Punj Lloyd trades firm, but brokerages sceptical

The stock of Punj Lloyd has been on the upswing after the company reported a good financial performance for the fourth quarter ended March 31. However, brokerages are sceptical about the company's performance going forward, owing to its ongoing Libya and ONGC crisis.

The infrastructure major has reported a consolidated net profit of Rs 18 crore for the fourth quarter ended March 31,, as against a net loss of Rs 302 crore in the corresponding quarter last fiscal.

“We see the following negative catalysts for Punj Lloyd: Weak order inflow trend continuing in FY12; further deterioration in execution and receivables cycle; and lower-than-expected FY12 margins,” said Goldman Sachs. While maintaining ‘sell' on Punj Lloyd, it revised the price target to Rs 57 from earlier Rs 62.

Roadblocks

According to Credit Suisse, “Given the low margins on order book and adjusted order book decline of over 30 per cent Y-o-Y (adjusted for non-moving Libya orders), it may be difficult for financial performance to improve next year. Therefore, we believe consensus numbers are at risk. Adjusted for auditor qualifications and assets in Libya, the stock is trading at 1.4x its adjusted book value of Rs 49/share.”

An Emkay report, which maintained a ‘hold' rating on Punj Lloyd, with a price target of Rs 91, said: “So far, Punj Lloyd has shown chequered performance — with good performance in few quarters and disappointment in many quarters. Further, progress on large orders remains tardy impacting the revenues and corresponding EBIDTA margins.” Until there is stabilisation of operations with no negative surprise, a change in rating is not warranted, the report opined.

Punj Lloyd still has outstanding issues with cost over-runs in its ONGC project and has claims outstanding of Rs 243 crore, which has been qualified by the auditor.

Another domestic brokerage Batlivala & Karani said: “The current order book of the company stands at Rs 22,800 crore, and is 2.2x FY-12E sales, which is low compared to its peers. Out of this, work on Rs 3,000-crore worth of projects in Libya is currently halted. Net addition to the order book has been very low during FY11 due to cancellation of Rs 6,250-crore Libyan orders.”