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Punj Lloyd: better results, but the past haunts valuations

Punj Lloyd: better results, but the past haunts valuations
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First Published: Tue, Aug 16 2011. 10 18 PM IST
Updated: Tue, Aug 16 2011. 10 18 PM IST
Construction firm Punj Lloyd Ltd has not yet steered clear of the controversy and litigation that has bogged down performance over the last two years.
But over the last six months, it has gradually cut losses through improved project execution. June quarter revenue grew 30.6% from a year ago, though it was lower than in the March quarter, which is typically the best for construction firms.
Operationally, efforts to reduce costs have seen lower staff expenses, contractor charges and other expenses as a percentage of sales, when compared with the year-ago period. But raw material costs shot up during the quarter.
Consequently, profitability fell, although thanks to higher revenue that provided operating leverage, the operating margin for the quarter was slightly better than the year ago. Operating profit also rose about 34% during the period.
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Yet, the past continues to haunt overall performance. Project delays—some on account of political and administrative problems overseas, as in Libya—and the resultant cost overruns, and debtors’ outstanding pending litigation have, in turn, strained the financials of Punj Lloyd.
Interest costs were up 40% year-on-year and about 15%, quarter-on-quarter, obviously hurting cash flows. It registered a net loss of about Rs 12.4 crore, which is lower than that registered a year ago.
Analysts say that high tax rates hit profitability as projects are spread across multiple subsidiaries and losses in one cannot offset the tax in profitable units.
Punj Lloyd’s order inflows during the quarter rose 3% from a year ago. However, the order backlog contracted 6% to Rs 23,900 crore. But about one-fifth of this is in Libya, where troubled political and economic conditions continue to hit operations, with losses mounting and payments outstanding from the client. In fact, the biggest hindrance to valuations is the numerous qualifications by auditors that suggest financial risk at this juncture.
Last month, the company announced that it would withdraw any further financial support to its UK unit.
The Street, however, has not been impressed by the firm’s performance, which was a shade better this quarter as revenue grew and losses were lower. After underperformance against the CNX Nifty index for several quarters, its shares fell sharply by 10% on Tuesday to Rs 56.10. The results seem to be masked by the negative sentiment that shrouds the firm, given several unresolved issues.
Graphic by Ahmed Raza Khan/Mint
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First Published: Tue, Aug 16 2011. 10 18 PM IST