>PUNJ LLOYD: Reported Q3FY12 profit of Rs703 mn

■ What surprised us
Punj Lloyd reported Q3FY12 profit of Rs703 mn, which included Rs840 mn of accounting gains on write-backs from the deconsolidation of the Simon Carves subsidiary. Adjusting for this, profit for the quarter was below our estimate, primarily due to higher than expected contractor charges. However, revenue for the quarter at Rs27 bn was 7%/5% above GSe and Bloomberg consensus estimates. Order inflow at Rs42bn was 20% ahead of our estimate, resulting in closing order book of Rs283bn being up 31% yoy – highest growth among the stocks within our coverage. Auditor qualification has also come down by Rs5 bn on account of the ONGC dispute and stabilization of the political situation in Libya.


■ What to do with the stock
We retain our Neutral rating on the stock, as despite these positives of: (1) Strong order inflow over the past 9M, which is 124% above the entire FY11’s inflow; (2) reduction in auditor qualification; and (3) close to historical trough valuations, we continue to be concerned over: (1) uncertainty on margin stabilization; (2) our assumption that new projects will likely deliver lower margins being they are competitive bids and given the geographical spread; and (3) uncertainty over potential treatment of the outstanding auditor qualifications.


We adjust FY12E EPS to Rs3.96 from Rs1.59 based on Q3 results and the writeback, and increase FY13-14E EPS by 31%-39% on higher order inflow and stabilization of execution. We also increase our P/B-based 12m TP to Rs57 (from Rs48 at 0.5X FY13E P/B) – now valued at 0.6X FY13E P/B – justified in our view given our expected ROE of about 6% in FY13E. Risks: Upside: lower commodity price and interest rate; downside: lower order inflow and project delays.


To read full report: PUNJ LLOYD
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