Execution hitch for Punj Lloyd

Punj Lloyd, the second-largest listed engineering, procurement and construction player in the country, continues to disappoint investors and analysts alike. Though it has a healthy order book execution remains a concern.

For the quarter ended June, the company reported a consolidated net loss of Rs 30.6 crore compared with a profit of Rs 127.20 crore posted during the same quarter last year due to a sharp decline in revenues on account of client related delays overseas.

The company, which has in the past two quarters been plagued by cost overruns and losses at subsidiary Simon Carves, saw its consolidated net revenue decline 45.6% year on year to Rs 1,606 crore. It also faced client related project delays in Libya, one of its largest markets (constituting 29% of the order backlog).

As a result, the earnings before interest, depreciation, taxes and amortisation (Ebidta, or the operating profit) went down by a massive 97.9% to Rs 6 crore. Ebidta margins fell 930 basis points (bps) to 0.37% due to increases in fixed costs related to staff (up 690 bps) and other expenditure as percentage of net sales (up 820 bps).

The company’s bottomline would have been further impacted if it were not for a 539% increase in other operating income to Rs 128.07 crore during the quarter.

The results were dismal even on a standalone basis, with net revenues down 47.8% to Rs 1,000.10 crore and the company incurring net losses of Rs 185 crore due to cost overruns at its ONGC project.

The management expects execution at Libyan projects to start contributing from the current quarter, but analysts remain cautious. They believe company’s large exposure to infrastructure projects at 57% of the overall order backlog of Rs 25,556 crore poses a threat to revenues, prolonging the execution cycle.

Also, fresh order inflows are slowing down, with new orders received in the first quarter at Rs 3,284 crore, down 67% year on year and down 45% quarter on quarter.

Most analysts have already revised their earnings estimate for the stock downwards following the disappointing results.

“We think that disappointment in execution and margins in 1QFY11 should lead to significant downgrades by the street. Consensus forecasts of 13% and 17% revenue growth in FY11 and FY12 respectively are at clear risk. We believe there is risk of 30-40% cut on consensus EPS estimates of Rs 9 in FY11 and Rs 11.6 in FY12,” said Inderjeetsingh Bhatia and Abhishek Bhandari, analysts at Macquarie Equities Research in a result update on Tuesday.

Near-term outlook for the stock, which closed the day down 5.39% at Rs 121.10 per share on the Bombay Stock Exchange, looks bleak.