Punj Lloyd: Mounting problems

Last Updated: Mon, Mar 08, 2010 19:50 hrs

Project delays continue to haunt the company as customers claim huge damages.

UK-based Ensus has sought £23.1 million (around Rs 160 crore) as liquidation damages from Simon Carves, Punj Lloyd’s 100 per cent subsidiary, due to late completion of its bio-ethanol project. While the £160-million order was booked by Punj Lloyd after its acquisition of Simon Carves in 2006, the work on this project began in the first quarter of 2007-08. It was scheduled for completion by early 2009.

Religare Hichens Harrison’s analysts say, "From the outset, the project has been beset by delays, owing to low productivity from UK labourers and sub-contractors and adverse weather conditions. Though the timeline for completion was extended to December 2009, the company failed to comply with the same. It was finally completed in January 2010." Punj Lloyd has blamed sub-contractors and plans to contest the claim.

The recent case of Punj Lloyd being asked for damages is nothing new. It has incurred cost overruns amounting to around Rs 300 crore on the project in the first nine months of 2009-10, suggest analysts. Post this liability, HSBC analysts expect Punj Lloyd to report a loss in 2009-10.

Growth in consolidated revenues has been decelerating since the last five quarters and profits have been far from impressive during the period (barring the June 2009 quarter). Going forward, analysts do not rule out the possibility of further write-offs from delays due to design changes in an ONGC order, Rs 9,850 crore worth of orders from Libya and the Rs 570-crore PTT contract. Since Libya accounted for 43 per cent of the order book (worth Rs 23,400 crore) at the end of December 2009, any delays in the projects could impact earnings, they said.

Punj Lloyd’s stock shed nearly 2 per cent post the announcement (on March 3) to Rs 178.35. It closed at Rs 185.25 yesterday, and currently trades at 14.8 times 2010-11 earnings according to consensus analysts’ estimates. While analysts are not positive on the stock, they say better execution and steady financial performance for the next few quarters will be the key triggers for re-rating the stock.

With inputs: Puneet Wadhwa & Jitendra Kumar Gupta

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