Our thesis of weak order inflow from oil and gas / petrochemical industries has played out. The company has disclosed new orders of approximately INR18.8b in 3QFY09, down 56% y-y.
Additionally, international orders declined 57% y-y. We believe new orders will be weak in the next 12-month period.
We estimate a decline of 22.4% y-y for new orders in FY10. There is also further evidence of a global slowdown in the petrochemical industry.
Our FY09E and FY10E EPS estimates have declined by 9% and 41%, respectively, due to lower order inflow assumptions.
SABIC has terminated its contract with Punj Lloyd (Punj) and is seeking liquidation of the performance bond and advance payment bond for a total of GBP28.5 million.
Punj may incur additional cash charges of GBP28.5 million (Rs2.1 billion) if SABIC succeeds in its claims.
We have not included this claim in our estimates; however, we now include the provision for an Rs3 billion loss (before tax) that should have been included in the FY08 results (qualified by the auditor in FY08). This loss reduces our FY09E EPS estimate by 55%.
We have lowered our target price from Rs146 to Rs86, which implies a 25.4% downside from current levels. Our Rs86 target price is based on 9x our FY10E consolidated EPS estimate of Rs9.54. We maintain our valuation multiple.