Punj Lloyd (Punj) is an infrastructure conglomerate diversified across the verticals of pipeline-laying works, tankage construction, process plants and general infrastructure works.
Punj has secured an order worth Rs275.8 crore from IndianOil Petronas Pvt. Ltd for the design, engineering, construction, installation and testing of an LNG import terminal at Ennore in Tamil Nadu.
The Order Book of Punj Lloyd, after bagging this, stands at approximately Rs31,428 crore, or 2.4x its FY2010E revenues. We believe that Punj is set to become a player of reckoning in the domestic and global infrastructure spaces, due to its geo-segmental diversified operations. The company’s diverse operations have, to a large extent, not only insulated it from any potential slowdown, but also helped it gain experience in niche areas.
We are optimistic about the company’s future growth prospects and estimate it to cross the US $5bn mark on the Top-line front in the future. At Rs268, the stock is trading at 13.1x its FY2011E EPS and at 2.1x FY2011E P/BV. We have valued Punj’s construction business at a 15x P/E on its FY2011E EPS, at a marginal premium to other mid-size construction companies like IVRCL Infra and Nagarjuna Construction, as we believe that Punj deserves a premium over these midsize companies, owing to its scale of operations and its diversified presence.
However, we have assigned a mere 10% premium, to be on a conservative basis, since Punj has a history of litigations and its top-line growth is expected to be subdued in the near future.
We continue to value Punj’s investments in Pipavav Shipyard at 1x equity, contributing Rs11 per share to our target price. Based on the current market price and our target price, we do not expect the FCCB to get converted.
Therefore, we have assumed a liability of Rs317cr in FY2011. Our target price is Rs310, based on FY2011E numbers, translating into a potential upside of 15.5% from the current levels. We maintain a BUY on the stock.