Wednesday, January 18, 2012

>PUNJ LLOYD LIMITED: Has ~Rs39bn worth of orders from Libya and set to start execution in 1-2 months

■ Takeaways from Mumbai – Punj Lloyd presented at our India Infrastructure and Industrials Conference in Mumbai on 10-11 Jan. Below we highlight key takeaways.

 Steady improvement in operations – Company has gone through a rough patch over the past one year, but says things are under control and improving. No new issues (auditor qualifications / customer disputes) have emerged in recent times, and losses in Simon Carves are over.

 Libyan orders set to start execution in 1-2 months – Based on the situation on the ground, company believes that it will be able to start execution of Libyan orders in 1-2 months. PLL has ~Rs39bn worth of orders from Libya.

 Orders and margins – PLL has won Rs120bn of orders in YTD FY12. Current order backlog at similar to those reported in 1HFY12 numbers. Company targets >10% margin at project level. 30% of projects have price variation clause for raw materials.

 Outlook on different sectors – (1) Power BOP – Company has won orders from GVK, CESC and KSK, but order inflow is now slow given problems in the power sector. (2) Pipeline – Average annual market size is Rs25bn, of which PLL has 25% share. This market is likely to increase to Rs40bn/yr. (3) Oil and gas onshore EPC – Slow as of now, but some projects which had been deferred are now being revived. The
addressable market size is Rs40-50bn/yr. (4) Tanks and Terminals – There is substantial activity in tanks and terminal space. Over next two years, 8-10 strategic oil reserves projects (each of Rs8-10bn) are likely to be given out. There are a number of LNG terminals and tanks orders from these which could be in the Rs2-4bn range each.

■ Balance sheet and working capital – Current debt is ~Rs51.5bn with average interest cost of ~11%. ~29% of debt is denominated in foreign currency compared to ~70% of revenues in foreign currency. As a result, company is looking to substitute high-cost INR debt with foreign currency debt to reduce interest cost. Currently company has ~Rs15bn receivables pending due to various reasons (~Rs4.9bn from ONGC + Rs3bn in India from OMCs and others). Oil marketing companies (OMCs) have delayed payment due to stress on their financials, which has resulted in some pressure on working capital.

To read the full report: PUNJ LLOYD