>PUNJ LLOYD (INDIA INFOLINE)

We met Punj Lloyd to take an update on the company’s operations and understand the changes in the business environment. The management expects the environment to improve thus translating into a healthy order book growth. They expect the order book growth to be driven by investments in the infrastructure segment. Of the Rs304bn order book, infrastructure accounts for 56% while energy forms the balance. The management also hinted at a loss of £8-10mn in Simon Carves during FY10. With margins expected to improve we believe the company will witness robust earnings growth over FY09-11. We upgrade our target price to Rs283/share, re-iterate Market Performer.

Rs99bn order inflow provides strong earnings visibility
With clients having restarted awarding orders, Punj Lloyd’s order inflow shot up to Rs99bn during Q1 FY10. Of these, Rs78bn worth of orders are from Libya for residential, commercial and utilities projects. This is the highest order inflow for the company over the past nine quarters. With this infrastructure’s share in the order book increased to 56%. Since infrastructure orders are longer gestation, the management expects energy to continue to dominate revenues.

Infrastructure segment will enable order inflow growth
Majority of the company’s orders are from the international market. Hence any recovery in the global economy should result in growing order book. The management expects infrastructure and oil and gas segments to drive order book growth. In India, growth will be driven by the huge opportunity in the power sector. Large orders bagged recently in the Middle East indicate a revival in the order inflow from the international market.

Business environment improves but positives priced in
With the huge jump in the order inflow and an improving global environment, we believe the company is set to ride the up-cycle. With no more legacy orders remaining and Punj Lloyd shifting projects from Simon Carves to the parent entity, we expect its margins to expand. Its robust order book of Rs304bn covers it for the next couple of years and provides us strong earnings visibility.

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