punj lloyd ru4 qfy2010-310510

1

4QFY2010 Result Update I Infrastructure

May 31, 2010

Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539

Investment Period 12 Months

Stock Info

Sector Infrastructure

Market Cap (Rs cr) 3,986

Beta 1.4

52 WK High / Low 299/119

Avg Daily Valume 13,29,090

Face Value (Rs) 2

BSE Sensex 16,945

Nifty 5,086

Reuters Code PUJL.BO

Bloomberg Code PUNJ@IN

Shareholding Pattern (%)

Promoters 37.5

MF/Banks/Indian FLs 31.6

FII/NRIs/OCBs 14.1

Indian Public 16.8

Abs(%) 3m 1yr 3yr

Sensex 3.1 15.9 16.5

Punj Lloyd (31.4) (41.1) (44.5)

Punj Lloyd (Punj) posted disappointing set of numbers for 4QFY2010. The quarter witnessed Top-line de-growth of 45.0% along with Losses on the Simon Carves (100% subsidiary of Punj) front taking a toll on Bottom-line. Interest and Depreciation costs were in line with expectations. Extra-ordinary gains from sale of stake in Pipavav Shipyard lessened the impact on Bottom-line. In view of slower execution going ahead, we have pruned our Top-line and Bottom-line estimates for FY2011 and FY2012. We have factored in Extra-ordinary Losses in our estimates. Nonetheless, on the back of the company’s scale of operations, geo-segmental diversified Order Book and relatively inexpensive valuations, we maintain a Buy on the stock.

Execution belies Order book, Simon Carves dents profitability: Punj Lloyd reported disappointing set of numbers for 4QFY2010. Top-line registered a yoy decline of 45.0% to Rs1,777cr led by lackluster performance by the Infrastructure and Process Plants verticals. Contribution from the Pipeline and Tankage Segments was in line with our expectations. The Infrastructure vertical, which includes orders secured from Libya (around US $1.8bn), impacted overall Revenues as much traction was not seen in the segment during the year. Punj reported Losses of Rs515cr on the Operating front, partly due to the Losses (Loss of Rs400cr including LD’s worth Rs163cr in the Ensus Project) booked by subsidiary, Simon Carves, UK. Interest and Depreciation costs were in line with our estimates. Extra-ordinary gains from sale of investments in the Pipavav Shipyard reduced the impact on Bottom-line, excluding which Losses stood at Rs623cr for the quarter. Including extra-ordinary gains from sale of stake in Pipavav shipyard the company reported Net Loss of Rs301cr as against Losses of Rs256cr in 4QFY2009.

Outlook and Valuation: Punj’s, performance has been marred by consistent losses reported by Simon Carves since the last four consecutive quarters. In fact, the company has guided for another quarter of losses at its UK subsidiary, though it has not given any guidance regards the quantum. On the back of slower execution, we have pruned our Top-line estimates for FY2011E and FY2012E by 21.0%, and 15.5% respectively, and factored in project related extraordinary expenses of Rs175cr in FY2011E and Rs150cr in FY2012E. Owing to the company’s scale of operations, geo-segmental diversified Order Book and relatively inexpensive valuations (P/B of 1.1x and P/E of 9.9x FY2012E), we maintain a Buy on the stock (at target P/E of 14x FY2012E) with a revised Target Price of Rs170 (Rs261).

Key Financials(Consolidated) Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E

Net Sales 11,912 10,539 11,088 13,407 % chg 53.6 (11.5) 5.2 20.9 Adj. Net Profit (240) (366) 274 403 % chg (173.3) 52.4 (174.7) 47.1 EBITDA Margin (%) 3.7 2.1 9.0 9.2 FDEPS (Rs) (7.3) (11.1) 8.3 12.2 P/E (x) - - 14.5 9.9 P/BV (x) 1.5 1.3 1.2 1.1 RoE (%) - - 8.7 11.7 RoACE (%) 4.9 (0.1) 10.7 13.2 EV/Sales (x) 0.5 0.6 0.6 0.5 EV/EBITDA (x) 14.5 28.9 6.4 5.7 Source: Company, Angel Research

Punj Lloyd Performance Highlights

BUY CMP Rs120 Target Price Rs170

Shailesh Kanani Tel: 022 – 4040 3800 Ext: 321

E-mail: [email protected]

Aniruddha Mate Tel: 022 – 4040 3800 Ext: 335

E-mail: [email protected]

May 31, 2010 2

Punj Lloyd I 4QFY2010 Result Update

Exhibit 1: 4QFY2010 Performance (Consolidated) Y/E March (Rs cr) 4QFY10 4QFY09 % chg FY2010 FY2009 % chg

