Good Quarter, But Issues Unresolved; Maintain HOLD

June 1, 2011

Punj Lloyd swings good performance in Q4FY11 APAT of Previous Reco Hold Target Price Rs91
NA NA 5,592 18,609

Reco Hold CMP Rs65

Rs177 mn and Ebidta margins of 8.9% - especially in light of subdued performance in recent quarters backlog, Continued order inflows at Rs92 bn in FY11E and YE backlog of Rs228 bn Further Auditors draw qualification of similar type on 3 additional projects with target price of Rs91/Share

Cancels inactive Libya orders of Rs60 bn from YE order

EPS change FY12E/13E (%) Target Price change (%) Nifty Sensex

Issues common to Ensus and ONGC remain unresolved -

Price Performance
(%) Absolute Rel. to Nifty
Source: Bloomberg

1M (1) 4

3M 2 4

6M 12M (40) (45) (34) (50)

Unresolved issues and Concerns persist, Retain HOLD rating

Punj Lloyd swings an APAT of Rs177 mn in the quarter

Punj Lloyd swings good performance in Q4FY11 swings in APAT of Rs177 mn especially in light of subdued performance for last 4 quarters. Further, performance was free-off project specific one-offs and gained from low base. Punj Lloyd reported (1) revenues of Rs23.3 bn, growing 30.9% yoy (2) Ebidta of Rs2.1 bn versus Ebidta loss of Rs5.1 bn and (3) Ebidta margins of 8.9%, sharp improvement against 4.5% in Q3FY11. No progress in Libya projects owing to civil unrest was offset by strong execution in nonLibya order backlog.

Relative Price Chart

150 Rs % 20 130 4

110

-12

90

-28

70

-44

50 Jun-10

-60 Aug-10 Oct-10

Punj Lloyd (LHS)

Dec-10

Feb-11

Apr-11

Rel to Nifty (RHS)

Cancels Libya orders worth Rs60 bn from order backlog, reconciles position in Libya
Company had order wins of Rs100 bn from Libya included in the order backlog. Some progress is made on orders worth Rs40 bn in terms of execution and hence is retained in YE backlog. Whereas, inactive orders worth Rs60 bn are removed/adjusted from the YE backlog, owing to no progress on the same. Punj Lloyd has also reconciled its financial position in Libya with Assets of Rs12 bn and Liability of Rs9 bn at YE March 2011.

Source: Bloomberg

Stock Details
Sector Bloomberg Equity Capital (Rs mn) Face Value(Rs) No of shares o/s (mn) 52 Week H/L Market Cap (Rs bn/USD mn) Daily Avg Volume (No of sh) Daily Avg Turnover (US$mn) Engineering & Capital Goods PUNJ@IN 664 2 332 142/53 22/491 2477550 3.6

Issues remain unresolved; Auditors draw qualification on 3 projects

Issues common to Ensus and ONGC remain unresolved. Further, Auditors draw qualifications on 3 new projects qualifications are similar to those surfaced in prior quarters for above projects. Auditors note highlights (1) accounting claims of Rs897 mn on two projects related to cost overruns, in turn arising on account of delay in receipt of free issue material and (2) deductions made and amount withheld aggregating to Rs725 mn on one project.

Shareholding Pattern (%)

Mar -11 Dec-10 Sep-10 Promoters FII/NRI Institutions Private Corp Public
Source: Capitaline

37.1 11.3 13.5 8.4 29.6

37.2 13.3 14.5 9.8 25.3

37.1 14.9 14.5 10.2 23.3

Only positive, Orders continue to flow in Rs92 bn in FY11E

Only positive, Punj Lloyd reported order inflows of Rs33 bn in Q4FY11 and Rs92 bn in FY11. Though, order inflows at Rs92 bn are lower then Rs173 bn recorded in FY10, same had large inflows from Libya region. Adjusting for Libya orders in FY10, the order inflows in FY11 at Rs92 bn is robust. The YE backlog stood at Rs228 bn with another Rs45 bn orders awaiting confirmations. Financial Snapshot
YENet Sales 104,733 81,663 104,697 118,162 EBITDA (Core) 3,441 6,212 8,144 9,422 (%) 3.3 7.6 7.8 8.0 APAT -4,353 -504 1,490 2,196 EPS (Rs) -12.9 -1.5 4.5 6.6 EPS % chg -270.6 -88.0 -389.5 47.6 RoE (%) -14.4 -1.7 4.8 6.6 P/E -4.5 -37.4 12.9 8.8 EV/ EBITDA 15.6 7.8 6.2 5.6 P/BV 0.6 0.6 0.6 0.6

