Punj Loyd "A Screaming Buy"

• Punj Lloyd has reported a strong set of numbers for Q2FY2009 led by strong performance by both the stand-alone company and its subsidiaries. The net income from operations on a consolidated basis rose by 53.5% year on year (yoy) to Rs2,953 crore as against our estimate of Rs2,812.9 crore.

• The operating profit of the company grew by 52.8% to Rs299.4 crore resulting in an operating profit margin (OPM) of 10.1%. The strong operating performance at a consolidated level was also aided by an improved operating performance of the stand-alone entity. On a consolidated basis the OPM of the group was more or less flat (down 5 basis points) at 10.1%.

• During H1FY2009, the company has provided for Rs88 crore on account of foreign exchange (forex) loss, which has been provided for at the operating level. Of the aforesaid amount around Rs38-40 crore has been accounted in Q2FY2009, which has dragged the OPM of the company.

• The depreciation charge was up by 31.5% yoy to Rs43.8 crore while the interest charge went up by 24.6% to Rs49 crore.

• Consequently the net profit post the minority interest went up by 61.1% yoy to Rs144.1 crore as against our expectation of Rs132.1 crore. The profit though marginally above our estimate is sharply ahead of street estimate.

• The current unexecuted orders stand at Rs21,675 crore as on date as against Rs20,162 crore in Q1FY2009. The company bagged Rs5,600 crore worth of orders during the quarter.

• At the end of FY2008, the auditors had made qualification regarding cost over-run in one of the project being executed by PLL, provision for which has not been made by the company. The amount earlier stated at Rs194.8 crore has been increased to Rs221.6 crore. The management maintains that it would achieve breakeven level on the project.

• We continue to maintain Buy call on the stock. At the current markets price the stock trades at 9.5x and 7.2x FY2009E and FY2010E fully diluted earnings per share (EPS).