Recommendation: Buy
CMP = Rs 287 (at the time of recommendation)
Price target: Rs 532
Key points:
- Punj Lloyd Ltd's (PLL) headline numbers were broadly in line with our expectations. The revenues grew by 37.8% to Rs 2,346.7 crore. The process plant contributed 36.3% to the top line. Led by strong performance in the standalone entity, the consolidated operating profit margin (OPM) increased by 60 basis points to 10.6%. The operating profit grew from 45.7 crore to Rs 248.6 crore. The net profit grew by 32.4% to Rs 117.7 crore.
- The auditors have made qualification on a project being executed by the subsidiary Simon Carves, which may incur a potential loss of Rs 305.3 crore due to change in the scope of the work. However, the management has now highlighted that the company has already reached an agreement on the recovery of £15 million (~Rs 125 crore). The management has further maintained that it would be able to reach the breakeven in the project and is negotiating with the client for the same. The company plans to spend Rs 350-400 crore as capital expenditure over FY2009.
- The company continued to focus on its strategy of increasing its order ticket size. The current order of Rs 19,595.6 crore has an average execution period of 26 months. The company has a robust order backlog and provides high visibility to the future earnings of the company. Rs 709 crore worth of orders are legacy orders.
- At the current market price, the stock trades at 16.5x and 12.4x FY2009E.
- I maintain a strong Buy call on this stock with a price target of Rs 532 over next 607 months.
