Stock Review: Punj Lloyd

 

After lagging behind the benchmark indices for a year, the stock of midsized infrastructure firm Punj Lloyd has attracted investor attention once again. The stock has gained 21% in the past one month alone compared with a meagre 1% return of the ET Construction index.

The scrip's stellar performance is due to a turnaround in its financial performance, after a turbulent phase in its operations during the past two years. Though its revenue grew at a compounded annual growth rate of 16% over the past three years, its profit was hit due to cost over-runs related to project delays. During the quarter ended March'11, Punj Lloyd registered a net profit of . 17 crore compared to the loss of . 300 crore a year ago.

This was due to high non-operating income besides an improvement in revenue from its overseas subsidiary due to shelving of a few less profitable projects. The company earned a margin of 4% on its operations. It had reported an operating loss in the comparable quarter of the previous year.

 
Punj Lloyd has operations in verticals such as oil and gas, infrastructure, and power. The acquisition of SEC and Simon Carves in 2006 helped in expanding Punj's business portfolio with the inclusion of the urban infrastructure and process verticals. It had an order book size of . 22,805 crore as of May 2011, which was over 2.8 times its FY11 revenue. Close to three-fourth of this is attributed to the industrial infrastructure sector making it one of the biggest players in the segment. The rest of the orders are related to process pipeline and tankage construction projects.

The order book is widely spread between Asian and African countries. Of the total pending orders, close to half belong to the African market while South Asia will contribute the rest.

The company has booked losses on non-profitable projects. Its projects in Libya have started functioning, which is a positive sign for the company.

Due to this, the company was able to record a turnaround in performance in the March quarter. However, given its history of execution delays in the past two years, investors will have to wait to confirm whether the growth momentum in earnings will continue.