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Punj Lloyd (PUNJ)
Construction
Higher debt and uncertain claims strain balance sheet. Net debt deteriorated
(Rs43 bn versus Rs33 bn at end-March 2011) on higher working capital (180 days of
sales). Balance sheet is further strained due to (1) significant ONGC claims (Rs13 bn
versus arbitration amount of Rs2.4 bn) and (2) Libya assets (Rs13 bn at realizable value).
Consolidated results (20% sales growth, 80 bps margin decline) were in line although
standalone margin (5.3%) halved yoy. Retain REDUCE (TP: Rs60 from Rs65 earlier).
Debt increases further to fund working capital; delays in government projects continue
Punj Lloyd’s net debt increased sharply to Rs43 bn (end-Sep 2011) from Rs33 bn at end-Mar 2011.
The sharp deterioration in debt levels was utilized to fund rising working capital requirements
(Rs49 bn /180 days of sales versus Rs44.6 bn /165 days of sales at end-Mar 2011). The company
attributed increase in working capital to delays in ongoing government projects (refinery, infra
projects). It expects the working capital to normalize over the next 1-2 quarters.
Significant ONGC claims (Rs13 bn) and Libya assets (Rs13 bn) further strain balance sheet
The company cited that actual ONGC claims at Rs13 bn are far in excess of Rs2.4 bn arbitration
amount. It expects the ONGC arbitration case take about 2-3 years to get resolved as it prepares
to send a rejoinder to Bombay HC’s latest ruling (favoring ONGC). Punj Lloyd also has significant
fixed assets worth Rs13 bn in Libya recorded at realizable value. Despite, stoppage of work and
demobilization of resources, the company expects to gets its share of revenues/profits based on
undertaking by National Transitional Council with UN to honor all contracts.
Consolidated results: In-line consol sales and margin; PAT beat on higher other income
Punj Lloyd reported in-line sales (Rs24 bn, 20% up yoy), and margin (8.4%, 80 bps yoy decline).
Higher-than expected other income of Rs677 mn (Rs40 mn estimate) offset increase in interest
expense (Rs1.3 bn) leading to PAT (before associate income, minority interest) of Rs297 mn 34%
ahead of our estimate of Rs221 mn.
Standalone sales at Rs11.5 bn grew modestly by 9.4% although EBITDA margin halved to 5.7%
on higher raw material (390 bps), employee (80 bps) and other expenses (100 bps).
Revise estimates on higher debt, backlog-led higher sales and lower margin assumptions
We revise our earning estimates to Rs3.4, Rs6.5 from Rs5.5, Rs7.4 for FY2012E, FY2013E on
(1) higher debt, (2) stronger backlog and (3) lower margin (20-50 bps). We value the stock at
9XFY2013E (TP: Rs60 versus Rs65 earlier). Retain REDUCE on (1) significant delays in Libyan
projects, (2) repeated one-offs in subsidiaries (4) significant claims (ONGC) pending arbitration.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Punj Lloyd (PUNJ)
Construction
Higher debt and uncertain claims strain balance sheet. Net debt deteriorated
(Rs43 bn versus Rs33 bn at end-March 2011) on higher working capital (180 days of
sales). Balance sheet is further strained due to (1) significant ONGC claims (Rs13 bn
versus arbitration amount of Rs2.4 bn) and (2) Libya assets (Rs13 bn at realizable value).
Consolidated results (20% sales growth, 80 bps margin decline) were in line although
standalone margin (5.3%) halved yoy. Retain REDUCE (TP: Rs60 from Rs65 earlier).
Debt increases further to fund working capital; delays in government projects continue
Punj Lloyd’s net debt increased sharply to Rs43 bn (end-Sep 2011) from Rs33 bn at end-Mar 2011.
The sharp deterioration in debt levels was utilized to fund rising working capital requirements
(Rs49 bn /180 days of sales versus Rs44.6 bn /165 days of sales at end-Mar 2011). The company
attributed increase in working capital to delays in ongoing government projects (refinery, infra
projects). It expects the working capital to normalize over the next 1-2 quarters.
Significant ONGC claims (Rs13 bn) and Libya assets (Rs13 bn) further strain balance sheet
The company cited that actual ONGC claims at Rs13 bn are far in excess of Rs2.4 bn arbitration
amount. It expects the ONGC arbitration case take about 2-3 years to get resolved as it prepares
to send a rejoinder to Bombay HC’s latest ruling (favoring ONGC). Punj Lloyd also has significant
fixed assets worth Rs13 bn in Libya recorded at realizable value. Despite, stoppage of work and
demobilization of resources, the company expects to gets its share of revenues/profits based on
undertaking by National Transitional Council with UN to honor all contracts.
Consolidated results: In-line consol sales and margin; PAT beat on higher other income
Punj Lloyd reported in-line sales (Rs24 bn, 20% up yoy), and margin (8.4%, 80 bps yoy decline).
Higher-than expected other income of Rs677 mn (Rs40 mn estimate) offset increase in interest
expense (Rs1.3 bn) leading to PAT (before associate income, minority interest) of Rs297 mn 34%
ahead of our estimate of Rs221 mn.
Standalone sales at Rs11.5 bn grew modestly by 9.4% although EBITDA margin halved to 5.7%
on higher raw material (390 bps), employee (80 bps) and other expenses (100 bps).
Revise estimates on higher debt, backlog-led higher sales and lower margin assumptions
We revise our earning estimates to Rs3.4, Rs6.5 from Rs5.5, Rs7.4 for FY2012E, FY2013E on
(1) higher debt, (2) stronger backlog and (3) lower margin (20-50 bps). We value the stock at
9XFY2013E (TP: Rs60 versus Rs65 earlier). Retain REDUCE on (1) significant delays in Libyan
projects, (2) repeated one-offs in subsidiaries (4) significant claims (ONGC) pending arbitration.
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