Punj Lloyd - execution deferment continues; Reduce:: Edelweiss

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Punj Lloyd (Punj) gave yet another negative surprise with revenue decline of 31% Yo-
Y for Q2FY11 on a consolidated basis; revenues were down 36% Y-o-Y for H1FY11.
Consequently, both revenue and PAT were below our and consensus estimates by a
huge margin. Punj reported a sharp 55% Y-o-Y decline in Q2 bottom-line, despite a
184bps OPM improvement, due to higher interest and depreciation impact. Order
book remained flat both Y-o-Y and Q-o-Q, at INR 255 bn, implying new order growth
of merely 15% Y-o-Y, to INR 16.8 bn for Q2FY11.


􀂃 Sharp revenue dip in H1; sustainability a key issue
Punj reported a sharp 36% Y-o-Y decline in revenues for H1, on account of
muted execution from its infrastructure vertical (forms 61% of the current order
book). Subsidiary’s portion (Sembawang Engineers, Singapore) of USD 1.2 bn is
yet to contribute to revenues. While the management expects to see pick up in
the Libyan order over the next 6-9 months, we believe, there could be further
deferment in execution of this order.

􀂃 Lack of clarity on execution a concern
We could not gather much clarity from the management regarding execution
growth for the coming quarters. This, coupled with lack of clarity for the new
orders, further augments our concern on earnings growth for the coming
quarter. Management has maintained its intent of reducing current debt–toequity
from 1.4x to 1.0x through dilution of equity in its subsidiaries.

􀂃 We cut our FY11E and FY12E earnings building slower execution
Building in slower execution, we further cut our earnings for FY11E and FY12E by
49% and 18%, respectively, implying 16% revenue growth for H2FY11 and PAT
of INR 1.2 bn versus net loss of INR 610 mn. We cut our revenue and PAT
numbers for FY11E, as we believe the company could see further deferment in
revenues in the coming quarters.

􀂃 Outlook and valuations: Execution concerns; maintain ‘REDUCE’
Slower H1, coupled with lack of further clarity on execution of the current order
book, could keep revenues muted in the forthcoming quarters. Also, there is not
much clarity on the order pipeline in the near term. We maintain our
‘REDUCE/Sector Underperformer’ recommendation on the stock. Punj is
currently trading at P/E of 34x and 15x FY11E and FY12E, respectively.