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BACKGROUND
PLL, commenced operations as a pipeline‐laying company in 1989, is currently the
second‐largest player (based on revenues) in the EPC (engineering, procurement and
construction) segment in India. PLL operates through four business segments –
pipelines, infrastructure, storage tanks and terminals & process plants. It provides
comprehensive engineering, procurement and construction services to the hydrocarbon
sector, which includes the setting up of complex storage tanks and terminals, refinery
and process facilities, cross‐country oil and gas pipelines, offshore pipelines and
platforms.
The acquisition of a 100 per cent stake in Singapore‐based Sembawang Engineers and
Constructors (SEC) and UK‐based Simon Carves Ltd in 2006‐07 has enabled the
company to enhance its capabilities and widen its skill set in the construction space, as
well as expand its global footprint. The company mainly operates in four segments ‐ oil
& gas, petrochemicals, civil and infrastructure construction and power.
Over the last three years, PLL has registered tremendous growth in terms of both order
book and geographical presence, mainly on the back of acquisition of a 100 per cent
stake in SEC and Simon Carves UK. The order book of Punj Lloyd has grown at a CAGR of
59 per cent over the last 4 years, from Rs 42.8 billion in March 2005‐06 to Rs 277 billion
as of March 2009‐10. As on June 2010, PLL’s order backlog stood at Rs 256 billion which
is 2.5 times the net sales of the company in 2009‐10. PLL had witnessed an order inflow
close to Rs 172 billion in 2009‐10.
As of March‐10, the order book of Punj Lloyd was highly concentrated in infrastructure;
more than 60 per cent of the orders are from infrastructure sector. While
geographically, PLL is largely concentrated in Africa as orders close to 30 per cent of
total order book amounting to Rs 77.7 billion are from Libya in infrastructure sector in
2009‐10.
In the power segment, PLL initially operated in the thermal and nuclear segments. The
company has now entered the solar energy space by forming a joint venture with Delta
Solar, a Singapore‐based company. Punj Lloyd Delta Renewables (JV) will develop,
engineer and execute renewable energy‐based projects throughout the world.
Strength
would result in an increase in order inflow from new opportunities like Metro
Rail Networks, Indian Defence and Ports and Marine, where Public Private
Partnership is being encouraged.
Punj Lloyd secured an order worth Rs. 275.79 bn from IndianOil Petronas
Limited for design, detailed engineering, supply and construction of gas terminal
at Ennore, Tamil Nadu on EPCC basis.
The Company secured an order of Rs. 5.50 bn from Manglore Refinery and
Petrochemicals Limited for engineering and procurement of Coke Drum
structure projects.
A subsidiary of the Company has secured three projects worth Rs. 59.04 bn in
Libya to build commercial and residential developments.
Dayim Punj Lloyd, a JV between the Punj Lloyd and His Royal Highness Prince
Khalid Bin Bandar Bin Sultan, Kingdom of Saudi Arabia, announced winning a
contract worth Rs. 12.10 bn for engineering, procurement and construction of
port tank farm of the Jubail Export Refinery Project in Saudi Arabia
Punj Lloyd announced three new contract‐wins valued at Rs. 18.73 bn. The
contract will include designing, procurement, installation and commissioning of
utilities for three towns of Libya.
Contract from GAIL for gas pipe laying and terminal work from Dabhol to
Bangalore worth Rs 5390mn
Project from PUB, the national water agency of Singapore for construction of a
new waterworks worth Rs 6140 mn
Sembawang Engineers and Constructors Pte Ltd, was awarded a contract worth
approximately Rs. 13.94 bn from Sentosa Pte Ltd Singapore for construction of
Hotel, Spa, Beach Villas, an Oceanarium and Water Theme Park in Singapore
Punj Lloyd was awarded a contract from the Rajiv Gandhi Institute of Petroleum
Technology to construct their technical institute at Rae Bareli, Uttar Pradesh for
Rs 1.8 bn.
Contract worth Rs 960 mn from the Hyundai Engineering & Construction Co.
Limited for the Steel Structure, Equipment and Piping installation Works on
Habshan‐5 Utilities & Offsites Project in UAE.
Punj Lloyd Ltd. 2010
Contract from the Ministry of Health & Family Welfare for construction of
Medical College and Hostel Complex at AIIMS, Raipur for a value of Rs. 1150 mn
Contract by Nagarjuna Oil Corporation Ltd for installation of Inside Battery Limit
(ISBL) units and interconnection Pipe Rack at Cuddalore Refinery Project in
Tamil Nadu worth Rs 3200 mn
Net profit growth is impacted by lower than expected revenue growth, increase
in borrowings as well as higher depreciation and interest charges.