Rs Mn

Pritesh Chheda, CFA pritesh.chheda@emkayglobal.com +91 22 6612 1273 Prerna Jhavar prerna.jhavar@emkayglobal.com +91 22 6612 1337

Mar FY10 FY11P FY12E FY13E

Emkay Global Financial Services Ltd

Result Update

Punj Lloyd

Punj Lloyd Quarterly Standalone Performance

Rs mn Revenue Expenditure Consumption of RM as % of sales Contractor Charges as % of sales Employee Cost as % of sales Other Expenditure as % of sales EBITDA Depreciation EBIT Other Income Interest PBT Total Tax Adjusted PAT Profit)/loss from JV's/Ass/MI Adjusted PAT (after MI) Extra ordinary items Reported PAT Adjusted EPS (Rs) Margins (%) EBIDTA EBIT PBT PAT Effective Tax rate -29.0 -32.8 -37.0 -35.2 4.9 7.7 4.0 -0.4 -1.8 -342.6 9.2 5.8 1.3 1.1 18.1 4.5 1.3 -2.3 -2.8 -23.9 8.9 5.9 1.9 0.8 58.9 Q4FY10 17,765 22,912 8,007 45.1 3,781 21.3 3,814 21.5 7,310 41.1 -5,147 680 -5,827 -14 728 -6,569 -322 -6,247 14 -6,232 3224 -3,009 -18.8 Q1FY11 17,339 15,998 4,387 25.3 4,617 26.6 2,876 16.6 4,117 23.7 1,341 640 701 41 810 -69 235 -304 -2 -306 0 -306 -0.9 Q2FY11 19,876 18,043 4,671 23.5 6,447 32.4 2,917 14.7 4,008 20.2 1,832 679 1,154 32 924 262 47 215 24 239 0 239 0.7 Q3FY11 21,189 20,231 6,494 30.6 6,195 29.2 2,827 13.3 4,715 22.3 958 674 284 78 845 -484 116 -599 -22 -621 0 -621 -1.9 Q4FY11 23,260 21,179 7,723 33.2 6,133 26.4 2,641 11.4 4,683 20.1 2,080 699 1,381 57 989 449 265 185 -8 177 0 177 0.5 -140.4 2.8 -123.7 -505.7 36.0 -106.8 -182.2 -103.0 -155.6 -102.8 -100.0 -105.9 -102.8 (bps) 3790 3870 3890 3600 5400 117.1 3.7 386.5 -26.2 17.1 -192.9 128.4 -130.8 -63.5 -128.4 NA -128.4 -128.4 (bps) 440 460 420 360 8280 7.6 4.3 0.2 -0.6 417.0 -35.9 -0.7 -30.8 -6.6 62.2 -1.0 YoY (%) 30.9 -7.6 -3.5 QoQ (%) 9.8 4.7 18.9 YTD11 81,663 75,451 23,276 28.5 23,392 28.6 11,260 13.8 17,523 21.5 6,212 2,692 3,520 207 3,568 159 663 -504 -7 -511 0 -511 -1.5

Result Update

YTD10 105,282 103,077 37,701 35.8 29,213 27.7 13,452 12.8 22,711 21.6 2,205 2,270 -65 242 3,190 -3,014 1,372 -4,386 78 -4,308 3224 -1,084 -13.0

Gr (%) -22.4 -26.8 -38.3 -19.9 -16.3 -22.8 181.7 18.6 5474.6 -14.4 11.8 -105.3 -51.7 -88.5 -109.3 -88.1 -100.0 -52.8 -88.1 (bps)

