The considerable difficulties that still lie ahead of capital goods companies are illustrated by the March quarter results of Punj Lloyd Ltd. While consolidated revenues for the quarter were higher by 37% compared with the year-ago period, the company made losses after tax of Rs255.6 crore compared with a net profit of Rs117.7 crore in the same quarter of 2008. True, a large part of the loss was on account of further write-offs stemming from the dispute between Sabic UK Petrochemicals Ltd and Punj Lloyd’s UK subsidiary, Simon Carves Ltd, but even if we leave that amount out of the picture, the company has made a consolidated net loss.
What’s more, even after leaving out one-off exceptional items, the net loss in the March quarter is more than that incurred in the December quarter. Interest costs have more than doubled compared with the year-ago period. The company’s debt-equity ratio has worsened considerably. Operating margins too have come down.
The loss would have been even greater had the company not deferred the charge to the profit and loss account arising out of exchange differences which they can legally do under the Companies (Accounting Standards) Amendment Rules, 2009, notified on 31 March this year. The amount, which will now be amortized over the period of the asset/liability, is Rs46.29 crore. Another accounting change in respect of its branch operations in West Asia and North Africa has also led to another Rs38.86 crore being added to profits for the year.
Nor is the order book picture very bright. Here’s the trend on the company’s order backlog: on 30 September 2008, it was Rs21,675 crore, on 31 December Rs21,908 crore and on 18 May 2009, the backlog had shrunk to Rs20,803 crore. This could be a risk to future earnings growth.
While the losses from Sabic Petrochemical contract may be a one-off, a note from Citigroup says that the company has a history of contractual disputes. It says that the cases in point are, “1) IOCL–PIL; 2) GAIL; 3) Petronet; 4) Spie Capag Petrofac; and 5) Sabic. Management maintains that the nature of business is such that scope and design changes keep happening. This implies that similar problems cannot be ruled out in the future.”
It’s not a surprise, then that, on a day when the BSE Capital Goods index was up 6%, the Punj Lloyd stock went down 2%.
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