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Punj Lloyd + Nagarjuna Constructions Q3FY08 Results

February 2, 2008

Punj Lloyd: After 1HFY08 PAT growth of 138% YoY, Punj Lloyd’s 3QFY08 Recurring PAT at Rs613mn up 27% YoY was substantially lower than CIR estimates of Rs1.0bn on the back of losses on legacy projects in Semb E&C to the tune of Rs680mn. Reported PAT was higher at Rs917mn on the back of sale of investments of Rs371mn.

In 3QFY08 Semb E&C substantially completed certain low-margin legacy orders in which there were cost overruns due to delays and design changes, which led to a booking of losses of Rs680mn. The Punj + Semb combine ended 3QFY08 with an order backlog of Rs160bn up a tepid 12% YoY. Though the Semb backlog at Rs62bn is up 35% YoY, Punj backlog at Rs98bn, down 13% YoY, is a concern given that the margins are higher on the Punj orders than on the Semb orders.

Nagarjuna Constructions: Nagarjuna posted recurring PAT of Rs396mn, up 5% YoY, and largely in-line with our expectations of Rs389mn for Q308. While margins were in-line with estimates, revenue growth of 11% YoY was well below our estimate of 21% growth. PAT was boosted by lower-than-expected interest costs and taxes and higher than expected other income.

The company mentioned that the land delays were resolved and the projects were back on track, but revised down its revenue guidance by 8% from Rs37.5bn to Rs34.5bn. Management maintained that it will clock top-line growth of at least 30%-35% CAGR for the next 2 years.

Order booking has continued at a steady pace – Nagarjuna has won Rs15bn worth of orders in Q308 and has guided for an order backlog of Rs100bn for FY08E.

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