Punj Lloyd – Market Performer

Punj Lloyd’s (PLL) current order book of Rs219bn, 2x trailing twelve months revenues, will be executed over the next year.

CMP Rs116, Target Rs122, Upside 5.2%

Punj Lloyd’s (PLL) current order book of Rs219bn, 2x trailing twelve months revenues, will be executed over the next year. This coverage ratio has been steadily declining from 3.1x in Q4 FY07 to 2x now. Its order inflow has also fallen steeply by 31% during Q3 FY09 to Rs22bn, despite higher bidding activities by the company. 18% of its order is facing slippages, which adds to our concerns on the stock. 33% of its order book is from the infrastructure segment followed by pipeline at 32% and process plants at 31%.

Slowing investment activities in infrastructure development in some of PLL’s key markets and segments raises concerns about future order book growth. We expect investments in the oil E&P to remain subdued over the next 12-18 months as crude prices are currently lower than the breakeven price for new projects. We expect PLL’s revenue and earnings growth will be restricted to 5% and 4% CAGR over FY09-11 respectively. We believe it trades fairly at 8.6x FY10E EPS. We initiate coverage with Market Performer and target price of Rs122.

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