Punj Lloyd’s operating profit contracts, but stock rises

Punj Lloyd Ltd’s stock gained nearly 7% since Monday when the results were announced, closing at Rs 63 apiece on Wednesday. In fact, a series of new orders set the stock on an upward march from its 52-week low of Rs 37.55 in December.

Operationally, the firm has displayed better performance since the quarter ended June 2012. The December results signalled that concerns on jeopardised projects were easing. A big positive was a significant reduction in the auditor’s qualifications in key projects – ONGC (Heera) and Libya- which indicate that risks are on the ebb. For instance, according to the auditors, the risks from the Libyan project are down by Rs 400 crore to Rs 500 crore.

Meanwhile, strong order inflows translated into a 6% increase in order book to around Rs 28,270 crore, when compared with the preceding quarter. Assuming no problems in execution, this provides revenue visibility for more than two years. A little over half its order book comprises of large infrastructure and pipeline projects.

Stable execution led to a healthy 28% year-on-year (y-o-y) growth in revenue during the quarter. But, operating margin was down 400 basis points from a year ago to a wafer-thin 0.5% of sales, as contractor charges soared by 76%, in addition to an increase in staff costs and other expenditure. Consequently, operating profit contracted by a hefty 85% from a year before and 93% in the preceding quarter, to Rs 14.2 crore.

Says Shailesh Kanani, analyst, Angel Broking Ltd, “the company reported dismal performance on the margin front and its earnings came in black on account of higher other income (mainly foreign exchange gains), barring which it suffered losses.” A part of the other income (Rs 183 crore) during the quarter accrued because its engineering subsidiary, Simon Carves Ltd was deconsolidated from the accounts, as arbitration procedding against SCL entail severe long-term restrictions, which would impact the parent company too.

Punj Lloyd reported a net profit of Rs 70.3 crore, compared to a loss of Rs 62.1 crore during the same period a year ago. The receding risks on existing projects have lifted Punj Lloyd shares from the trough. But, it requires sustained revenue growth and profitability at the operating level to continue its upward trajectory.

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Also See

Upward march (PDF)

Quarterly performance (PDF)