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Punj Lloyd (PUJL.BO)
Sell Equity Research
Execution will be key for us to turn more constructive; retain Sell
What's changed
Year-to-date Punj Lloyd is down 48% vs. Sensex down 12% over the same
period. Despite the recent correction, we believe concerns driving our Sell
thesis have actually increased: (1) we lower our order inflows forecast for
FY11E/FY12 by 2%-8%, implying 36% yoy de-growth for FY11E, (2) no
resumption in work at the Libya projects (16% of order book) impacting
revenue billings for FY11E, (3) exclusion of Sembawang’s Libyan order book
impacting revenues for FY12E. We wait for signs of improvement in execution
to have a more constructive view on the stock.
Implications
We cut our FY11E-FY13E revenue by 2%-9% and our EPS for the same period
by 13%-40%. Of the ten projects in Libya, we remove three inactive projects
from our forecasts based on the company’s announcement, as these projects
have been nonmoving for over 18 months. This brings the outstanding order
backlog to Rs214 bn – reducing order book coverage from 2.6X to 2X on fwd
sales. We expect the company to report its third consecutive year of losses in
FY11; we expect Rs63 mn loss vs. Bloomberg consensus expectation of Rs239
mn of profit implying 4Q profit of over Rs90 mn, which we believe would be
difficult to achieve. The company has continued to surprise the Street
negatively on earnings for the past few quarters and we have seen no
significant change in the operational environment.
Valuation
Valuations look reasonable with stock trading 0.7X FY12 P/B which is
substantially below its 5-yr historical median of 2.2X. However, re-rating is
likely only if the company is able to deliver on earnings and revert back to
original margins of c.11% and ROEs of 15%-17%. We reduce our 12-m TP to
Rs62 (from Rs71), still based on 11XFY12E P/E. Given one of the stocks with
least upside potential within our coverage, we retain our Sell rating.
Key risks
Faster-than- expected execution collection; award activity pick up in Middle East.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Sell List
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Punj Lloyd (PUJL.BO)
Sell Equity Research
Execution will be key for us to turn more constructive; retain Sell
What's changed
Year-to-date Punj Lloyd is down 48% vs. Sensex down 12% over the same
period. Despite the recent correction, we believe concerns driving our Sell
thesis have actually increased: (1) we lower our order inflows forecast for
FY11E/FY12 by 2%-8%, implying 36% yoy de-growth for FY11E, (2) no
resumption in work at the Libya projects (16% of order book) impacting
revenue billings for FY11E, (3) exclusion of Sembawang’s Libyan order book
impacting revenues for FY12E. We wait for signs of improvement in execution
to have a more constructive view on the stock.
Implications
We cut our FY11E-FY13E revenue by 2%-9% and our EPS for the same period
by 13%-40%. Of the ten projects in Libya, we remove three inactive projects
from our forecasts based on the company’s announcement, as these projects
have been nonmoving for over 18 months. This brings the outstanding order
backlog to Rs214 bn – reducing order book coverage from 2.6X to 2X on fwd
sales. We expect the company to report its third consecutive year of losses in
FY11; we expect Rs63 mn loss vs. Bloomberg consensus expectation of Rs239
mn of profit implying 4Q profit of over Rs90 mn, which we believe would be
difficult to achieve. The company has continued to surprise the Street
negatively on earnings for the past few quarters and we have seen no
significant change in the operational environment.
Valuation
Valuations look reasonable with stock trading 0.7X FY12 P/B which is
substantially below its 5-yr historical median of 2.2X. However, re-rating is
likely only if the company is able to deliver on earnings and revert back to
original margins of c.11% and ROEs of 15%-17%. We reduce our 12-m TP to
Rs62 (from Rs71), still based on 11XFY12E P/E. Given one of the stocks with
least upside potential within our coverage, we retain our Sell rating.
Key risks
Faster-than- expected execution collection; award activity pick up in Middle East.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Sell List
Coverage View: Neutral
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