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Citi Upgrades Punj Lloyd to BUY

June 8, 2007

You are reading this first here…
Citirgroup Analyst, Venkatesh Bala, in a report released just few seconds ago has upgraded Punj Lloyd Ltd to a BUY with a price target of Rs 305. Our Dalal Street Research Analyst had recommended Punj Lloyd in December-06 with a price target of Rs 300 [Post-split] So you notice the difference between our quality research and research coming from world’s top brokerage house ? We were the first one to do it 🙂

Citi in its report has also upgraded the stock from Risky- SELL to Low Risk – BUY. Punj is now pre-qualified for larger/more complex projects. Indications of this scale-up are already visible (average order is up from US$30mn to US$100mn in FY07 and likely to go up to US$200mn).

At the end of FY07 Punj Lloyd had the third largest order backlog of Rs159bn in Engineering & Construction sectors after BHEL (Rs550bn) and L&T (Rs369bn).

Earnings revisions of 20% in FY08E and 21% in FY09E. A rolling forward of our target P/E multiple to 23x FY09E, from 23x FY08E earlier. This is well supported by an earnings CAGR of 38% over FY07-10E with RoEs expanding from 17% in FY08E to 25% in FY10E.

Despite L&T being a more diversified and established player with a market cap which is ~ 10x that of Punj Lloyd, Citi uses a similar multiple for both companies given Punj Lloyd’s superior earnings CAGR of 38% over FY07-10E coming off a smaller base vis-a-vis 31% for L&T.

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