Net Sales 1,777 3,231 (45.0) 10,539 11,976 (12.0) Total Expenditure 2,291 3,294 (30.4) 10,320 11,603 (11.1) Materials 801 1,110 (27.9) 3,770.1 3,750.5 0.5 % of sales 27.9 37.6

35.8 31.3

Contractor Charges 378 1,234 (69.4) 2,921.3 4,236.5 (31.0) % of sales 13.2 41.8

27.7 35.4

Employee Costs 381 378 0.8 1,345.2 1,292.2 4.1 % of sales 13.3 12.8

12.8 10.8

Other Expenditure 731 571 28.1 2,283.9 2,323.5 (1.7) % of sales 25.5 19.3

21.7 19.4

Operating Profit (514.7) (63.0) 717.2 218.3 373.5 (41.5) OPM (%) (29.0) (1.9)

2.1 3.1 (33.6)

Interest 72.8 75.1 (3.1) 306.3 220.8 38.8 Depreciation 68.0 50.8 34.0 227.0 177.1 28.2 Non Operating Income (1.4) 0.1 - 13.6 10.3 32.8 Nonrecurring items 322.4 2.2 0.0 322.4 15.4 1996.0 Profit Before Tax (334.5) (186.6) 79.2 21.0 1.3 1466.4 Tax (32.2) 66.7 (148.2) 137.3 222.8 (38.4) PAT (302.3) (253.4) 19.3 (116.3) (221.5) (47.5) Share of Profits/(Losses) of Assoc 3.0 (8.2) - 9.5 (6.8) -

Share of Profits/(Losses) of MI (1.6) 5.9 - (1.7) 6.2 -

PAT after MI & Assoc. (300.9) (255.6) - (108.4) (222.1) - PAT (%) (16.9) (7.8) - (1.1) (1.8) - Adjusted PAT (558.8) (257.4) 117.1 (366.3) (234.4) 56.3 Adj. PAT (%) (31.5) (8.0) - (3.5) (2.0)

Reported EPS (Rs) (9.1) (7.7) - (3.6) (7.3) -

Source: Company, Angel Research Order Book remains robust, Execution a concern

The company outstanding Order Book position stands at Rs27,770cr including Pipeline (10.0%), Tankage (2.0%), Infrastructure (63.2%) and Process plants (24.8%). In FY2010, the company secured orders worth Rs17,503cr. Of the new orders, Infrastructure and Process Plants verticals are the fore-runners at 70% and 23% respectively, followed by Pipelines (6%) and Tankage (1%). We believe that Top-line performance hereon would depend primarily on execution on the Infrastructure and Process Plants vertical fronts, as they together constitute a major 88% of the company’s Outstanding Order Book. Hence, we believe that though the company’s Order Book remains robust, Execution is the one of the vital factors to track.

Exhibit 2: Segmental and Geographical mix of Order Book (FY2010)

Source: Company, Angel Research

10.0 2.0

63.2

24.8

Pipelines Tankages

Infrastructure Process plants, others

29.9

24.2

35.4

7.8

2.7

South Asia SE Asia & Asia-PacAfrica Middle EastEurope & Rest of world

May 31, 2010 3


Outlook

For FY2010, Punj Lloyd booked Losses of Rs696cr due to the lackluster performance by Simon Carves. Overall, the company posted Top-line de-growth of 45.0% for 4QFY2010 and 12.0% for FY2010. As a result, we have pruned our Top-line estimates for FY2011E and FY2012E by 21.0% and 15.5%, respectively. Moreover, management of Simon Carves has guided for another quarter of possible Losses before things normalise. The auditors have also qualified the financials of the company for taking credit for a claim of Rs243cr and not accounting for liquidated damages of Rs65.5cr. Consequently, we factored in project elated extra-ordinary expenses of Rs175cr in FY2011E and Rs150cr in FY2012E factoring in concerns relating to Simon Carves.

Exhibit 3: Revision in estimates (Rs cr)

Old Estimates New Estimates

FY2011E FY2012E FY2011E FY2012E

Net Sales 14,037 15,868 11,088 13,407

EBITDA 1,338 1,534 1,000 1,231

PAT 508 617 274 403 Source: Company, Angel Research

We would adopt a cautious outlook on the company’s performance going ahead due to the bad FY2010 performance. Going ahead, Top-line performance would primarily depend on execution in the Infrastructure and Process Plants verticals, as combined they account for a major portion of the company’s Outstanding Order Book at around 88%.

Valuation

On the bourses the stock performance has been impacted by the concerns relating to the continued losses posted by Simon Carves. Thus, at current levels, the stock is trading inexpensive at P/B of 1.1x and P/E of 9.9x FY12E On the back of the company’s scale of operations, geo-segmental diversified Order Book and relatively inexpensive valuations, we maintain a Buy on the stock (at target P/E of 14x FY2012E) with a revised Target Price of Rs170 (Rs261).

