th

30 March, 2009
India
Punj Lloyd Ltd.
CMP: Rs. 86 Target: Rs. 145
Construction
We initiate a buy on the stock on the basis of topline growth of 48% on a large base, its
huge and continuously expanding order book, diversified operations, high dollar exchange
rates and diversified operations. Currently the stock is trading at 8x FY08 EPS of 10.3.
According to our estimates at current price of Rs. 86 P/E for FY09E and FY10E stand at
Sovid Gupta +911243024840
7.9 and 5.6 repectively.
Equity Analyst: Fairwealth Securities
Private. Ltd. We believe that the stock has been oversold by the markets and has underperfromed
sensex as well as other players in Contruction in Infrastructure segment like Larsen &
Tubro and Patel Engineering over last 3 months.

We initiate a buy on Punj Lloyd with a target price of 145. Our basis of valuation are sound
fundamentals, aggressive growth and huge discounting to its peers.

Priced on March’30, 2009

±% potential +70%
h
Target set on 27 March
Future Estimates:
Income Statement (Standalone Rs. Crore)
FY11E FY10E FY09E FY08 FY07
Market Data
Beta Net Sales 15408 12038 11250 7751 5139
1.3
12M hi/lo 376/ 69.2 Total Expenditure 14021 11075 10345 7128 4768
Market cap, INR Crores 2544.8 Operating Profit 1387 963 905 623 371
Shares in issue (mn.) 303 Interest 280 235 215 181 118
Reuters PUNJ.BO
Depreciation 205 180 175 145 106
Bloomberg PUNJ.IN
Profit Before Tax before
902 548 515 298 144
OI
Other Income 120 120 112 183 122
PBT 1022 668 627 482 266
Tax 266 174 176 123 68
Share Holding Pattern (%) Net Profit 756 494 451 358 197
Promoters 44.0%
EO Items & Min. Interest 0 0 -92 26 2
FII 18.0%
Adj Net profit 756 494 359 332 195
Domestic Inst. & Corp Bod. 16.0%
Public & Others EPS 23.4 15.3 11.1 10.3 6.0
21.0%
P/E 3.89 5.95 8.18 8.85 15.07
Source: Fairwealth Securities Research Estimates, Company data

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 Punj Lloyd- Buy

Company has continued its outstanding
topline growth of over 40% Y-o-Y.
Company’s profit however fell marred by:
Other income of -96 crores due to forex
losses on derivative contracts
EO items to the tune of -214 crores effected
by one time provisioning due to litigations.
Significant changes in Cost structure:
Punj Lloyd JV secures Rs 1,311.19 crore contract for the execution of utilities in Souk Al Juma,
Tripoli, Libya. The contract is Punj Lloyd’s fourth project in Libya taking Company’s total order
book from Libya close to USD 500 million.
This project includes EPC (engineering, procurement and construction) and
commissioning of infrastructure networks, water-sewerage-stormwater mains & branch lines,
roads & other facilities for Souk Al Juma.
Punj Lloyd secured a contract from Municipal Corporation of Delhi for a value of Rs 304 crore
for development of parking facility near Jawaharlal Nehru Stadium for the forthcoming
Commonwealth Games- 2010.
Won a contract worth Rs 264 crore from Airports Authority of India (AAI) to build Sikkim’s first
Greenfield airport project in Pakyong.

Material Costs fell from 36% of sales to 27%
of sales
Contractor costs increased from 32% of sales
to 41.4% in Q3FY09.
EBITDA margins for the quarter went down
by 80bps 7.3% from 8.1% in Q3FY 08 and
410 bps from 11.4% in Q2FY09.
Simon Carves Singapore has received a Letter of Intent of Rs. 152 crore from Exxon Mobil
Asia Pacific Pte. Ltd for execution of an EPC for Jurong Strategic Study project, Singapore.
Bagged a Rs. 105 crores contract from Cairn Energy India Limited for laying a crude oil heated
and insulated pipeline for the Mangla Development Project in Gujarat.
Punj Lloyd Indonesia bagged a Rs. 101 crore contract from PT Shell Indonesia for the EPC of
new fuel terminal at Pulau Laut, Kalimantan, Indonesia.

