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Punj Lloyd – Painful Year – Company getting Weaker ?

May 31, 2010

Punj Lloyd is one of the strongest companies for executing Infrastructure Projects in India and abroad. However, adjusted loss for 4Q was INR4.6bn was a surprise. Performance was impacted by 1) lower execution (revenue at INR17.8bn, -45% yoy) and 2) cost overruns at a) Ensus Bio Ethanol project in the UK (this is in addition to INR1.63bn, GBP23.1m liquidated damages claimed by customer in March 2010) and b) ONGC Heera project.

The management needs to makes some changes on an emergency basis for risk management else future write-offs cannot be ruled out given the delays in project execution and cost overruns. Further write-offs remain a risk given that 1) cost overruns booked as revenue on the ONGC Heera project (INR2.4bn) have not been acknowledged by the customer, 2) payments withheld by customers (INR1.3bn) and 3) delay in execution at some of its other projects (Ador Power plant and PTT Thailand).

Punj aims at further regional and sector expansion, such as projects in Caspian region and large infrastructure orders. We are concerned that the company may find itself stretched in new geographies and sectors, and could potentially face execution challenges as already seen in UK and Libya. Punj has thus far been unable to translate its robust order backlog into revenue primarily due to execution delays in Libyan projects. However, order backlog and inflows remain strong, led by roads, power plant EPC and gas project in Abu Dhabi.

EPS Estimates for Punj Lloyd FY 11 and FY 12
HSBC 6.04 and 12.35
UBS 8.12 and 12.10
Kotak 9.8 and 12

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