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Punj Lloyd (PUNJ)
Construction
Results disappoint on revenue as well as margin front. Punj Lloyd reported a 27%
decline in consolidated revenues to Rs20 bn, 17% below our estimates. Libyan orders
execution remained slow; expected to scale up only in FY2012E. Sharp EBITDA margin
contraction of 320 bps was primarily on negative operating leverage. Sedate revenues
and margin contraction led to a net loss of Rs621 mn. Punj reported very strong inflows
of Rs50 bn led by a few large orders in the O&G segment. Retain REDUCE.
Disappointing results led by sharp revenue decline as well as margin contractions
Consolidated and standalone revenues disappoint: Punj Lloyd reported disappointing
revenues of Rs22 bn in 3QFY11, 17% below our estimates and down 27% yoy. Management
cited delays in Libya projects and several projects being in initial stages as the reasons for the
sedate revenues. Standalone revenues also remained weak, declining by 48% yoy.
Margin contraction on negative operating leverage: Punj Lloyd reported a 320 bps yoy
decline in consolidated EBITDA margin to 4.5%, primarily led by negative operating leverage.
Net loss of Rs621 mn: Revenue fall and margin compression led to PAT loss at Rs621 mn
versus our profit estimate of Rs484 mn and 3QFY10 profit of Rs125 mn.
Execution of Libya orders remains slow; expects execution scale-up only in FY2012E
Execution of the Libyan orders continues to remain slow. These orders contributed to only 4-5% of
the quarter revenues versus backlog contribution of about 35%. These projects have faced several
delays due to (1) delays in receiving the master plan from the client and (2) delays in advance
payments by clients. Management expects execution in these orders to start scaling up in FY12E.
Strong inflows of Rs50 bn (versus sedate 1H) led by large orders from IOCL and PTT (Thailand)
Punj Lloyd reported strong order inflows of Rs50 bn in 3QFY11 led by (1) Rs13 bn order for an
onshore gas pipeline from PTT Public Company, Thailand, (2) Rs11.3 bn lump sum turnkey
package for IOCL’s Paradip refinery project and (3) Rs5.4 bn order from GAIL for laying of 820 km
of pipeline. The strong inflows in the quarter led to a 9MFY11-end backlog of Rs278 bn.
Revise estimates on slower execution assumptions; retain REDUCE with a target price of Rs90
We revise our estimates to Rs1.3 and Rs8.5 from Rs9.8 and Rs12.0 for FY2011E and FY2012E on
lower execution and margin assumptions. Retain REDUCE with a revised TP of Rs90 (from Rs140)
on (1) significant delays in Libyan projects, (2) significant concentration of infrastructure orders in
the backlog and (3) repeated one-offs in subsidiaries related to contract-specific issues.
Results disappoint on sharp revenue decline and margin contraction
Slow revenues attributed to several projects being in initial stages of execution;
expects pick-up in FY2012E
Punj Lloyd reported 3QFY11 consolidated revenues of Rs21.2 bn, down 27% yoy, and about
17% below our estimate of Rs25 bn. The management attributed the slow revenue growth
to several projects being in their initial stages of execution and expects strong pick-up in
FY2012E. Execution of the Libyan order remains relatively slow—not contributed materially
to the consolidated revenues (expected pick-up in FY2012E).
EBITDA margin declines primarily led by negative operating leverage
EBITDA margin at 4.5% was 500 bps below our estimates and declined 320 bps yoy (7.7%
in 3QFY10) primarily led by negative operating leverage. Employee cost and other expenses
both increased about 210 bps each as percentage of sales leading to margins compression.
Revenue fall and margin compression led to PAT loss at Rs621 mn versus our profit estimate
of Rs484 mn and 3QFY10 profit of Rs125 mn.
For the nine months ending December 31, 2010, Punj Lloyd reported consolidated revenues
of Rs58.4 bn, down 33% yoy. EBITDA margin declined by about 140 bps on a yoy basis to
7.1% from 8.5% in 9MFY10. The company reported a net loss of Rs712 mn for 9MFY11
versus a net profit of Rs1.9 bn in 9MFY10.
Standalone also reported weak results with low execution
Even at the standalone level the company has recorded a 48% yoy decline in revenues to
Rs11 bn in 3QFY11. EBITDA margin for the quarter was at 8.9%, down by 410 bps yoy from
13% in 3QFY10 led by higher staff and other expenses as a percentage of sales. The raw
material cost as a percentage of sales has in fact declined by 230 bps on a yoy basis. The
sedate revenues and margin contraction led to a net loss of Rs23 mn in 3QFY11 versus a
profit of Rs1.2 bn in 3QFY10.
Execution expertise appears to lag aspirations for regional/sector diversification
The management has highlighted its aspirations for further regional and sector
diversification, such as taking up projects in Caspian region and bidding for large
infrastructure projects. We are concerned that the company may find itself stretched,
especially if it takes significant exposure to Caspian region, and could potentially face
execution challenges as already seen in UK and Libya.
