Punj Lloyd: Early exit

After exiting Pipavav Shipyard, the company now plans to focus on its core business.

Punj Lloyd (PLL) has sold its 19.43 per cent stake in Pipavav Shipyard at Rs 50.75 a share (20 per cent discount to the market price), aggregating Rs 656.46 crore. It plans to focus on its core business in the hydrocarbon and infrastructure sector and will report an extraordinary profit of about Rs 300 crore on this investment that will be booked in the quarter ending March 2010.

It had invested in Pipavav Shipyard to gain a fabrication facility that would have helped it construct offshore platforms. PLL says it will continue to bid for projects with Pipavav where their interests converge.

Of late, the company has been beset by several problems related to liquidation damages on account of projects undertaken by its subsidiary. As on December 2009, PLL had total debt of about Rs 4,800 crore and a debt to equity ration of 1.45. For the nine-month period ended December 2009, the interest outgo rose 66 per cent to Rs 246.2 crore, as against a net profit of Rs 192 crore in the same period a year ago.

Going forward, analysts expect the debt-equity ratio to come down to 0.8-1 in FY11, helped by higher net worth and lower debt. However, there will not be much impact on interest outgo, considering that even if the company uses the entire money for paying debt, earnings will be revised by 5-7 per cent for FY11. PLL will use a part of this money to build cash reserves and improve its working capital cycle, which was almost 161 days in the third quarter of the current financial year.

Meanwhile, analysts expect the business environment to improve over the next two years due to flow of new orders and growing focus on infrastructure projects. The company is expected to post earnings per share of Rs 15.3 and 18.9 in FY11 and FY12, respectively. At Rs 175.5, PLL is trading 12 times FY11 and 10 times FY12 estimated earnings.