Stock Market Result Update on Punj Lloyd for 2QFY2012 with an Neutral recommendation.
For 2QFY2012, Punj Lloyd (Punj) posted a mixed set of numbers with decent performance on the revenue front and stable margin; however, the company reported profit only on account of higher other income (mainly foreign exchange gains) barring which it suffered operational loss. Punj has received orders worth `10,286cr (commendable job in a gloomy environment) during 1HFY2012 against `9,978cr in FY2011, taking its order backlog to `26,690cr (3.4x FY2011 revenue). However, we maintain our Neutral view on the stock on account of various overhangs – uncertainty over receivable claims, stretched working capital, auditor qualifications and increasing leverage on the balance sheet.
Other income saves earnings from slipping into red: For 2QFY2012, Punj posted 20.3% yoy top-line growth to `2,392cr (`1,988cr). On a sequential basis as well, revenue increased by 5.7%. EBITDA margin for the quarter stood at 8.4% against 9.2% in 2QFY2011. Interest cost jumped by 40.6% yoy and 14.6% qoq to `129.9cr (`92.4cr). Depreciation cost came in at `78.1cr (`67.9cr). On the earnings front, Punj reported profit of `24.7cr (`23.9cr), yoy growth of 3.4%, owing to other income of `67.7cr – which was mainly on account of one-time income and forex gain.
Outlook and valuation: The infrastructure sector has been marred by concerns such as high interest cost, margin pressure due to high commodity prices and higher working capital requirements. On account of these concerns and continued disappointing performance since the past few quarters (except 4QFY2011), the stock has demonstrated huge underperformance over the past 12 months on the bourses. We have valued Punj on 0.75x P/BV (FY2013) and have arrived at a fair value of `71. Although our fair value offers an upside of 20.0% from current levels, we continue to remain Neutral on the stock due to headwinds faced by the sector and the company (mentioned above).
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