Execution of Libyan orders continues to remain slow
Execution of the Libyan orders continues to remain slow. These orders contributed to only 4-
5% of the quarter’s revenues versus a backlog contribution of about 33-35%. The company
had started recognizing revenues in its Libya orders only in the previous quarter while having
won the orders over a year ago.
Punj Lloyd is currently executing five large orders in Libya worth about US$750 mn from the
Housing and Infrastructure Board (Govt. of Libya). These projects have faced several delays
due to (1) delays in receiving the master plan from the client and (2) delays in advance
payments by clients. The management expects execution in these orders to start scaling up
based on (1) Punj has started receiving the master development plan in a phased manner
and has already started initial engineering works at certain sites and (2) company has now
received about 15% advance for all the projects.
Strong order inflows in 3Q led by large orders from IOCL and PTT (Thailand)
Punj Lloyd reported order inflows of Rs93 bn in 9MFY11 implying very strong inflows to the
tune of about Rs50 bn in 3QFY11. The order inflows were led by two large orders in the oil
& gas segment viz. (1) Rs13 bn order for an onshore gas pipeline from PTT Public Company
Ltd, Thailand, (2) Rs11.3 bn lump sum turnkey package for IOCL’s Paradip refinery project
and (3) Rs5.4 bn order from GAIL for laying of 820 km of pipeline.
The strong order inflows in the quarter led to a 9MFY11-end order backlog of Rs278 bn, up
18.7% yoy and about 10% higher on a sequential basis.
Revise estimates based on lower execution assumption; retain REDUCE
We have revised our FY2011E earnings estimates to Rs1.3 (from Rs9.8) based on sedate
revenues and sharp margin decline in 9MFY11. We have also revised our FY2012E earnings
to Rs8.5 from Rs12 based on lower execution assumptions versus earlier on the back of
significant delays in order execution in Libya and in other projects. We revise our target price
to Rs90/share from Rs140/share earlier based on 10X Mar-12E EPS (versus valuation basis of
13X Sep-11E EPS).
We retain our REDUCE rating on the company as (1) execution issues on order wins in
geographies such as Libya leading to significant delays in the projects—contributes to about
33-35% of backlog, (2) significant concentration of infrastructure orders in the backlog—
contributed to over 70% of the 9MFY11-end backlog, and (3) repeated one-offs in
subsidiaries related to contract-specific issues.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Punj Lloyd (PUNJ)
Construction
Results disappoint on revenue as well as margin front. Punj Lloyd reported a 27%
decline in consolidated revenues to Rs20 bn, 17% below our estimates. Libyan orders
execution remained slow; expected to scale up only in FY2012E. Sharp EBITDA margin
contraction of 320 bps was primarily on negative operating leverage. Sedate revenues
and margin contraction led to a net loss of Rs621 mn. Punj reported very strong inflows
of Rs50 bn led by a few large orders in the O&G segment. Retain REDUCE.
Disappointing results led by sharp revenue decline as well as margin contractions
Consolidated and standalone revenues disappoint: Punj Lloyd reported disappointing
revenues of Rs22 bn in 3QFY11, 17% below our estimates and down 27% yoy. Management
cited delays in Libya projects and several projects being in initial stages as the reasons for the
sedate revenues. Standalone revenues also remained weak, declining by 48% yoy.
Margin contraction on negative operating leverage: Punj Lloyd reported a 320 bps yoy
decline in consolidated EBITDA margin to 4.5%, primarily led by negative operating leverage.
Net loss of Rs621 mn: Revenue fall and margin compression led to PAT loss at Rs621 mn
versus our profit estimate of Rs484 mn and 3QFY10 profit of Rs125 mn.
Execution of Libya orders remains slow; expects execution scale-up only in FY2012E
Execution of the Libyan orders continues to remain slow. These orders contributed to only 4-5% of
the quarter revenues versus backlog contribution of about 35%. These projects have faced several
delays due to (1) delays in receiving the master plan from the client and (2) delays in advance
payments by clients. Management expects execution in these orders to start scaling up in FY12E.
Strong inflows of Rs50 bn (versus sedate 1H) led by large orders from IOCL and PTT (Thailand)
Punj Lloyd reported strong order inflows of Rs50 bn in 3QFY11 led by (1) Rs13 bn order for an
onshore gas pipeline from PTT Public Company, Thailand, (2) Rs11.3 bn lump sum turnkey
package for IOCL’s Paradip refinery project and (3) Rs5.4 bn order from GAIL for laying of 820 km
of pipeline. The strong inflows in the quarter led to a 9MFY11-end backlog of Rs278 bn.