Quarterly Result Round up:

Q3 FY09 Q3 Fy08 Y-o-Y Q2 FY09 QoQ(%)
Growth(%)
Net Sales 3,143 2,117 48.5 2,953 6.4
Expenditure 2,913 1,945 49.8 2,615 11.4
Material Cost 845 761 11 1,047 -19.3
% of Sales 26.9 36 - 35.5 -
Contractor Charges 1,301 674 92.8 842 54.5
% of Sales 41.4 31.9 - 28.5 -
Employee Expenses 318 239 32.7 269 18.2
% of Sales 10.1 11.3 - 9.1 -
Other Expenses 449 269 66.7 458 -1.9
% of Sales 14.3 12.7 - 15.5 -
Operating Profit 230 172 33.6 337 -31.7
EBIDTA 7.3 8.1 -80 11.4 -410
Other -96 46 - -37 -159.4
Interest 62 28 118.1 49 26.5
Depreciation 43 36 18.5 44 -1.3
PBT 29 153 -80.9 208 -85.9
Tax 41 30 34.8 65 -35.7
PAT -12 122 - 143 -
Extra-Ordinary -214 -31 - - -
PAT -225 92 - 144 -
EPS -0.4 4.2 - 4.7 -
Source: Company Data, Capital Line

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 Punj Lloyd- Buy

Company Description:

Punj Lloyd is a globally diversified conglomerate providing engineering, procurement and

construction services in Oil & Gas, Petrochemical and Infrastructures sectors. Starting with
construction of pipelines, the company is now into construction of refineries, tanks & terminals,
civil infrastructure and power plants. It also provides broadband services on its optical fiber
network. Presently has 16 offices worldwide with operations spread across Middle East, Asia
Pacific, Europe, South Asia, the Caspian, Africa and China. In 2007, it tied up with Pipavav
shipyard. The company ventured into defence equipment manufacturing by entering into a
partnership with Singapore Technologies Kinetics in 2008. The company partnered with
Thorium Power in 2008 for Nuclear energy making it the first company in India to partner with
an American nuclear company.

Valuations:

Company’s huge order book along with high growth on large base is witness to company’s
EPC capabilities. Company has order book of ~ 190000 crore which is 2.5 times 2008 order
book and second only to Larsen and Tubro among Indian Companies. Diversified operations
both Geogrophically and in technical ability makes the company flexible to take advange of
sectoral booms.

Company has technical expertise in Power, Construction and Defence sectors all of which
have huge financial commitments from the governments over next two 5 year plans, Punj
Lloyd is well poised to take advantage of these opportunities.

We expect revenue to grow by 10% for FY10E citing tough economic conditions, and 25% for
FY11E on conservative estimates, lower Debt-Equity ratio will ensure that company doesn’t
have much difficulty in raising new debt to fund its working capital requirement.

We initiate a buy call on Punj Lloyd with target of Rs. 120 on lower side with further upside
potential.

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 Punj Lloyd- Buy

Key Risks:
SABIC UK has invoked Rs. 218 crore bank gaurantees aganinst Punj Lloyd Ltd.Company has
not yet written off these gaurantees, and the case is under litigation if the outcome is unfavorable
it could lead to further one time write downs.

18% order book is delayed, although most of them are client led, there could be further delays in
time to come.

Foreign currency exchange rate fluctuation risks exist, however we believe they are managable.

Uncertain future economic conditions have increased the risk weightage of all Engineering
Procurement and Construction companies as many projects might not actually take off.

There will be lesser new orders going forward for the 2-3 quarters as things are still in wait n
watch scenario.

Change in raw material prices is not a significant risk factor as projects costs are variable with
raw material costs.

Punj Lloyd share prices have fallen by more

than 80% over last one year, while share prices
for Larsen and Tubro have fallen by only 60
th
percent. Since 15 November there has been a
huge dip in Punj Lloyd’s share prices while peer
group companies like L&T and Patel
Engineering have over performed the stock.

We expect short term recovery in the stock to

sustain riding on current uptrend, while the long
term fundamentals remain sound.

