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UBS Investment Research
Punj Lloyd
Losses due to weak execution/margins
Losses of Rs621m, led by lower execution
Punj reported Q3 net losses of Rs621m, led by lower execution- Q3 revenues of
Rs21.2bn, -27% y/y (UBS-e Rs25.8bn, consensus estimate Rs26.4bn). Q3
EBITDA margins were 4.5%, down 320bps y/y. Lower revenues have been
attributed to client-side delays in some projects and lower order booking in H1.
Margins were impacted due to the lower revenues and also due to extra works on
some projects (Punj has filed claims for the same). In 9mFY11, Punj has reported
losses of Rs688m (revenues of Rs58.4bn, down 33% y/y, with margins of 7.1%).
A number of risks remain
A number of risks remain in our view- 1) slow movement in Libyan projects could
impact revenue growth, 2) further losses in Ensus project due to disputes with the
client (the client retains 7.7m pounds as retention money and there is a guarantee
of 2.3m pounds; warranty period expires in March-April), 3) rising interest rates
(net-debt to equity ratio is 1.1x; working capital remains high at over 150 days of
sales) and 4) overhang due to Rs2.4bn of claims booked as revenues in FY10 on
the ONGC project and also non-accounting of Rs655m of liquidated damages.
Revise our earnings estimates downwards
We revise our EPS estimates to Rs0.1/6.6/9.1 from Rs6.7/10.1/13 for FY11/12/13E
led by losses in 9mFY11 and lower order-booking and execution estimates. Punj
currently has an order-backlog of Rs278bn and order inflow in 9mFY11 is Rs93bn.
Valuation: Maintain Sell rating
We revise our PT led by revision in our estimates. Our price target is based on
DCF valuation. We maintain our Sell rating.
Q3 revenues at Rs21.2bn were below our expectation of Rs25.8bn (consensus
estimate of Rs26.4bn) and EBITDA margins at 4.5% were below our
expectation of 9% (consensus expectation of 8.4%).
For 9mFY11, Punj reported consolidated sales of Rs58.4bn, a decline of 33%
YoY, and EBITDA of Rs4.1bn (with EBITDA margins of 7.1%, declining
130bps YoY). On a reported basis, the net loss is of Rs688m.
Conference Call highlights:
Libya projects: Master plans for the projects were delayed, because of which
there was a delay in starting the projects, resulting in lower revenue booking.
There was also a delay in receiving advances- now 15% advances have been
received on all the five projects. Three orders have seen traction while the other
two are yet to start. The company expects a pick-up in execution in the Libyan
projects next year. These projects are expected to be executed over a period of
4-5 years. The margins on these projects are expected to be high at about 14%.
EBITDA margins: Margins in the quarter were impacted due to lower revenue
booking (apart from Libyan orders, works on some of the power project orders
were also slow). Also there were some extra works under-taken, for which
claims have been filed with clients (mainly PSU clients). The company expects
to receive such claims in the coming quarters. Margins are expected to be
around 9%. The margins for orders excluding Libyan orders could be around 8-
9%.
Middle-East orders: The orders in this geography are moving well and there
are no delays or cancellations in these projects. Korean companies have
dominated the market through their aggressive pricing in project wins so far,
which has impacted order booking for Punj.
Cost of Funds: Overall cost of debt is 8.2-8.3%, foreign debt cost is below 7%
and domestic debt cost is below 9%. Net debt for the company stands at Rs34bn
(with gross debt of Rs46bn)
Segmental revenues
Pipeline segment revenues (Chart 1) contributed 30% of 9mFY11 revenues,
lower than the contribution in FY10. South Asia revenue contribution has
increased significantly while Middle East and Africa contribution has decreased.
Order backlog of Rs278bn
The order book has remained flat at Rs278bn (Rs278bn at end-FY10). Order
inflows so far in FY11 have been Rs92.4bn. The infrastructure segment
contributes 56% of the order book, with geographies of Middle East/Africa
comprises 46% of the order book.
Punj Lloyd
Punj Lloyd is the second largest company in the E&C space in India,
specialising in laying pipelines, building oil & gas storage tanks, terminals and
process facilities. It has an extensive geographical presence, having executed
projects in the Middle East, Asia Pacific, and the Caspian region. In 2006, Punj
acquired Singapore-based Sembawang E&C and its UK-based subsidiary,
Simon Carves. This acquisition enables the company to acquire pre-qualification
in new verticals of infrastructure such as airports, jetties, MRT/LRT, tunnelling
and EPC capabilities in the petrochemical domain.