Revise estimates on slower execution assumptions; retain REDUCE with a target price of Rs90
We revise our estimates to Rs1.3 and Rs8.5 from Rs9.8 and Rs12.0 for FY2011E and FY2012E on
lower execution and margin assumptions. Retain REDUCE with a revised TP of Rs90 (from Rs140)
on (1) significant delays in Libyan projects, (2) significant concentration of infrastructure orders in
the backlog and (3) repeated one-offs in subsidiaries related to contract-specific issues.
Results disappoint on sharp revenue decline and margin contraction
Slow revenues attributed to several projects being in initial stages of execution;
expects pick-up in FY2012E
Punj Lloyd reported 3QFY11 consolidated revenues of Rs21.2 bn, down 27% yoy, and about
17% below our estimate of Rs25 bn. The management attributed the slow revenue growth
to several projects being in their initial stages of execution and expects strong pick-up in
FY2012E. Execution of the Libyan order remains relatively slow—not contributed materially
to the consolidated revenues (expected pick-up in FY2012E).
EBITDA margin declines primarily led by negative operating leverage
EBITDA margin at 4.5% was 500 bps below our estimates and declined 320 bps yoy (7.7%
in 3QFY10) primarily led by negative operating leverage. Employee cost and other expenses
both increased about 210 bps each as percentage of sales leading to margins compression.
Revenue fall and margin compression led to PAT loss at Rs621 mn versus our profit estimate
of Rs484 mn and 3QFY10 profit of Rs125 mn.
For the nine months ending December 31, 2010, Punj Lloyd reported consolidated revenues
of Rs58.4 bn, down 33% yoy. EBITDA margin declined by about 140 bps on a yoy basis to
7.1% from 8.5% in 9MFY10. The company reported a net loss of Rs712 mn for 9MFY11
versus a net profit of Rs1.9 bn in 9MFY10.
Standalone also reported weak results with low execution
Even at the standalone level the company has recorded a 48% yoy decline in revenues to
Rs11 bn in 3QFY11. EBITDA margin for the quarter was at 8.9%, down by 410 bps yoy from
13% in 3QFY10 led by higher staff and other expenses as a percentage of sales. The raw
material cost as a percentage of sales has in fact declined by 230 bps on a yoy basis. The
sedate revenues and margin contraction led to a net loss of Rs23 mn in 3QFY11 versus a
profit of Rs1.2 bn in 3QFY10.
Execution expertise appears to lag aspirations for regional/sector diversification
The management has highlighted its aspirations for further regional and sector
diversification, such as taking up projects in Caspian region and bidding for large
infrastructure projects. We are concerned that the company may find itself stretched,
especially if it takes significant exposure to Caspian region, and could potentially face
execution challenges as already seen in UK and Libya.
Execution of Libyan orders continues to remain slow
Execution of the Libyan orders continues to remain slow. These orders contributed to only 4-
5% of the quarter’s revenues versus a backlog contribution of about 33-35%. The company
had started recognizing revenues in its Libya orders only in the previous quarter while having
won the orders over a year ago.
Punj Lloyd is currently executing five large orders in Libya worth about US$750 mn from the
Housing and Infrastructure Board (Govt. of Libya). These projects have faced several delays
due to (1) delays in receiving the master plan from the client and (2) delays in advance
payments by clients. The management expects execution in these orders to start scaling up
based on (1) Punj has started receiving the master development plan in a phased manner
and has already started initial engineering works at certain sites and (2) company has now
received about 15% advance for all the projects.
Strong order inflows in 3Q led by large orders from IOCL and PTT (Thailand)
Punj Lloyd reported order inflows of Rs93 bn in 9MFY11 implying very strong inflows to the
tune of about Rs50 bn in 3QFY11. The order inflows were led by two large orders in the oil
& gas segment viz. (1) Rs13 bn order for an onshore gas pipeline from PTT Public Company
Ltd, Thailand, (2) Rs11.3 bn lump sum turnkey package for IOCL’s Paradip refinery project
and (3) Rs5.4 bn order from GAIL for laying of 820 km of pipeline.
The strong order inflows in the quarter led to a 9MFY11-end order backlog of Rs278 bn, up
18.7% yoy and about 10% higher on a sequential basis.
Revise estimates based on lower execution assumption; retain REDUCE
We have revised our FY2011E earnings estimates to Rs1.3 (from Rs9.8) based on sedate
revenues and sharp margin decline in 9MFY11. We have also revised our FY2012E earnings
to Rs8.5 from Rs12 based on lower execution assumptions versus earlier on the back of
significant delays in order execution in Libya and in other projects. We revise our target price
to Rs90/share from Rs140/share earlier based on 10X Mar-12E EPS (versus valuation basis of
13X Sep-11E EPS).
We retain our REDUCE rating on the company as (1) execution issues on order wins in
geographies such as Libya leading to significant delays in the projects—contributes to about
33-35% of backlog, (2) significant concentration of infrastructure orders in the backlog—
contributed to over 70% of the 9MFY11-end backlog, and (3) repeated one-offs in
subsidiaries related to contract-specific issues.
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