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| Punj Lloyd: Subsidiary losses hit margins |
| Sunaina Vasudev / Mumbai Oct 27, 2009, 09:51 IST |
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Losses in the UK subsidiary have hit earnings and margins for this engineering and construction company this quarter.
Punj Lloyd Limited (PLL) reported consolidated earnings (EBITDA) of Rs 212 crore with a net profit of Rs 52.8 crore in Q2 FY10, significantly below street expectations (about 30% and 60% respectively below Ambit research estimates). Revenues were down 2.75% y-o-y to Rs 2871.65 crore. Operating margins slipped to 7.38 % from 10.14% in the corresponding quarter last year.
Standalone numbers for Punj Lloyd Ltd. showed a y-o-y revenue growth of 18.6% to Rs 1851.75 crore in Q2 FY10(about 64% of consolidated group earnings). However, sequentially revenues have trending down for the last two quarters (3.5% down in Q1 FY10 and about 3% down in Q4FY09). Operating margins were down 4.45 percentage points y-o-y and PAT was down over 52% to nearly Rs 42 crore in the same period.
Expensive over-runs
PLL incurred a loss of Rs 104 crore this quarter in its wholly owned UK- based subsidiary Simon Carves through cost overruns because of delays in completion and other issues with sub-contractors for the project. It took a hit of Rs 60.06 crore and Rs 9.54 crore accounted for from work in progress inventory on account of deductions / amounts withheld by customers.
A partial recovery could be possible through a possible product revenue sharing agreement being negotiated with Ensus UK, management stated in the analyst’s conference call on 26th Oct, 09.
Alternatively, the company could also see a further potential write-off of about Rs 124 crore should Ensus seek liquidated damages, according to an Ambit research report which adds that the next quarter should see the closure of the legacy accounts of the UK subsidiary.
Outlook
Punj Lloyd’s order book stands at around Rs 268 billion, which is spread geographically with about 37% in Africa, 24% in South-East Asia, 20% in South Asia and 15 % in the Middle-East. While 56% is in infrastructure, pipelines and process plants are about 20% each.
Management indicated in their press release that revenue are expected to flow from the Libya based infrastructure projects (amounting to Rs. 98,481 million) in Libya, from Q3 of FY 2010.
The stock closed at Rs 216, down 17 % on 26 Oct 09. It trades at a sum of the parts valuation of about 11x FY11 estimated EPS ( Rs 18.20 as per Ambit research) after valuing its Pipavav Shipyard stake at a 20% discount to market cap at Rs 17.
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