We retain our ?underperform? rating on Punj Lloyd and cut our FY14 and FY15 earnings by 43 and 50%, respectively, on account of lower revenue estimates. This also gets reflected in our target price, which is lowered to R17 (from R44) due to lower Ebitda and higher debt.
Balance sheet remains a key concern. With extremely low RoE (3% in FY14e), high leverage and low interest coverage (1x), we do not see any compelling reason to own the stock. We believe a significant reduction in debt levels is paramount for any re-rating.
Punj?s Q1FY14 results were ahead of our estimates on account of higher-than-expected revenues and margins. However, a declining order book, stretched balance sheet and continuing losses in international projects remain key overhangs.
Order book in Q1 declined 20% y-o-y and 7% sequentially. The book to bill ratio has come down to 1.8x (from 3.0x in FY12). Also, in the current environment, we remain worried about the quantum of slow moving orders in the book. The Saudi Arabian subsidiary made a loss of R97 crore in Q1. The Sembawang top line was R300 crore with PBT of R1 crore. Punj has been facing losses in hydrocarbon projects in various geographies in the last three years, putting a question mark on margin revival.
Punj reported Ebitda margin of 8.9% despite a R76-crore forex loss and R97-crore loss in Saudi Arabian subsidiary. We are already building in 10% Ebitda margin for FY14/15. We are building in 10% and 8% revenue growth in FY14 and FY15, respectively.