Risk
The earlier aggressive bidding by Punj Lloyd to secure projects has taken a toll on its
profitability.
Punj Lloyd has undergone huge increase in Working Capital during 2009 and 2010.
It’s mainly due to the nature of business. The economics of this sector are interesting. It
Punj Lloyd Ltd. 2010
is not capital intensive, but working capital intensive. It does not need huge capital
expenditure to set up manufacturing plants, etc., but it needs a lot of free cash to keep
the projects going. Approximately 15‐20 per cent of the billing value of a project is
locked up as Working Capital.
Delay at ONGC Heera project: Cost overruns in ONGC’s Heera Platform development
project due to design changes and increases in the scope of work. Punj Lloyd had
booked INR2.4bn of revenue or this cost overrun; however, the customer has yet to
agree to these escalations.
1. Sales growth for 2011 FY is calculated using the 2010 order backlog/ revenue
ratio multiplied by the order backlog reported by the company in the half
financial year of 2010‐11. Order backlog reported by the company is Rs. 28,500
Crore out of which around 30% is distressed because of its order status in some
projects being undergone in Libya. Due to rising costs and less than budgeted
completion full revenue as per percentage of completion cannot be realized. We
have assumed 20% less revenue recognition thus the order book amounts to Rs.
26790 Crore. This revenue is however assumed to be recognized by the
organization in the following year and thus the growth rate comes back to match
its CAGR figure over 5 years which is 30%
2. Growth in other income is around 1% which is a CAGR figure over the last five
years
3. Manufacturing expenses and operating expenses of Punj Lloyd have historically
amounted to 44% each of their revenue figures
4. Capital work‐in‐progress is assumed to grow at 10% which is the trend over the
last 5 years. Growth in Fixed assets is also commensurate to the revenue
increase.
5. Current assets and liabilities are assumed to grow\ (decline) at the same rate as
that of the revenue growth. Provisions are growing at the historical rate of 4%.
6. Average interest rate for the loan funds that the company is paying is 10%. This
is taken from the annual report.
7. Tax rate is used as 35% which has been the historical figure barring the last year
in which it was around 11% because of some amount of tax credit entitlement
Punj Lloyd Ltd. 2010
Key Financials:
Expenditure
Balance Sheet
2009 2010 2011E 2012E
Capital 61 66 66 66
R/S 2548 3511 3816.646 4084.732
Net Worth 2609 3577 3882.646 4150.732
Application of Funds
Gross Block 1541 1767 1967 2414.4
Less:Depreciation 469 587 727.025 891.3275
Net Block 1072 1180 1239.975 1523.073
Capital WIP 124 134 147.4 162.14
Finances
Creditors 2401 1904 1827.84 2376.19
Provisions 146 147 141.12 183.46
Current Liabilities 2547 2051 1968.96 2559.65
-
Cash Generated from operations -540.85 1156.52 1385.012 20.6401
income tax including fringe benfit tax -109 -113 167.7 147.5
Net cash from operating activities before EI -649.9 -1269.5 1217.3 -126.9
compensation under VRS 0 0 0
- -
Net cash from operating activities -649.85 1269.52 1217.294 126.853
Sector Comparison:
12
Employee cost as a percentage of
10
sales also almost 1.8 times more
8 Employee Cost for PLL than Sector average.
as % of Sales
6 (PLL) Whereas sector operates at
Employee Cost
average 5%, PLL operates at 8‐
4
as % of Sales 9%.
2 (Sector)
0
FY 06 FY 07 FY 08 FY 09 FY 10
Both Raw Material and Employee cost has impacted significantly the EBITDA Margin
Punj Lloyd Ltd. 2010
30.0
RoCE RoCE is Lower than sector due to
25.6 low EBIDTA margin
25.0 23.5
24.5 24.3
24.6
20.0 20.15
17.94 Sector
15.0
14.05 Punj Lloyd
12.19
10.0 12.59
5.0
0.0
FY 06 FY 07 FY 08 FY 09 FY 10
Punj Lloyd Ltd. 2010
Valuation:
Equity Valuation of Punj Lloyd
Source
Equity Beta Reuters 1.92
Risk Free
Rate CCIL 7.17
Market IESE Report: Avg of 22
Premium analyst 6.1
Cost of Equity 18.882