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Punj Lloyd (Punj) witnessed another quarter of below-par performance with the
major disappointment coming on the top-line front. However, margins came in as
a positive surprise. In 2QFY2011, order backlog stood at `25,470cr (yoy decline of
5%) with order inflow at a mere `1,030cr, driven mainly by the infrastructure
segment. At current levels with most negatives factored in, we maintain a Buy on
the stock.
Disappointing performance: For 2QFY2011, Punj posted mixed performance – top-line
disappointed but margins were good. Top-line posted yoy de-growth of 30.8% to
`1,988cr (`2,872cr). However, a sequential growth of 14.6% indicates that
signs of revival are emerging on the execution front. Finally, the quarter
witnessed some pick up in the Libyan orders and the company booked
revenues of `168cr. Management has guided that nearly 40% of its Libyan
orders have started contributing to top-line with the balance still at the redesigning
phase. On the EBITDA front, the company posted 9.2% (7.4%) margins
primarily due to lack of any one-off cost. However, earnings de-grew 55% due to
higher interest cost.
Outlook and Valuation: With problematic orders (Ensus and Heera) out of
picture, the company is expected post better performance on the profitability
front in 2HFY2011 and FY2012. Further, the slow moving orders (read Libya)
have seen a pick-up in momentum, which is positive given its significance in
the company’s total order book. On the bourses, the stock has witnessed huge
underperformance over the last 12 months, which has brought it to trough
valuations given the company’s scale of operations. Against this backdrop, we
believe there is a strong case for the stock to outperform over the long term
and maintain a Buy on the stock, revised Target Price of `153 (`156).
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