Punj Lloyd reported a good set of numbers for the quarter ended June 2008. Consolidated revenues surged 89.9% y-o-y, whereas EBITDA and adjusted PAT increased by 74.3% and 64%, respectively.

Though we expect EBITDA margin to move up in the medium term, the top-line growth is likely to slow down due to de-leveraging in the global banking system and a likely slowdown in the global economy.

The company has factored in a fairly aggressive commodity price and interest regime in the orders booked recently, which should shield the margins from any major downside risks in the near term.

Moreover, order inflows to SEC at EBITDA margin of 7–7.5% and the run-off of the low-margin legacy orders (currently Rs6,420 million) by the end of FY09 would help in pulling up the margins subsequently. Considering these factors, we expect EBITDA margins to increase to about 10.2% in FY10.

The stock has seen a 24% upside since our last report. We maintain our fair value estimate at Rs318 (WACC 16.5%, terminal growth rate 5.5%) as we do not see any significant changes in the Company’s fundamentals. As the stock is currently trading close to its fair value, we modify our rating from Buy to HOLD.