Punj Lloyd Ltd (PLL) appears to be caught in a web of project execution delays and resultant cost overruns, which have hit profit in the March quarter. The firm reported a consolidated net loss of Rs301 crore, 18% more than Rs256 crore it lost in the year-ago period. But the only reason the loss was minimised this time was a gain of Rs307 crore arising out of a stake sale in Pipava Shipyard Ltd.
Mounting losses seen in the last couple of quarters are mainly due to delays in a few large and critical projects. PLL’s UK subsidiary, Simon Carves Ltd (SCL), after providing for liquidated damages (LD) of Rs160 crore in construction of a bio-ethanol project, posted a loss of Rs400 crore. Meanwhile, delays in the execution of an ONGC contract have led to LDs of Rs65.5 crore, which the firm has not provided for. It hopes to recover the amount as the delays were not from PLL’s end. What’s worse is that the firm has accounted for about Rs240 crore revenue from an ONGC contract, which the latter is yet to accept.
Graphic: Yogesh Kumar/Mint
This apart, analysts say the company has been slipping on execution of even some of its road projects in India. Again, PLL has had delays in three of its utilities’ contracts in Libya, which total around Rs1,000 crore. While sources in the company say the delays are from the client’s end, it will in the interim impact revenue booking and profitability.
In fact, the March quarter revenues for PLL at Rs1776 crore were down 45% on a year-on-year basis and about 39% sequentially. The firm posted an operational loss of around Rs515 crore during the quarter too.
Given these factors, it appears that there isn’t much going for PLL. Cost overruns on the ongoing projects could spill over into the next couple of quarters. Perhaps, PLL has not been able to effectively manage its international operations, which, during fiscal 2010 accounted for about 70% of its consolidated revenue of Rs10,874.9 crore.
Working capital requirements have accordingly ballooned, particularly from the second half of fiscal 2010. It is expected to rise further in the first two quarters of the current fiscal. Consolidated debt as of 31 March, 2010 was about Rs4450 crore. Analysts’ consensus is that the company’s debt:equity ratio could rise in the near term to around 1.5, with a possible reduction thereafter.
True, PLL has a strong order book of Rs27,770 crore, which is around 2.6 times its fiscal 2010 revenue. But severe competition in future areas of focus, mainly urban infrastructure, could see pressure on margins. The dismal performance in the last couple of quarters has raised doubts about the company’s execution capabilities. The share has dropped 16% to Rs 115 since its results were announced. Despite being the second largest turnkey engineering company in India with a presence in several countries, the medium term outlook for PLL is far from inspiring.
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