Punj Lloyd Ltd

INVESTMENT RATIONALE

Punj Lloyd Limited (PLL) was incorporated in September 26th of the year 1988 as Punj Lloyd Engineering Private Limited. While it started operations with pipelines, followed by tanks and terminals, refineries, power and civil infrastructure, the company has grown rapidly to augment its portfolio to include a whole gamut of services ranging from Upstream, Midstream to Downstream segments of the energy sector, to petrochemicals, chemicals, biofuels, utilities and buildings. PLL is a transnational company specialising in the energy and infrastructure sectors.

The Company provides integrated design, engineering, procurement, construction and project management services. Its operations spread across the Middle East, Africa, the Caspian, Asia Pacific and South Asia. PLL holds an ISO 9001:2000, ISO 14001:1996 and OHSAS 18001:1999 certifications. The Company extends EPC services ranging from Oil & Gas, Refineries, Civil Infrastructure, Thermal Power, Asset Management and Telecom & Broadband. Company’s order book stood at Rs27, 889.3crore which is 2.3x its FY09 revenues and 2.1 its FY10E revenues.

Key Developments

In August 2009, company raised Rs. 670 crore via the Qualified Institutional Placement (QIP) at Rs.240.2 per equity share and company also raised Rs 600 crore through private placement of Secured Redeemable Non Convertible Debentures (NCDs).

Company’s order book stood at ~Rs26, 800crore which is 2.0x its FY10E
revenues.

Valuations

We believe majority of the negatives for the company are overdone and priced in especially from the view of its subsidiary, however a key concern despite strong order book is the shrinking EBIDTA margin of the company on account of its subsidiary; however management has indicated that company has completed executing majority of its legacy orders and hence margin are expected to improve going forward. We believe company’s top-line will continue to grow at a healthy pace given the strong order book the company possesses while we expect the EBIDTA margin improve marginally form current levels, and profitability margin to improve on the back of repayment of high cost debt. At the CMP of Rs.204.5 the stock is trading at 13.5x its FY11E EPS of Rs15.1 and 6.3x its FY11E EV/EBIDTA. We believe reactions are overdone and negatives have been factored in and thus recommend a “Buy” on the stock with a SOTP target Price of Rs.239.7.

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