May 31, 2010 4


Profit & Loss Statement (Consolidated) (Rs cr) Y/E March FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E

Net Sales 5,127 7,753 11,912 10,539 11,088 13,407

Other operating income - - - - - -

Total operating income 5,127 7,753 11,912 10,539 11,088 13,407

% chg 51.2 53.6 (11.5) 5.2 20.9

Total Expenditure 4,716 7,061 11,472 10,321 10,087 12,176

Net Raw Materials 1,637 2,828 3,751 3,770 3,127 3,794

Other Mfg costs 3,079 3,340 6,429 2,921 5,555 6,717

Personnel - 892 1,292 1,345 1,231 1,515

Other - - - 2,284 175 150

EBITDA 410 692 440 218 1,000 1,231

% chg 119.4 68.7 (36.4) (50.4) 358.3 23.0

(% of Net Sales) 8.0 8.9 3.7 2.1 9.0 9.2

Depreciation& Amortisation 106 147 177 227 234 254

EBIT 304 545 263 (9) 767 977

% chg 135.2 79.3 (51.7) (103.3) (8,912.0) 27.4

(% of Net Sales) 5.9 7.0 2.2 (0.1) 6.9 7.3

Interest & other Charges 119 181 352 306 409 440

Other Income 79 81 71 14 37 33

(% of PBT) 43 22 (80) (4) 10 6

Share in profit of Associates - - - - - -

Recurring PBT 186 365 (89) (315) 357 537

% chg 217.1 96.5 (124.3) 255.7 (213.4) 50.2

Extraordinary Expense/(Inc.) 0.3 (37.1) (18.8) (322.4) - -

PBT (reported) 265 483 1 21 395 569

Tax 69 123 226 137 121 167

(% of PBT) 26.1 25.6 16,925.9 653.8 30.6 29.3

PAT (reported) 196 359 (225) (116) 274 403 Add: Share of earnings of associate - - - - - -

Less: Minority interest (MI) 0 0 6 (2) - -

Prior period items - - - - - -

PAT after MI (reported) 197 358 (225) (108) 274 403

ADJ. PAT 197 328 (240) (366) 274 403

% chg 259.9 66.6 (173.2) 52.4 (174.7) 47.1

(% of Net Sales) 3.8 4.2 (2.0) (3.5) 2.5 3.0

Basic EPS (Rs) 37.7 10.8 (7.9) (11.1) 8.3 12.2

Fully Diluted EPS (Rs) 5.9 9.9 (7.3) (11.1) 8.3 12.2

% chg 249.1 66.6 (173.2) 52.4 (174.7) 47.1

May 31, 2010 5


Balance Sheet (Consolidated) (Rs cr) Y/E March FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E

SOURCES OF FUNDS Equity Share Capital 52 61 61 66 66 66

Preference Capital - - - - - -

Reserves& Surplus 1,227 2,657 2,424 2,978 3,172 3,561

Shareholders Funds 1,279 2,743 2,485 3,044 3,238 3,627

Minority Interest 6 22 42 42 42 42

Total Loans 1,699 1,607 3,559 4,029 3,587 3,904

Deferred Tax Liability 68 111 174 174 174 174

Total Liabilities 3,052 4,484 6,260 7,289 7,042 7,747

APPLICATION OF FUNDS Gross Block 1,867 2,083 2,653 3,138 3,438 3,738

Less: Acc. Depreciation 620 673 777 1,004 1,238 1,492

Net Block 1,247 1,411 1,875 2,133 2,200 2,245

Capital Work-in-Progress 86 212 297 194 193 193

Goodwill - - - - - -

Investments 170 546 661 312 312 312

Current Assets 4,225 5,582 8,295 9,433 9,413 11,090

Cash 1,003 690 812 1,696 1,138 896

Loans & Advances 446 662 1,053 980 1,053 1,274

Other 2,776 4,231 6,430 6,757 7,222 8,920

Current liabilities 2,708 3,287 4,895 4,809 5,102 6,118

Net Current Assets 1,517 2,295 3,400 4,624 4,312 4,971

Mis. Exp. not written off 0 0 0 0 0 0

Total Assets 3,052 4,484 6,260 7,289 7,042 7,747

Cash Flow Statement (Consolidated) (Rs cr) Y/E March FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E

Profit Before Tax 265 483 1 21 395 569

Depreciation 106 147 177 227 234 254

Change in Working Capital (354) 1,091 983 340 246 902

Less: Other income 79 81 71 14 37 33

Direct taxes paid 69 123 226 137 121 167

Cash Flow from Operations 576 (666) (1,101) (243) 225 (278)

