Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
PUNJ LLOYD LTD
RECOMMENDATION: REDUCE
TARGET PRICE: RS.72 FY12E P/E: 10.3X
q Punj Lloyd has an order book worth Rs 98.4 bn from Libya
q Current prevailing concerns in Libya may further impact company's execution
from those projects.
q We downgrade our revenue estimates to factor in current situation in
Libya and maintain REDUCE with a revised price target of Rs 72 (Rs 81
earlier)
Key highlights about company's projects in Libya
Order book from Libya
Punj Lloyd has an order book of Rs 98.4 bn coming in specifically from Libya. This
forms nearly 35% of the total order book. It has five projects from Libyan geography.
Though revenue recognition from these projects had witnessed significant delays
due to delay in getting master plan from the client, but past two quarters have
seen improvement in execution from three of the projects. Company has specified
that project worth Rs 59 bn awarded from IISCO to Sembawang was inactive project
where work had not commenced at all since the award of the project. Thus, effectively,
work has been stalled on remaining projects from Libya which constitutes only
14% of the total order backlog.
In our estimates, we had expected execution to ramp up significantly from these
projects during Q4FY11 as well as in FY12. With the current unrest seen in Libya and
evacuation of people from key cities, we don't expect execution from the above
listed projects to ramp up now in the coming quarters till the time stability is
achieved.
Till 9MFY11, Punj Lloyd had booked Rs 1.6 bn of revenues (currently under WIP)
while customer advances stood at Rs 4.8 bn from these projects. Company had incurred
a total cost of Rs 2.15 bn including cost of construction, mobilization of resources,
advances to suppliers and equipment. Thus, company has a net positive
cash flow from these projects to the tune of Rs 2.65 bn, out of which Rs 1.75 bn is
deposited outside Libya while Rs 900 mn is deposited in Libyan banks. Though these
projects are net cash positive, but revenues have not been recognized to the extent
of costs incurred. Thus, in the event of no progress on these projects going ahead,
company may have to book the costs in the P&L with correspondingly lesser revenues
being accounted for. This would impact the bottomline going ahead.
Along with this, company has nearly 45% exposure in Middle east and African
markets and possibility of any unrest spreading to Middle east may further impact
execution from other projects of the company.
We thus revise our revenue estimates downwards and expect revenues to be Rs 80.4
bn and Rs 98.9 bn in FY11 and FY12 respectively as against Rs 82.5 bn and Rs 103
bn for FY11 and FY12 estimated earlier.
Disappointment seen in Q3FY11 may be continued going ahead also
Company had disappointed during Q3FY11 on revenues as well as on margin front
due to lower than expected execution from slow moving projects in Libya. Operating
margins were also impacted due to cost overruns seen in certain projects and delays
in revenue booking. We believe that this trend is likely to continue going ahead also
since execution from Libya projects is not likely to pick up in near future.
Uncertainties related to other projects
We believe that our financial estimates may also be downgraded further in the
event of unfavorable outcome from ONGC project or Ensus project. Our estimates
currently don't include future write offs from Heera redevelopment project with
ONGC which is under litigation. If the decision comes against Punj Lloyd, company
would have to reverse the extra revenues worth Rs 2.43 bn booked in last year.
Along with this, Ensus project is currently in the warranty period and Ensus continues
to retain money in the form of bank guarantee and retention money. This project is
currently under trial runs and if desired capacity utilization is not achieved, then it
may stand at a risk of further costs overruns.
Financial outlook
n We expect revenues to register a decline of 23% in FY11 and then grow by 22%
in FY12
n Operating margins are expected to be 5% and 8.1% in FY11 and FY12 respectively.
Possibility of decline in margins in FY12 continues to remain due to uncertainties
associated with its order book.
n We expect net profits to be Rs 81 mn and Rs 1998 mn in FY11 and FY12 respectively.
