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Punj Lloyd’s (PLL) Q3FY11 revenues continued to disappoint and were down 27% Yo-
Y owing to slow execution in pipeline, process plants and infrastructure (mainly
Libya) orders. While management indicates traction in revenues from Q4FY11,
sustainability of this improvement remains our prime concern, given lower share of
infrastructure projects in the company’s current order book (OB) and slower progress
in other verticals. While there was no one-off during the quarter, net loss of INR 622
mn was largely due to lower revenues for the quarter.
Execution dip sharper than anticipated
PLL reported a sharp 33% dip in revenues for 9mFY11, while the same was down
27% Y-o-Y for Q3FY11, Y-o-Y. Revenues remained muted owing to a sharp dip in
pipeline and process plants execution, down 56% and 29%, Y-o-Y, respectively,
for 9mFY11. Also, PLL could not make any significant progress on Libya order
due to various delays (including late submission of master plan by the client).
Bleak revenue visibility despite strong OB
While Q3FY11 order intake grew 193% Y-o-Y, to INR 43.7 bn, taking the total
OB to INR 278 bn (up 19% Y-o-Y and 9% Q-o-Q), for 9mFY11 it declined 28% Yo-
Y, to INR 93 bn, owing to strong intake in Q1FY10 (2 bn USD Libya order). We
do not expect PLL to see any material uptick in execution for the near term (next
2-3 quarters) .The Company maintains that it has received 15% advance for the
Libya order, amounting to USD 750 mn (for five projects, of the total eight). It
has total 2 bn USD worth of order from Libya to be executed over more than
three years
Further revising our estimates downwards
We further trim our execution estimates for FY11E & FY12E by 12% each.
Given sharp decline in FY11 revenues coupled with higher impact of interest &
depreciation cost, we expect Punj to report a marginal loss of INR 61mn as
against our previous PAT estimate of INR 1215mn. We also revise down our
FY12E PAT estimates by 40% building in slower execution and lower profitability.
Outlook and valuations: Weak execution outlook ; maintain ‘REDUCE’
While the management expects revival from 4QFY11, we maintain our perception
of weak execution for the next 2-3 quarters, given lack of clarity on certain mega
orders, including one from Libya. We maintain our ‘REDUCE/Sector
Underperformer’ recommendation on the stock. PLL is currently trading at
EV/EBITDA of 11.9 and 7.7 for FY11E and FY12E, respectively and at a PE of
16.2x for FY12E.
Company Description
Punj started as the pipeline division of Punj Sons in 1982 led by Mr. Atul Punj, which was
incorporated as Punj Lloyd Engineering in 1988. Punj, today, is a leading engineering
procurement and construction (EPC) company in India, with capabilities spanning
verticals like oil & gas, infrastructure, and power. In 2006, the company acquired SEC
and Simon Carves to expand its business portfolio and leverage on the urban
infrastructure and process verticals capabilities, respectively, of the acquired companies.
Punj’s business operations span continents with presence in South-East Asia, Middle-East,
Caspian, and Asia–Pacific regions.
Investment Theme
Punj Lloyd (Punj) is one of the largest engineering and construction companies in India
in terms of revenues and order backlog. Since its inception, the company has
constructed more than 9,000 km of pipelines (up to 48” diameter) and 4 mn cubic
meters of storage tanks and terminal capacity. Acquisition of SEC and its subsidiary
Simon-Carves in June 2006 provided Punj the armory to become a large global EPC
player and consolidate its position in the oil & gas space, along with opening doors to the
fast growing urban infrastructure space.
Key Risks
Order concentration risk
Punj currently has Rs 97 bn order from Libya for Infrastructure projects, which forms
around 38% of the current OB. Any major delay in execution of this project could
hamper executions for PLL going forward.
