th
30 March, 2009
Punj Lloyd Ltd.
India
CMP:
Construction
Sovid Gupta
+911243024840 Equity Analyst: Fairwealth Securities Private. Ltd.
Rs. 86
Target:
Rs. 145
We initiate a buy on the stock on the basis of topline growth of 48% on a large base, its huge and continuously expanding order book, diversified operations, high dollar exchange rates and diversified operations. Currently the stock is trading at 8x FY08 EPS of 10.3. According to our estimates at current price of Rs. 86 P/E for FY09E and FY10E stand at 7.9 and 5.6 repectively. We believe that the stock has been oversold by the markets and has underperfromed sensex as well as other players in Contruction in Infrastructure segment like Larsen & Tubro and Patel Engineering over last 3 months. We initiate a buy on Punj Lloyd with a target price of 145. Our basis of valuation are sound fundamentals, aggressive growth and huge discounting to its peers.
Priced on March’30, 2009 ±% potential Target set on
+70% h
27 March
Future Estimates: Income Statement (Standalone Rs. Crore)
Market Data Beta 12M hi/lo Market cap, INR Crores Shares in issue (mn.) Reuters Bloomberg
1.3 376/ 69.2 2544.8 303 PUNJ.BO PUNJ.IN
Share Holding Pattern (%) Promoters FII Domestic Inst. & Corp Bod. Public & Others
44.0% 18.0% 16.0% 21.0%
FY11E
FY10E
FY09E
FY08
FY07
Net Sales
15408
12038
11250
7751
5139
Total Expenditure
14021
11075
10345
7128
4768
Operating Profit
1387
963
905
623
371
Interest
280
235
215
181
118
Depreciation Profit Before Tax before OI Other Income
205
180
175
145
106
902
548
515
298
144
120
120
112
183
122
PBT
1022
668
627
482
266
Tax
266
174
176
123
68
Net Profit
756
494
451
358
197
0
0
-92
26
2
EO Items & Min. Interest Adj Net profit
756
494
359
332
195
EPS
23.4
15.3
11.1
10.3
6.0
P/E
3.89
5.95
8.18
8.85
15.07
Source: Fairwealth Securities Research Estimates, Company data
Fairwealth Securities
Page 1
Punj Lloyd- Buy
Company has continued its outstanding topline growth of over 40% Y-o-Y.
Company’s profit however fell marred by: Other income of -96 crores due to forex losses on derivative contracts EO items to the tune of -214 crores effected by one time provisioning due to litigations.
Punj Lloyd JV secures Rs 1,311.19 crore contract for the execution of utilities in Souk Al Juma, Tripoli, Libya. The contract is Punj Lloyd’s fourth project in Libya taking Company’s total order book from Libya close to USD 500 million. This project includes EPC (engineering, procurement and construction) and commissioning of infrastructure networks, water-sewerage-stormwater mains & branch lines, roads & other facilities for Souk Al Juma. Punj Lloyd secured a contract from Municipal Corporation of Delhi for a value of Rs 304 crore for development of parking facility near Jawaharlal Nehru Stadium for the forthcoming Commonwealth Games- 2010.
Significant changes in Cost structure:
Won a contract worth Rs 264 crore from Airports Authority of India (AAI) to build Sikkim’s first Greenfield airport project in Pakyong.
Material Costs fell from 36% of sales to 27% of sales
Simon Carves Singapore has received a Letter of Intent of Rs. 152 crore from Exxon Mobil Asia Pacific Pte. Ltd for execution of an EPC for Jurong Strategic Study project, Singapore.
Contractor costs increased from 32% of sales to 41.4% in Q3FY09. EBITDA margins for the quarter went down by 80bps 7.3% from 8.1% in Q3FY 08 and 410 bps from 11.4% in Q2FY09.
Bagged a Rs. 105 crores contract from Cairn Energy India Limited for laying a crude oil heated and insulated pipeline for the Mangla Development Project in Gujarat. Punj Lloyd Indonesia bagged a Rs. 101 crore contract from PT Shell Indonesia for the EPC of new fuel terminal at Pulau Laut, Kalimantan, Indonesia.
