Stock market Result Update on Punj Lloyd for 1QFY2012

Stock market Result Update on Punj Lloyd for 1QFY2012 with a Neutral recommendation.

For 1QFY2012, Punj Lloyd (Punj) posted mixed set of numbers with decent top-line performance, stable margin but loss at the earnings level. The company’s current order backlog stands at `23,938cr (3.0x FY2011 revenue). Further, the company has received orders worth `5,627cr during CY2011 against `9,978cr in FY2011. However, owing to uncertainty over receivable claims and overhangs on the stock because of lack of clarity on various issues (execution, margin and Libyan projects), we maintain our Neutral view on the stock.

Mixed performance: For 1QFY2012, Punj posted 30.5% yoy top-line growth to `2,263cr (`1,734cr). Barring 4QFY2011, this is quite an impressive performance when compared to the last seven quarters. EBITDA margin for the quarter stood at 8.0% against 7.7% in 1QFY2011. Interest and depreciation cost came in at `113.3cr (`81.0cr) and `61.7cr (`64.0cr), respectively. Interest cost jumped by 39.9% yoy and 14.6% qoq. On the earnings front, Punj reported loss of `12.7cr compared to loss of `30.6cr in 1QFY2011 due to high interest cost and tax.

Outlook and valuation: The infrastructure sector has been marred by concerns such as high interest cost, margin pressure due to high commodity prices and poor award activity across segments. On account of these concerns and continued disappointing performance since the last few quarters, the stock has demonstrated huge underperformance over the last 12 months on the bourses. We have valued Punj on 1x P/BV (FY2013) and have arrived at a fair value of `95. Although the stock offers an upside of 71.4% from the current levels, we continue to maintain our Neutral view on the stock due to the headwinds faced by the sector and overhangs (mentioned above) on Punj.