Recommendation: Buy
CMP = Rs 379 (as of Monday)
Price target: Rs 620
Key highlights:
- SEC, the wholly-owned subsidiary of Punj Lloyd Ltd. (PLL), has recently won an order from Marina Bay Sands to build a resort comprising of casino, theaters and retail arcade in
- SEC's current order book stands at Rs 7,358.1 crore, out of which close to Rs 1,070-crore orders are legacy orders which would be executed at low margins over the next 15-18 months. The recent order bookings in SEC have been done at the earnings before interest, depreciation, tax and amortisation (EBIDTA) margin of 7.5% and above (our estimates is ~3.5% in FY2009 and 7% in FY2010).
- PLL has made strategic investments in various companies namely Pipavav Shipyard Ltd (PSL), Airworks Ltd and a real estate venture. PLL would use these investments to enhance its compatibility to execute more complex and variety of jobs.
- PLL has laid a strong foundation to further augment its position as a significant EPC player in the hydrocarbon space; its subsidiary SEC and Simon Carves with expertise in urban infrastructure provide a great fit to the group on the whole. I expect the order inflow to be buoyant, but more lumpier than before with the company laying emphasis on increasing its order ticket size.
- At the current market price, the stock trades at 21.7x FY2009E and 16.4x FY2010E earning estimates. In terms of enterprise value/EBIDTA the stock is quoting at 12.3x and 9.6x its FY2009 and FY2010 estimates.
- I reiterate Buy with a price target of Rs 620 with a time frame of 6-7 months.