Quarterly Result Round up: Q3 FY09 Net Sales Expenditure Material Cost % of Sales Contractor Charges % of Sales Employee Expenses % of Sales Other Expenses % of Sales Operating Profit EBIDTA Other Interest Depreciation PBT Tax PAT Extra-Ordinary PAT EPS
3,143 2,913 845 26.9 1,301 41.4 318 10.1 449 14.3 230 7.3 -96 62 43 29 41 -12 -214 -225 -0.4
Q3 Fy08 2,117 1,945 761 36 674 31.9 239 11.3 269 12.7 172 8.1 46 28 36 153 30 122 -31 92 4.2
Y-o-Y Growth(%) 48.5 49.8 11 92.8 32.7 66.7 33.6 -80 118.1 18.5 -80.9 34.8 -
Q2 FY09 2,953 2,615 1,047 35.5 842 28.5 269 9.1 458 15.5 337 11.4 -37 49 44 208 65 143 144 4.7
QoQ(%) 6.4 11.4 -19.3 54.5 18.2 -1.9 -31.7 -410 -159.4 26.5 -1.3 -85.9 -35.7 -
Source: Company Data, Capital Line
Fairwealth Securities
Page 2
Punj Lloyd- Buy Company Description: Punj Lloyd is a globally diversified conglomerate providing engineering, procurement and construction services in Oil & Gas, Petrochemical and Infrastructures sectors. Starting with construction of pipelines, the company is now into construction of refineries, tanks & terminals, civil infrastructure and power plants. It also provides broadband services on its optical fiber network. Presently has 16 offices worldwide with operations spread across Middle East, Asia Pacific, Europe, South Asia, the Caspian, Africa and China. In 2007, it tied up with Pipavav shipyard. The company ventured into defence equipment manufacturing by entering into a partnership with Singapore Technologies Kinetics in 2008. The company partnered with Thorium Power in 2008 for Nuclear energy making it the first company in India to partner with an American nuclear company.
Valuations: Company’s huge order book along with high growth on large base is witness to company’s EPC capabilities. Company has order book of ~ 190000 crore which is 2.5 times 2008 order book and second only to Larsen and Tubro among Indian Companies. Diversified operations both Geogrophically and in technical ability makes the company flexible to take advange of sectoral booms. Company has technical expertise in Power, Construction and Defence sectors all of which have huge financial commitments from the governments over next two 5 year plans, Punj Lloyd is well poised to take advantage of these opportunities. We expect revenue to grow by 10% for FY10E citing tough economic conditions, and 25% for FY11E on conservative estimates, lower Debt-Equity ratio will ensure that company doesn’t have much difficulty in raising new debt to fund its working capital requirement. We initiate a buy call on Punj Lloyd with target of Rs. 120 on lower side with further upside potential.
Fairwealth Securities
Page 3
Punj Lloyd- Buy
Key Risks: SABIC UK has invoked Rs. 218 crore bank gaurantees aganinst Punj Lloyd Ltd.Company has not yet written off these gaurantees, and the case is under litigation if the outcome is unfavorable it could lead to further one time write downs. 18% order book is delayed, although most of them are client led, there could be further delays in time to come. Foreign currency exchange rate fluctuation risks exist, however we believe they are managable. Uncertain future economic conditions have increased the risk weightage of all Engineering Procurement and Construction companies as many projects might not actually take off. There will be lesser new orders going forward for the 2-3 quarters as things are still in wait n watch scenario. Change in raw material prices is not a significant risk factor as projects costs are variable with raw material costs.
Punj Lloyd share prices have fallen by more than 80% over last one year, while share prices for Larsen and Tubro have fallen by only 60 th percent. Since 15 November there has been a huge dip in Punj Lloyd’s share prices while peer group companies like L&T and Patel Engineering have over performed the stock. We expect short term recovery in the stock to sustain riding on current uptrend, while the long term fundamentals remain sound.
Source: Capital Line
Fairwealth Securities
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Punj Lloyd- Buy
Investment Rational
Punj Lloyd is a globally diversified conglemerate with 30% of the projects in South-
Asia and 70% in other countries. The company’s order book grew significantly during FY08 to Rs.195.96bn up 23% YoY and is 2.5 times its FY08 sales.
