Punj Lloyd: Tough times ahead

These are trying times for Punj Lloyd, which has unfortunately taken a hit of around Rs 400 crore because of a dispute with one of its customers. But what’s more disappointing about the company’s loss of Rs 256 crore in the March 2009 quarter is the rather small increase in the order book. The engineering firm, which caters to hydrocarbons and civil construction sectors, ended 2008-09 with orders worth close to Rs 21,000 crore, up about 6 per cent from last year..

What’s more is that the environment remains somewhat difficult and therefore it’s possible that not all projects will be executed on time. Industry watchers say about a fifth of these may be delayed, in which case there could be some pressure on the company’s cash flows. Besides, since the company does have a sizeable exposure to the oil and gas sector, it may be a while before business starts picking up. More than half the orders that the company currently has are related to the oil and gas space.

Meanwhile, analysts are disappointed with the company’s operating profit margin in the March quarter, even after adjusting for the provision of around Rs 200 crore on account of a dispute that the company’s subsidiary, Simon Carves, had with a customer. Analysts say the opm, which works out to about 4.5 per cent, has been helped by changes in accounting policies as also some reversals of foreign exchange losses.

Punj Lloyd has also piled up a fairly large amount of debt, estimated at Rs 3,500 crore, and interest costs could continue to pinch. Analysts are pencilling in a very small growth in revenues over the Rs 11,912 crore posted last year as well as in net profits in the current year. Since January, the stock has risen 5 per cent compared with 42 per cent rise of the Nifty — a huge underperformer. At the current price of Rs 161, analysts see little upside.