Source: Capital Line

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 Punj Lloyd- Buy
Investment Rational
 Punj Lloyd is a globally diversified conglemerate with 30% of the projects in South-
Asia and 70% in other countries.
 The company’s order book grew significantly during FY08 to Rs.195.96bn up
23% YoY and is 2.5 times its FY08 sales.
 Company has strategic stake in Pipav Shipppping Yard Company which will help in
taking part in marine defence proejcts of Indian Govt.
 Company has tied up with Thrium power for nuclear power projects and also has prior
experience of establishing power plants.
 Growth in demand and supply of natural gas will result in demand for pipeline
infrastructure for gas transportation. Punj Lloyd with established expertise in the same
will beneift.
 High dollar exhange rate is aiding the company in posting increased topline.

TECHNICAL OUTLOOK: Punj Lloyd

Punj Lloyd has shown good support around. 78-80. The stock bounced back from lows of 69. One could buy
stocks at dips for a target of 105 first and then 120.

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 Punj Lloyd- Buy

Annexure:

1. Income Statement:
Income Statement Fund Flow Statement:
200803 200703 200603
2008(12) 2007(12) 2006 (12) SOURCES OF FUNDS :
Share Capital 61 52 52
INCOME
Reserves Total 2657 1227 1069
Net Sales 7760 5139 1727
Total Shareholders Funds 2718 1279 1122
Stock Adjustment -8 -3 -2
Minority Interest 22 6 1
Total 7751 5136 1725 Secured Loans 1351 1123 492
Expenditure : Unsecured Loans 256 576 64
Raw Materials 2820 1635 549 Total Debt 1607 1699 556
Other Manufacturing Total Liabilities 4347 2984 1679
Expenses
2371 1532 445
APPLICATION OF FUNDS :
Employee Cost 892 637 186 Net Block 1411 1276 579
Selling and Administration Capital Work in Progress 213 86 139
622 558 258
Expenses
Investments 546 170 42
Other Expenses 421 407 112
Current Assets, Loans &
Total Expenditure 7126 4768 1551 Advances
Operating Profit 625 369 174 Inventories 2059 1686 804
Interest 181 119 79 Sundry Debtors 2090 1223 394
Gross Profit 445 250 95 Cash and Bank 690 1003 112
Depreciation 146 106 60 Loans and Advances 743 497 237
Profit Before Tax before OI 298 144 35 Total Current Assets 5582 4410 1548
Other Income 183 122 49 Less : Current Liabilities
PBT and Provisions
482 266 84
Tax Current Liabilities 3173 2728 539
123 69 29
Net Profit Provisions 139 165 29
358 197 55
EO Items & Min. Interest Total Current Liabilities 3312 2892 568
26 2 -1
Adj Net profit Net Current Assets 2270 1517 980
332 195 56
Source: Company Report, Capital Line Net Deferred Tax -92 -65 -61
Total Assets 4347 2984 1679
Contingent Liabilities 541 1002 242
Source: Company Report, Capital Line
2. Cash Flow Statement:
200803 200703 200603 Company has negative Operating cash flows,
Cash Flow Summary which is not abnormal for any high growth
Cash and Cash Equivalents at Beginning Constrcution industry company as it has huge
995.54 95.38 43.18 working capital requirements.
of the year
Net Cash from Operating Activities -527.78 59.99 -1.37
Net Cash Used in Investing Activities -734.78 -222.56 -257.16
Net Cash Used in Financing Activities 901.72 1062.73 327.51
Net Inc/(Dec) in Cash and Cash
-360.84 900.16 68.98
Equivalent
Cash and Cash Equivalents at End of the
year
634.7 995.54 112.16

Source: Company Report, Capital Line

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 Punj Lloyd- Buy

Disclaimer

This publication has been prepared solely for information purpose and does not constitute a solicitation to any person to buy or sell a security. While
the information contained therein has been obtained from sources believed to be reliable; investors are advised to satisfy themselves before making
any investments. Fairwealth Securities Pvt Ltd does not bear any responsibility for the authentication of the information contained in
the reports and consequently, is not liable for any decisions taken based on the same. Further, Fairwealth Research Reports only provide information
updates and analysis. All opinion for buying and selling are available to investors when they are registered clients of Fairwealth Investment Advisory
Services. As a matter of practice, Fairwealth refrains from publishing any individual names with its reports. As per SEBI requirements it is stated that,
Fairwealth Sec Pvt Ltd., and/or individuals thereof may have positions in securities referred herein and may make purchases or sale while this report is
in circulation.

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