Company has strategic stake in Pipav Shipppping Yard Company which will help in taking part in marine defence proejcts of Indian Govt. Company has tied up with Thrium power for nuclear power projects and also has prior experience of establishing power plants. Growth in demand and supply of natural gas will result in demand for pipeline infrastructure for gas transportation. Punj Lloyd with established expertise in the same will beneift. High dollar exhange rate is aiding the company in posting increased topline.
TECHNICAL OUTLOOK: Punj Lloyd
Punj Lloyd has shown good support around. 78-80. The stock bounced back from lows of 69. One could buy stocks at dips for a target of 105 first and then 120.
Fairwealth Securities
Page 5
Punj Lloyd- Buy
Annexure: 1. Income Statement: Fund Flow Statement:
Income Statement
200803
2008(12)
2007(12)
2006 (12)
200703
200603
7760
5139
-8
-3
-2
7751
5136
1725
Raw Materials
2820
1635
549
Other Manufacturing Expenses
2371
1532
445
892
637
186
SOURCES OF FUNDS : Share Capital 61 Reserves Total 2657 Total Shareholders Funds 2718 Minority Interest 22 Secured Loans 1351 Unsecured Loans 256 Total Debt 1607 Total Liabilities 4347 APPLICATION OF FUNDS : Net Block 1411
1276
579
Capital Work in Progress
213
86
139
Investments
546
170
42
1686
804
INCOME Net Sales Stock Adjustment Total
1727
Expenditure :
Employee Cost Selling and Administration Expenses
622
558
258
Other Expenses
421
407
112
7126
4768
1551
Total Expenditure
52 1227 1279 6 1123 576 1699 2984
52 1069 1122 1 492 64 556 1679
Current Assets, Loans & Advances
Operating Profit
625
369
174
Inventories
2059
Interest
181
119
79
Sundry Debtors
2090
1223
394
Gross Profit
445
250
95
Cash and Bank
690
1003
112
Depreciation
146
106
60
Loans and Advances
743
497
237
Profit Before Tax before OI
298
144
35
Total Current Assets
5582
4410
1548
Other Income
183
122
49
PBT
482
266
84
Less : Current Liabilities and Provisions
Tax
123
69
29
3173
2728
539
139
165
29
Total Current Liabilities
3312
2892
568
Net Current Assets
2270
1517
980
-92
-65
-61
4347
2984
1679
541
1002
242
Net Profit EO Items & Min. Interest Adj Net profit
358
197
55
26
2
-1
332
195
56
Current Liabilities Provisions
Net Deferred Tax
Source: Company Report, Capital Line
Total Assets Contingent Liabilities
Source: Company Report, Capital Line
2. Cash Flow Statement: 200803 Cash Flow Summary Cash and Cash Equivalents at Beginning 995.54 of the year
200703
200603
95.38
43.18
59.99
-1.37
Net Cash from Operating Activities
-527.78
Net Cash Used in Investing Activities
-734.78
-222.56
-257.16
Net Cash Used in Financing Activities
901.72
1062.73
327.51
-360.84
900.16
68.98
634.7
995.54
112.16
Net Inc/(Dec) in Cash and Cash Equivalent Cash and Cash Equivalents at End of the year
Company has negative Operating cash flows, which is not abnormal for any high growth Constrcution industry company as it has huge working capital requirements.
Source: Company Report, Capital Line
Fairwealth Securities
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Punj Lloyd- Buy
Disclaimer This publication has been prepared solely for information purpose and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable; investors are advised to satisfy themselves before making any investments. Fairwealth Securities Pvt Ltd does not bear any responsibility for the authentication of the information contained in the reports and consequently, is not liable for any decisions taken based on the same. Further, Fairwealth Research Reports only provide information updates and analysis. All opinion for buying and selling are available to investors when they are registered clients of Fairwealth Investment Advisory Services. As a matter of practice, Fairwealth refrains from publishing any individual names with its reports. As per SEBI requirements it is stated that, Fairwealth Sec Pvt Ltd., and/or individuals thereof may have positions in securities referred herein and may make purchases or sale while this report is in circulation.
Fairwealth Securities
Page 7