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Citi Upgrades Punj Lloyd Target Price

September 4, 2007

Breaking News: Citigroup Research has upgraded the stock of Punj Lloyd with a target price of Rs 353 from Rs 305 earlier target.

Raised target price to Rs353 earnings estimates are revised by 14-16% over FY08E-10E on the back of (1) 73% YoY sales and 101% YoY PAT growth in 1QFY08; (2) 22% higher sales growth on faster execution of orders and 50bps higher margins in Punj (ex Semb); (3) Dilution because of the recent equity placement and promoter warrants.

L&T’s order backlog is 2.7x that of Punj + Semb but (1) its market is 7.5x and (2) is 32% more expensive than Punj. Citi expects this valuation and market capitalization gap to narrow as we forecast Punj Lloyd will start delivering earnings growth at a pace superior to L&T over the next 3 years.

Punj Lloyd is perhaps the only mid cap E&C company that could leapfrog into the next level which is occupied by L&T with its diversified skill sets. The first sign that Punj Lloyd can actually deliver on its potential came when the company reported 4QFY07 PAT of Rs889mn which was 59% ahead of CIR estimates.

Target price of Rs353 is based on a target P/E multiple of 23x FY09E, which is well supported by earnings CAGR of 44% over FY07-10E and RoEs expanding from 18% in FY08E to 21% in FY10E. Target multiple is at a discount to that of L&T.

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