Tuesday, March 4, 2008

Punj Lloyd: A real gem

Engineering & Construction (E&C) major Punj Lloyd has corrected by 40% from its high of Rs 585 to Rs 350. The stock seems to have fallen out of investor’s radar. Bad news or is it a good news in disguise??? The company needs no introduction but for starters, here is one.

Punj Lloyd is an Indian E&C company catering to the hydrocarbons and civil construction sectors across India, Asia and the Middle East. Its services include laying pipelines, building roads, and constructing refineries and tankages, power plants, and other infrastructure facilities.

Last year, it acquired Sembawang Engineers, which helped it scale up its expertise to upstream oil & gas, airports, jetties and tunneling. The acquisition enabled Punj Lloyd to be pre-qualified for larger and more complex project bids.

For the quarter ended 31 December 2007, the company recorded exceptional one time loss of Rs 68 crores on the back of legacy orders of Sembawang Engineers. However consolidated figures were up by 48% for Net sales and 13% for Profit after tax. Moreover, standalone numbers were inline with profit margins intact.

The company is one of the promoters of Pipavav Shipyard Ltd (PSL) holding 25% equity stake. PSL is proposing to enter capital markets with an IPO in near future.

Punj Lloyd is perhaps the only mid-cap Indian construction company that can give L&T a run for its money. The company has an order backlog of Rs16000 crore, largest after BHEL and L&T and provides visibility of two years' revenues.

It’s not everyday that a company like Punj Lloyd is available at such valuations (TTM PE multiple of 32 at current price). We believe that accumulating the stock at Rs 330 would be a great buy.

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