2.1 -0.1 -2.9 -4.2 -45.5

360 420 340 180 610

Order Backlog Details

Rs mn Order Backlog Order Inflows Order Book Order-book break-up Pipelines Tankages Infrastructure Process Plants, Others Total Order-book break-up (%) Pipelines Tankages Infrastructure Process Plants, Others 10.0 2.0 63.2 24.8 9.3 1.9 70.8 18.1 11.1 1.7 60.9 26.4 15.2 2.8 55.6 26.5 26.4 2.5 40.4 30.7 27,743 5,667 175,416 68,869 277,695 23,688 4,863 180,845 46,169 255,565 28,208 4,228 155,104 67,162 254,702 42,240 7,660 154,340 73,560 277,800 60,160 5,750 92,180 69,960 228,050 116.8 1.5 -47.5 1.6 -17.9 (bps) 1640.0 50.0 -2270.0 590.0 42.4 -24.9 -40.3 -4.9 -17.9 (bps) 1120.0 -20.0 -1510.0 420.0 61,146 277,695 32,840 255,560 16,440 254,700 44,289 277,800 33,510 228,050 -45.2 -17.9 -24.3 -17.9 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 YoY (%) QoQ (%)

Emkay Research

1 June 2011

Punj Lloyd

Result Update

No change in FY12E earnings, Introduce FY13E earnings of Rs6.6/Share

Punj Lloyd ends FY11 on strong footing with 8.9% Ebidta margins in Q4FY11 and performance free from one-off project specific write-offs. However, issues w.r.t execution and slippages remain unresolved. Also, YE backlog has inactive orders from Libya worth Rs30 bn, whose progress cannot be forecasted. Hence, we retain our FY12E earnings of Rs4.5/Share and introduce FY13E earnings of Rs6.6/Share.

Concerns persist, Retain HOLD rating, Awaiting stabilization in operations for change in rating
So far, Punj Lloyd has shown checkered performance with good performance in few quarters and disappointment in many quarters. Further, progress on large orders remains tardy impacting the revenues a nd corresponding E bidta margins. Until stabilization of operations with no negative surprise, does not warrant change in rating. Citing large draw down in forward valuations from 3X P/BV and 0.9X P/BV and strong capabilities in multiple verticals alongside diversified geographical presence, we do not ascribe SELL rating at current valuations. Until then, @ P/BV of 0.7X FY12E, we retain HOLD rating with price target of Rs91/Share.

Emkay Research

1 June 2011

Punj Lloyd

Result Update

Key Financials
Income Statement
Y/E, Mar (Rs. mn) Net Sales Growth (%) Expenditure Materials Consumed Employee Cost Manufacturing Exp Other Exp EBITDA Growth (%) EBITDA margin (%) Depreciation EBIT EBIT margin (%) Other Income Interest expenses PBT Tax Effective tax rate (%) Adjusted PAT Growth (%) Net Margin (%) (Profit)/loss from JVs/Ass/MI Adjusted PAT After JVs/Ass/MI E/O items Reported PAT Growth (%) FY10 104,733 -12.1 101,291 37,701 13,452 43,782 6,356 3,441 -59.9 3.3 2,270 1,171 1.1 -910 3,241 -2,980 1,372 -46.0 -4,353 -289.6 -4.2 -78 -4,274 3,190 -1,084 -51.9 FY11P 81,663 -22.0 75,451 23,276 11,260 33,598 7,317 6,212 80.5 7.6 2,692 3,520 4.3 208 3,568 159 663 416.8 -504 -88.4 -0.6 7 -511 0 -511 -52.8 FY12E 104,697 28.2 96,552 30,469 14,436 43,599 8,048 8,144 31.1 7.8 3,053 5,091 4.9 311 3,366 2,037 547 26.8 1,490 -395.6 1.4 9 1,481 0 1,481 -389.5 FY13E 118,162 12.9 108,740 34,388 16,293 49,206 8,853 9,422 15.7 8.0 3,346 6,076 5.1 311 3,166 3,222 1,026 31.8 2,196 47.4 1.9 11 2,186 0 2,186 47.6

