Punj Lloyd (Punj) has completed its QIP placement with the issuance of 2.8 crore equity shares at Rs240.2/share (a premium of Rs238.2/share), raising funds to the tune of Rs670 crore.
The overall equity dilution post this QIP placement would be around 9.2% and the company’s total equity share capital would be Rs66.3 crore.
The management has categorically stated that it would primarily be utilising the QIP proceeds to strengthen its financial position, along with the option to use the funds for the likely acquisition of capital assets and equipment, augmenting working capital, investing in new initiatives, collaborations and joint ventures, among others.
However, this money raising would entail an Earnings dilution, as the incremental per share saving would be lower than earlier EPS estimates.
Therefore, we are estimating earnings dilution of 4.1% and 3.8%, and our revised EPS stands at Rs11.7 and Rs20.5 for FY2010E and FY2011E, respectively.
On the Leverage front this QIP issue would help Punj de-leverage its Balance Sheet, and we are expecting Punj to maintain its Debt at current levels in FY2010E and see a marginal increase in FY2011E to Rs3,852 crore.
The Debt to equity, post QIP, would stand at 1.0x and 0.9x, as against 1.5x and 1.3x in FY2010E and FY2011E, respectively.
We are expecting that the money raising would lead to a depression of the RoE’s on two accounts: 1) The money raised would remain idle for some time, and 2) The benefit of financial leverage would reduce due to a higher equity contribution to the overall capital employed.
We are expecting the RoE’s to be around 17- 18%, as against our earlier estimate of 20-21%, for FY2011E. The QIP Placement substantiates the management’s strong resolve to de-leverage its Balance sheet and thereby save on Interest costs.
Further, it would also improve Punj’s liquidity position and increase its networth, in turn enhancing its bidding ability, foray into different growth areas and augment the Top-line growth going ahead.
At Rs231, the stock is trading at 11.2x FY2011E EPS and 1.8x FY2011E P/BV. We have valued Punj’s construction business at 14x P/E FY2011E EPS.
We continue to value Punj investments in Pipavav Shipyard at 1x equity, contributing Rs10.6 per share (Rs12.0 earlier) 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 FY2011E, translating into Rs9.6 per share.
Our SOTP Target Price is Rs289, based on FY2011E numbers, translating into a potential upside of 24.7% from the current levels.
We maintain a BUY on the stock, with a revised target price of Rs289 (Rs299).