Geographical and political risk
PLL operates in various economies including, Middle-East, Africa, South East Asia etc,
which exposes the company to various geographical and political risks.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Punj Lloyd’s (PLL) Q3FY11 revenues continued to disappoint and were down 27% Yo-
Y owing to slow execution in pipeline, process plants and infrastructure (mainly
Libya) orders. While management indicates traction in revenues from Q4FY11,
sustainability of this improvement remains our prime concern, given lower share of
infrastructure projects in the company’s current order book (OB) and slower progress
in other verticals. While there was no one-off during the quarter, net loss of INR 622
mn was largely due to lower revenues for the quarter.
Execution dip sharper than anticipated
PLL reported a sharp 33% dip in revenues for 9mFY11, while the same was down
27% Y-o-Y for Q3FY11, Y-o-Y. Revenues remained muted owing to a sharp dip in
pipeline and process plants execution, down 56% and 29%, Y-o-Y, respectively,
for 9mFY11. Also, PLL could not make any significant progress on Libya order
due to various delays (including late submission of master plan by the client).
Bleak revenue visibility despite strong OB
While Q3FY11 order intake grew 193% Y-o-Y, to INR 43.7 bn, taking the total
OB to INR 278 bn (up 19% Y-o-Y and 9% Q-o-Q), for 9mFY11 it declined 28% Yo-
Y, to INR 93 bn, owing to strong intake in Q1FY10 (2 bn USD Libya order). We
do not expect PLL to see any material uptick in execution for the near term (next
2-3 quarters) .The Company maintains that it has received 15% advance for the
Libya order, amounting to USD 750 mn (for five projects, of the total eight). It
has total 2 bn USD worth of order from Libya to be executed over more than
three years
Further revising our estimates downwards
We further trim our execution estimates for FY11E & FY12E by 12% each.
Given sharp decline in FY11 revenues coupled with higher impact of interest &
depreciation cost, we expect Punj to report a marginal loss of INR 61mn as
against our previous PAT estimate of INR 1215mn. We also revise down our
FY12E PAT estimates by 40% building in slower execution and lower profitability.
Outlook and valuations: Weak execution outlook ; maintain ‘REDUCE’
While the management expects revival from 4QFY11, we maintain our perception
of weak execution for the next 2-3 quarters, given lack of clarity on certain mega
orders, including one from Libya. We maintain our ‘REDUCE/Sector
Underperformer’ recommendation on the stock. PLL is currently trading at
EV/EBITDA of 11.9 and 7.7 for FY11E and FY12E, respectively and at a PE of
16.2x for FY12E.
Company Description
Punj started as the pipeline division of Punj Sons in 1982 led by Mr. Atul Punj, which was
incorporated as Punj Lloyd Engineering in 1988. Punj, today, is a leading engineering
procurement and construction (EPC) company in India, with capabilities spanning
verticals like oil & gas, infrastructure, and power. In 2006, the company acquired SEC
and Simon Carves to expand its business portfolio and leverage on the urban
infrastructure and process verticals capabilities, respectively, of the acquired companies.
Punj’s business operations span continents with presence in South-East Asia, Middle-East,
Caspian, and Asia–Pacific regions.
Investment Theme
Punj Lloyd (Punj) is one of the largest engineering and construction companies in India
in terms of revenues and order backlog. Since its inception, the company has
constructed more than 9,000 km of pipelines (up to 48” diameter) and 4 mn cubic
meters of storage tanks and terminal capacity. Acquisition of SEC and its subsidiary
Simon-Carves in June 2006 provided Punj the armory to become a large global EPC
player and consolidate its position in the oil & gas space, along with opening doors to the
fast growing urban infrastructure space.
Key Risks
Order concentration risk
Punj currently has Rs 97 bn order from Libya for Infrastructure projects, which forms
around 38% of the current OB. Any major delay in execution of this project could
hamper executions for PLL going forward.
Geographical and political risk
PLL operates in various economies including, Middle-East, Africa, South East Asia etc,
which exposes the company to various geographical and political risks.
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