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Punj Lloyd Ltd
Neutral
PUJL.BO, PUNJ IN
Uncertainties galore
• Punj Lloyd has consistently underperformed the Sensex over the past
two years: The stock’s performance was impacted by: (a) Weak execution
and slow-moving orders, which translated into successive years of revenue
de-growth, (b) Largely stagnant OB size - ~US$4.3bn now (excluding
~US$0.8bn Libya orders), slightly below FY08 levels (c) One-off costoverruns/LDs & write-offs through quarters of FY09/FY10 in relation to
legacy orders of Simon Carves, (d) Steep deterioration in working capital:
from 85 days in FY09 to 184 days in FY11, (e) Removal of inactive Libya
orders (~US$1.4bn, another ~US$0.8bn susceptible to removal) from OB in
Mar-11 due to prevailing unrest there. Further, management assurances and
optimism on improving outlook for the company over the last few quarters
has disappointed. We are discounting latest management guidance of
increasing OB to at least US$8-8.5bn by end FY12 (our est. of US$5.8bn)
• Uncertainties color a positive view on the stock, though a few green
shoots have surfaced in FY11: Punj Lloyd generated positive OCF in
FY11, after three years, free of one-offs. According to management, the ME
process/hydrocarbon market has seen pricing stability in recent times after
severe Korean competition in FY11. We forecast revenue growth of 19%
this fiscal year and 18% in FY13, with OPM expectation of ~8.2%.
However, we note that resultant PAT estimate in the range of Rs1-2bn over
FY12-13 may be severely eroded by an adverse outcome of ongoing
arbitration proceedings. These are in relation to ~Rs4bn revenue already
booked on orders, but yet to be approved by customers. In addition, PUNJ
has received ~Rs5.1bn advances on Libyan orders vs. Rs2.15bn
expenditures incurred. A write-off/revenue reversal is a key downside risk
to estimates.
• Maintain Neutral: Our revised Mar-12 DCF-based PT of Rs68 (vs. Rs116
earlier) implies 12x FY13E EPS, a slight premium to E&C sector average
valuation of 10.5x (and a 30% discount to current L&T multiple), given a
turnaround in growth and PAT expected over FY12/13. We recommend a
switch to L&T (OW), where we believe confidence in earnings and broadbased growth opportunity is higher. Amicable resolution of Libyan unrest in
the near term, stronger-than-expected order inflows are key upside risks
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Punj Lloyd Ltd
Neutral
PUJL.BO, PUNJ IN
Uncertainties galore
• Punj Lloyd has consistently underperformed the Sensex over the past
two years: The stock’s performance was impacted by: (a) Weak execution
and slow-moving orders, which translated into successive years of revenue
de-growth, (b) Largely stagnant OB size - ~US$4.3bn now (excluding
~US$0.8bn Libya orders), slightly below FY08 levels (c) One-off costoverruns/LDs & write-offs through quarters of FY09/FY10 in relation to
legacy orders of Simon Carves, (d) Steep deterioration in working capital:
from 85 days in FY09 to 184 days in FY11, (e) Removal of inactive Libya
orders (~US$1.4bn, another ~US$0.8bn susceptible to removal) from OB in
Mar-11 due to prevailing unrest there. Further, management assurances and
optimism on improving outlook for the company over the last few quarters
has disappointed. We are discounting latest management guidance of
increasing OB to at least US$8-8.5bn by end FY12 (our est. of US$5.8bn)
• Uncertainties color a positive view on the stock, though a few green
shoots have surfaced in FY11: Punj Lloyd generated positive OCF in
FY11, after three years, free of one-offs. According to management, the ME
process/hydrocarbon market has seen pricing stability in recent times after
severe Korean competition in FY11. We forecast revenue growth of 19%
this fiscal year and 18% in FY13, with OPM expectation of ~8.2%.
However, we note that resultant PAT estimate in the range of Rs1-2bn over
FY12-13 may be severely eroded by an adverse outcome of ongoing
arbitration proceedings. These are in relation to ~Rs4bn revenue already
booked on orders, but yet to be approved by customers. In addition, PUNJ
has received ~Rs5.1bn advances on Libyan orders vs. Rs2.15bn
expenditures incurred. A write-off/revenue reversal is a key downside risk
to estimates.
• Maintain Neutral: Our revised Mar-12 DCF-based PT of Rs68 (vs. Rs116
earlier) implies 12x FY13E EPS, a slight premium to E&C sector average
valuation of 10.5x (and a 30% discount to current L&T multiple), given a
turnaround in growth and PAT expected over FY12/13. We recommend a
switch to L&T (OW), where we believe confidence in earnings and broadbased growth opportunity is higher. Amicable resolution of Libyan unrest in
the near term, stronger-than-expected order inflows are key upside risks
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