Statement of Risk
The company faces numerous risks which include: 1) execution risks – with
c80% of operations being executed overseas, the company is subject to the
political and regulatory environment in those countries; 2) slowdown in the
integration with Sembawang would affect the company’s long-term plans; 3)
slowdown in the oil and gas sector capex plans could lead to less demand for
E&C activities and 4) increasing competition.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Punj Lloyd
Losses due to weak execution/margins
Losses of Rs621m, led by lower execution
Punj reported Q3 net losses of Rs621m, led by lower execution- Q3 revenues of
Rs21.2bn, -27% y/y (UBS-e Rs25.8bn, consensus estimate Rs26.4bn). Q3
EBITDA margins were 4.5%, down 320bps y/y. Lower revenues have been
attributed to client-side delays in some projects and lower order booking in H1.
Margins were impacted due to the lower revenues and also due to extra works on
some projects (Punj has filed claims for the same). In 9mFY11, Punj has reported
losses of Rs688m (revenues of Rs58.4bn, down 33% y/y, with margins of 7.1%).
A number of risks remain
A number of risks remain in our view- 1) slow movement in Libyan projects could
impact revenue growth, 2) further losses in Ensus project due to disputes with the
client (the client retains 7.7m pounds as retention money and there is a guarantee
of 2.3m pounds; warranty period expires in March-April), 3) rising interest rates
(net-debt to equity ratio is 1.1x; working capital remains high at over 150 days of
sales) and 4) overhang due to Rs2.4bn of claims booked as revenues in FY10 on
the ONGC project and also non-accounting of Rs655m of liquidated damages.
Revise our earnings estimates downwards
We revise our EPS estimates to Rs0.1/6.6/9.1 from Rs6.7/10.1/13 for FY11/12/13E
led by losses in 9mFY11 and lower order-booking and execution estimates. Punj
currently has an order-backlog of Rs278bn and order inflow in 9mFY11 is Rs93bn.
Valuation: Maintain Sell rating
We revise our PT led by revision in our estimates. Our price target is based on
DCF valuation. We maintain our Sell rating.
Q3 revenues at Rs21.2bn were below our expectation of Rs25.8bn (consensus
estimate of Rs26.4bn) and EBITDA margins at 4.5% were below our
expectation of 9% (consensus expectation of 8.4%).
For 9mFY11, Punj reported consolidated sales of Rs58.4bn, a decline of 33%
YoY, and EBITDA of Rs4.1bn (with EBITDA margins of 7.1%, declining
130bps YoY). On a reported basis, the net loss is of Rs688m.
Conference Call highlights:
Libya projects: Master plans for the projects were delayed, because of which
there was a delay in starting the projects, resulting in lower revenue booking.
There was also a delay in receiving advances- now 15% advances have been
received on all the five projects. Three orders have seen traction while the other
two are yet to start. The company expects a pick-up in execution in the Libyan
projects next year. These projects are expected to be executed over a period of
4-5 years. The margins on these projects are expected to be high at about 14%.
EBITDA margins: Margins in the quarter were impacted due to lower revenue
booking (apart from Libyan orders, works on some of the power project orders
were also slow). Also there were some extra works under-taken, for which
claims have been filed with clients (mainly PSU clients). The company expects
to receive such claims in the coming quarters. Margins are expected to be
around 9%. The margins for orders excluding Libyan orders could be around 8-
9%.
Middle-East orders: The orders in this geography are moving well and there
are no delays or cancellations in these projects. Korean companies have
dominated the market through their aggressive pricing in project wins so far,
which has impacted order booking for Punj.
Cost of Funds: Overall cost of debt is 8.2-8.3%, foreign debt cost is below 7%
and domestic debt cost is below 9%. Net debt for the company stands at Rs34bn
(with gross debt of Rs46bn)
Segmental revenues
Pipeline segment revenues (Chart 1) contributed 30% of 9mFY11 revenues,
lower than the contribution in FY10. South Asia revenue contribution has
increased significantly while Middle East and Africa contribution has decreased.
Order backlog of Rs278bn
The order book has remained flat at Rs278bn (Rs278bn at end-FY10). Order
inflows so far in FY11 have been Rs92.4bn. The infrastructure segment
contributes 56% of the order book, with geographies of Middle East/Africa
comprises 46% of the order book.
Punj Lloyd
Punj Lloyd is the second largest company in the E&C space in India,
specialising in laying pipelines, building oil & gas storage tanks, terminals and
process facilities. It has an extensive geographical presence, having executed
projects in the Middle East, Asia Pacific, and the Caspian region. In 2006, Punj
acquired Singapore-based Sembawang E&C and its UK-based subsidiary,
Simon Carves. This acquisition enables the company to acquire pre-qualification
in new verticals of infrastructure such as airports, jetties, MRT/LRT, tunnelling
and EPC capabilities in the petrochemical domain.
Statement of Risk
The company faces numerous risks which include: 1) execution risks – with
c80% of operations being executed overseas, the company is subject to the
political and regulatory environment in those countries; 2) slowdown in the
integration with Sembawang would affect the company’s long-term plans; 3)
slowdown in the oil and gas sector capex plans could lead to less demand for
E&C activities and 4) increasing competition.
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