during 2QFY09. The management however expects high interest rates to dampen the company’s margins in the medium term.

    It also stated that a large number of their clients are national oil companies. As such, the possibility of deferment or cancellations of projects is less. PUNL only has two private players as part of its clientele.

    Being a company largely dependent on oil and gas infrastructure spending, oil prices play an important role towards PUNL’s growth. The management stated that most of the company’s clients have invested in projects (refineries, pipeline projects, etc.) with an approximate cost of US$ 25 a barrel. As such, with oil prices hovering above the US$ 60 a barrel mark, investments in these projects are very much profitable.

    In 4QFY08, the company had reported that it had to make provisions of around Rs 3 bn towards cost over-runs of Simon Carves’ (its UK subsidiary) selected legacy project. However back then, the management had countered this situation stating that it was in negotiations with the client for settlement of this amount. In 1QFY09, the company received payment worth Rs 1.1 bn from the client. As such the provision amount was reduced to Rs 1.9 bn. During 2QFY09, the company in its press release has stated that this figure has further increased to Rs 2.2 bn, owing to cost and currency variations. As per the management, the said project is on track and it is looking to receive the balance Rs 2.2 bn payment from the client in the coming future. As mentioned earlier, the company is aiming at breaking even on this project.

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