(Inc.)/Dec. in Fixed Assets (908) (352) (653) (383) (299) (298)

(Inc.)/Dec. in Investments (128) (376) (115) 349 - -

(Inc.)/Dec. in loans & advances - - - - - -

Other income 79 81 71 14 37 33

Cash Flow from Investing (957) (646) (697) (20) (262) (265)

Issue of Equity 563 1,130 - 670 - -

Inc./(Dec.) in loans 981 (92) 1,952 469 (441) 317

Dividend Paid (Incl. Tax) 9 14 11 14 14 14

Others (263) (25) (20) 21 (65) (1)

Cash Flow from Financing 1,271 999 1,921 1,146 (521) 301

Inc./(Dec.) in Cash 891 (313) 122 883 (558) (242)

Opening Cash balances 112 1,003 690 812 1,696 1,138

Closing Cash balances 1,003 690 812 1,696 1,138 896

May 31, 2010 6


Key Ratios Y/E March FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E

Valuation Ratio (x) P/E (on FDEPS) 15.9 11.1 - - 14.5 9.9

P/CEPS 10.3 7.7 - - 7.8 6.1

P/BV 2.5 1.3 1.5 1.3 1.2 1.1

Dividend yield (%) 1.2 0.3 0.2 0.3 0.3 0.3

EV/Sales 0.3 0.6 0.5 0.6 0.6 0.5

EV/EBITDA 3.2 6.6 14.5 28.9 6.4 5.7

EV / Total Assets 0.4 1.0 1.0 0.9 0.9 0.9

Per Share Data (Rs) EPS (Basic) 7.5 10.8 (7.9) (11.1) 8.3 12.2

EPS (fully diluted) 5.9 9.9 (7.3) (11.1) 8.3 12.2

Cash EPS 11.6 15.7 (2.1) (4.2) 15.3 19.8

DPS 1.5 0.4 0.3 0.4 0.4 0.4

Book Value 49.0 90.4 81.9 91.9 97.7 109.5

Dupont Analysis EBIT margin 5.9 7.0 2.2 (0.1) 6.9 7.3

Tax retention ratio 73.9 74.4 - - 69.4 70.7

Asset turnover (x) 1.7 1.7 2.2 1.6 1.5 1.8

ROIC (Post-tax) 7.4 9.1 - 0.7 7.4 9.3

Cost of Debt (Post Tax) 5.2 8.4 - - 7.5 8.3

Leverage (x) 0.5 0.3 0.7 0.9 0.8 0.8

Operating ROE 8.6 9.3 - - 7.4 10.2

Returns (%) ROCE (Pre-tax) 10.0 12.2 4.9 - 10.7 13.2

Angel ROIC (Pre-tax) 14.8 18.7 5.7 - 13.3 15.3

ROE 15.4 12.0 - - 8.7 11.7

Turnover ratios (x) Asset Turnover (Gross Block) 2.7 3.7 5.0 3.6 3.4 3.7

Inventory / Sales (days) 82 84 88 125 119 112

Receivables (days) 58 78 73 100 106 103

Payables (days) 119 147 125 164 170 159

WC cycle (ex-cash) (days) 49 50 64 96 100 99

Solvency ratios (x) Net debt to equity 0.5 0.3 1.1 0.8 0.8 0.8

Net debt to EBITDA 1.7 1.3 6.2 10.7 2.4 2.4

Interest Coverage (EBIT/Int.) 2.6 3.0 0.7 (0.0) 1.9 2.2

May 31, 2010 7


Research Team Tel: 022-4040 3800 E-mail: [email protected] Website: www.angeltrade.com DISCLAIMER This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this

document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to

arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved),

and should consult their own advisors to determine the merits and risks of such an investment.

Angel Securities Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are

inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company

may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as

opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true,

and are for general guidance only. Angel Securities Limited has not independently verified all the information contained within this document. Accordingly,

we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel

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Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section).

Disclosure of Interest Statement Punj Lloyd

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock Yes

3. Angel and its Group companies’ Directors ownership of the stock No

4. Broking relationship with company covered No

Note: We have not considered any Exposure below Rs 1 lakh for Angel and its Group companies.

Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE: INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946

Angel Capital & Debt Market Ltd: INB 231279838 / NSE FNO: INF 231279838 / NSE Member code -12798 Angel Commodities Broking (P) Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302

Address: Acme Plaza, ‘A’ Wing, 3rd Floor, M.V. Road, Opp. Sangam Cinema, Andheri (E), Mumbai - 400 059. Tel : (022) 3952 4568 / 4040 3800

punj lloyd ru4 qfy2010-310510

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