Valuation and recommendation
n At current price of Rs 60, stock is trading at 10.3 x P/E and 7.3x EV/EBITDA for
FY12.
n We arrive at a revised price target of Rs 72 on FY12 estimates at 12x FY12 estimated
earnings. (Rs 81 earlier)
n We continue to maintain our negative bias on the company due to uncertainties
regarding delays or cost overruns in its projects and expectations of further write
offs in coming quarters.
n We maintain REDUCE rating on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
PUNJ LLOYD LTD
RECOMMENDATION: REDUCE
TARGET PRICE: RS.72 FY12E P/E: 10.3X
q Punj Lloyd has an order book worth Rs 98.4 bn from Libya
q Current prevailing concerns in Libya may further impact company's execution
from those projects.
q We downgrade our revenue estimates to factor in current situation in
Libya and maintain REDUCE with a revised price target of Rs 72 (Rs 81
earlier)
Key highlights about company's projects in Libya
Order book from Libya
Punj Lloyd has an order book of Rs 98.4 bn coming in specifically from Libya. This
forms nearly 35% of the total order book. It has five projects from Libyan geography.
Though revenue recognition from these projects had witnessed significant delays
due to delay in getting master plan from the client, but past two quarters have
seen improvement in execution from three of the projects. Company has specified
that project worth Rs 59 bn awarded from IISCO to Sembawang was inactive project
where work had not commenced at all since the award of the project. Thus, effectively,
work has been stalled on remaining projects from Libya which constitutes only
14% of the total order backlog.
In our estimates, we had expected execution to ramp up significantly from these
projects during Q4FY11 as well as in FY12. With the current unrest seen in Libya and
evacuation of people from key cities, we don't expect execution from the above
listed projects to ramp up now in the coming quarters till the time stability is
achieved.
Till 9MFY11, Punj Lloyd had booked Rs 1.6 bn of revenues (currently under WIP)
while customer advances stood at Rs 4.8 bn from these projects. Company had incurred
a total cost of Rs 2.15 bn including cost of construction, mobilization of resources,
advances to suppliers and equipment. Thus, company has a net positive
cash flow from these projects to the tune of Rs 2.65 bn, out of which Rs 1.75 bn is
deposited outside Libya while Rs 900 mn is deposited in Libyan banks. Though these
projects are net cash positive, but revenues have not been recognized to the extent
of costs incurred. Thus, in the event of no progress on these projects going ahead,
company may have to book the costs in the P&L with correspondingly lesser revenues
being accounted for. This would impact the bottomline going ahead.
Along with this, company has nearly 45% exposure in Middle east and African
markets and possibility of any unrest spreading to Middle east may further impact
execution from other projects of the company.
We thus revise our revenue estimates downwards and expect revenues to be Rs 80.4
bn and Rs 98.9 bn in FY11 and FY12 respectively as against Rs 82.5 bn and Rs 103
bn for FY11 and FY12 estimated earlier.
Disappointment seen in Q3FY11 may be continued going ahead also
Company had disappointed during Q3FY11 on revenues as well as on margin front
due to lower than expected execution from slow moving projects in Libya. Operating
margins were also impacted due to cost overruns seen in certain projects and delays
in revenue booking. We believe that this trend is likely to continue going ahead also
since execution from Libya projects is not likely to pick up in near future.
Uncertainties related to other projects
We believe that our financial estimates may also be downgraded further in the
event of unfavorable outcome from ONGC project or Ensus project. Our estimates
currently don't include future write offs from Heera redevelopment project with
ONGC which is under litigation. If the decision comes against Punj Lloyd, company
would have to reverse the extra revenues worth Rs 2.43 bn booked in last year.
Along with this, Ensus project is currently in the warranty period and Ensus continues
to retain money in the form of bank guarantee and retention money. This project is
currently under trial runs and if desired capacity utilization is not achieved, then it
may stand at a risk of further costs overruns.
Financial outlook
n We expect revenues to register a decline of 23% in FY11 and then grow by 22%
in FY12
n Operating margins are expected to be 5% and 8.1% in FY11 and FY12 respectively.
Possibility of decline in margins in FY12 continues to remain due to uncertainties
associated with its order book.
n We expect net profits to be Rs 81 mn and Rs 1998 mn in FY11 and FY12 respectively.
Valuation and recommendation
n At current price of Rs 60, stock is trading at 10.3 x P/E and 7.3x EV/EBITDA for
FY12.
n We arrive at a revised price target of Rs 72 on FY12 estimates at 12x FY12 estimated
earnings. (Rs 81 earlier)
n We continue to maintain our negative bias on the company due to uncertainties
regarding delays or cost overruns in its projects and expectations of further write
offs in coming quarters.
n We maintain REDUCE rating on the stock.
No comments:
Post a Comment