Balance Sheet
Y/E, Mar (Rs. mn) Equity share capital Reserves & surplus Net worth Minority Interest Secured Loans Unsecured Loans Loan Funds Net deferred tax liability Total Liabilities Gross Block Less: Depreciation Net block Capital work in progress Investment Current Assets Inventories Sundry debtors Cash & bank balance Loans & advances Other current assets Current lia & Prov Current liabilities Provisions Net current assets Misc. exp Total Assets FY10 664 29,619 30,283 415 39,828 4,727 44,554 1,804 77,057 31,203 9,426 21,777 1,605 3,818 88,282 46,496 21,847 6,110 10,417 3,412 38,424 36,338 2,087 49,857 0 77,057 664 FY11P 664 29,058 29,722 415 39,828 4,727 44,554 1,804 76,496 35,203 12,117 23,085 1,605 3,818 80,531 40,260 18,921 11,490 8,168 1,691 32,543 31,075 1,467 47,988 0 76,496 664 FY12E 664 30,489 31,153 415 34,828 4,727 39,554 1,804 72,926 37,203 15,171 22,032 1,605 3,818 87,117 45,879 24,258 4,339 10,473 2,168 41,644 39,766 1,878 45,472 0 72,926 664 FY13E 664 32,624 33,289 415 34,828 4,727 39,554 1,804 75,062 39,203 18,517 20,686 1,605 3,818 95,855 51,780 27,378 2,431 11,819 2,447 46,901 44,786 2,115 48,954 0 75,062 664

Cash Flow
Y/E, Mar (Rs. mn) PBT Depreciation Interest Provided Other Non-Cash items Chg in working cap Tax paid Operating Cashflow Capital expenditure Free Cash Flow Other income Investments Investing Cashflow Equity Capital Raised Loans Taken / (Repaid) Interest Paid Dividend paid (incl tax) Income from investments Others Financing Cashflow Net change in cash Opening cash position Closing cash position FY10 210 2,270 3,063 -3,101 -16,181 -1,617 -15,356 -3,153 -18,509 140 3,905 4,045 6,556 9,939 -2,690 -106 0 0 13,698 -766 6,992 5,266 FY11P 159 2,692 3,568 -7 7,249 -663 12,998 -4,000 8,998 0 0 0 0 0 -3,568 -50 0 0 -3,618 5,380 6,110 11,490 FY12E 2,037 3,053 3,366 -9 -4,636 -547 3,264 -2,000 1,264 0 0 0 0 -5,000 -3,366 -50 0 0 -8,415 -7,152 11,490 4,339 FY13E 3,222 3,346 3,166 -11 -5,390 -1,026 3,307 -2,000 1,307 0 0 0 0 0 -3,166 -50 0 0 -3,215 -1,908 4,339 2,431

Key ratios
Y/E, Mar Profitability (%) EBITDA Margin Net Margin ROCE ROE RoIC Per Share Data (Rs) EPS CEPS BVPS DPS Valuations (x) PER P/CEPS P/BV EV / Sales EV / EBITDA Dividend Yield (%) Gearing Ratio (x) Net Debt/ Equity Net Debt/EBIDTA Working Cap Cycle (days) FY10 3.3 -4.2 0.3 -14.4 2.5 -12.9 -6.0 91.2 0.4 -4.5 -9.5 0.6 0.5 15.6 0.3 1.3 11.2 111.5 FY11P 7.6 -0.6 4.9 -1.7 -18.2 -1.5 6.6 89.5 0.2 -37.4 8.8 0.6 0.6 7.8 0.1 1.1 5.3 125.6 FY12E 7.8 1.4 7.4 4.8 5.8 4.5 13.7 93.8 0.2 12.9 4.2 0.6 0.5 6.2 0.1 1.1 4.3 105.9 FY13E 8.0 1.9 8.5 6.6 6.0 6.6 16.7 100.2 0.2 8.8 3.5 0.6 0.4 5.6 0.1 1.1 3.9 106.2

Note Company has changed reporting period from Jun to Mar wef FY11P. Hence FY11P is a 9 month performance. Correspondingly, FY11P and FY12E growth numbers calculated on annualized basis.

Emkay Research

1 June 2011

Punj Lloyd

Result Update

Recommendation History: Punj Lloyd PUNJ IN

Date 28/02/2011 08/02/2011 02/11/2010 04/08/2010 Reports Punj Lloyd Event Update Punj Lloyd Q3FY11 Result Update Punj Lloyd Q2FY11 Result Update Punj Lloyd Q1FY11 Result Update Reco Hold Hold Hold Hold CMP 62 78 125 121 Target 91 91 132 132

Recent Research Reports

Date 27/05/2011 26/05/2011 23/05/2011 20/05/2011 Reports Havells India Q4FY11 Result Update Blue Star Q4FY11 Result Update BHEL Q4FY11 Result Update Voltas Q4FY11 Result Update Reco Buy Buy Hold Buy CMP 399 318 1,936 162 Target 470 360 2,150 200

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Emkay Research

1 June 2011

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