INITIATING COVERAGE

PUNJ LLOYD LTD

CMP: 52.10 TARGET PRICE: 49.99

BSE CODE - 532693 NSE CODE -Punj Lloyd

EXIT

TANUJ KUMAR 91-8103260263 [email protected]

INVESTMENT RATIONALE
Punj Lloyd is on the way of recovery since economic crisis. During this phase the company is severely tested by several extraneous factors other than market conditions. In 2011-12, the Company has done well in this highly competitive business environment. Punj Lloyd has been successful in growing its order book was 2.6 times the revenue of 2011-12. And, there has been a positive swing in terms of revenue growth and profitability. The total order inflows was Rs 13817 crore in 2011-12 taking the total order backlog by the end of 2011-12 to Rs 27276cr. Punj has indicated sustained order inflow momentum in ensuing quarters on back of pick-up in capital spends in hydrocarbon and social infrastructure sectors in the Middle East. In a short span of time, Punj Lloyd Infrastructure Limited (PLIL), the subsidiary that is focused on the development business has built an asset portfolio worth around Rs. 2,100 crore. Sembawang engineers limited one of the profitable subsidiary of punj Lloyd doing well focusing on specialized area of mega infrastructure with extensive presence in all over the world with increased revenue registering record profit before tax of $ 57.9 million in 2011-12. Currently punj Lloyd also wins its first offshore project in the Middle East Project worth Rs 314 crores ($ 57.75 million) in Saudi Arabia

COMPA NY DATA
Particulars
Market cap (Rs cr) Outstanding equity shares(cr) 52 week high /low(Rs) 2-monthaverage daily volume 1758.45 33.20 64.10/39 6136000

FINANCIAL SNAPSHOTS
Particulars Sales(Rs mn) Growth (%) Adj net inc(Rs mn) Growth (%) p/e(x) ROE (%) FY12 103.13 31 910 (2.7) 53.48 4 FY13E 113.20 10 210 (.76) 52.17 2 FY14E 127.26 12 240 .12 68.48 2

SHAREHOLDING PATTER N
% Promoters FIIS Bank & FIs Public march -12 37 9.78 6.75 NIL

KEY CONCERN
Increasing interest rates and absence of fixed annual sharing mechanism for recoveries and untimely cash payouts from the government adversely affect the profitability and working capital management of the company. High crude oil prices and weak rupee in term of US dollar resulted in reduction in investment cycle of the company.

STOCK PERFORMA NCE

Returns (%) Punj Lloyd Nifty CMP 52.10 5597 1mth (.05) .0038 2mth 3-mth .30 .0019 (.0018) (.05)

VALUATION
Using the discounted cash flow analysis FCFF We achieved intrinsic value of Rs 49.99 exit. We have a target price of 49.99 for the company, at which the stock would trade at 16.28 x on FY13-14e EPS. We initiate coverage on exit and target price of 49.99 an downside of 4% from the current level.

COMPA NY OVERVIEW
Extensive experience in diverse Area of infrastructure development

Punj Lloyd provides integrated design, engineering, procurement, construction and project management services in the energy and infrastructure sectors. With operations spread across the middle east, Africa, the Caspian, and Asian pacific and south Asia. Punj Lloyd provides EPC services in oil & gas, process, civil infrastructure, and thermal power. Further punj Lloyd is today a diversified conglomerate, owing to its successful foray into aviation, defense and upstream, through its subsidiaries and joint ventures. The company has worked on projects for international energy majors such as ADNOC, British Petroleum, Cairn Energy, Pertamina, Petrokazakhstan, Petroleum Development Oman, Shell, Total and Tengizchevroil as well as energy majors in India such as BPCL, CPCL, Dahl Power Company, Essar Refineries, GAIL, Gujarat Gas, HPCL, IOC, Jindal Power, Kochi Refineries, Nuclear Power Corporation, OIL, ONGC, RIL, NHAI, and DMRC. As reflection of the international quality standards, construction and project management techniques As a reflection of the international quality standards, construction and project management techniques, Punj Lloyd holds ISO 9001:2008,ISO 14001:2004 and OHSAS 18001:2007 certification.

BUSINESS SEGMENT

PUNJ LLOYD

CIVIL CONSTRUCTION AND INFRASTRUCTURE Commercial and residential building Industrial structure Airports InfoTech park Hospitals Hotel Stadium and sports complex Industrial projects

DEFENCE Land system Defense aviation Fabrication Production of aero structure Maintenance and repair of weapon

ENERGY Oil and gas Petchem Pipeline Tankage and terminals

POWER Thermal power Nuclear power

With unexecuted order book of 2.6 times of the revenue 2011-12 with 39% order book from south Asia and 23% from Asia pacific in which 37% is from building and infrastructure projects.

ENERGY In Punj Lloyds Largest vertical in punj Lloyd portfolio with 65% in Portfolio, with a share of revenue and 63% in unexecuted order book mainly spread across south 65% in revenues and 63% in Asia, south east Asia and middle east and Africa Also bagged the Myanmar unexecuted order book . china oil and gas pipeline project comprising 183 Kms of oil pipeline and 205 kms of gas pipeline .Company offshore order book is very robust in 2011-12 they bagged Rs 14000 cr new orders from India south east and Asia region.

FINANCIAL DETAILS OF ENERGY VERTICALS (I N CR)

Oil and gas Offshore Power Total Revenue % of the total 5113 48% 639 6% 1296 5% 1260 11% 3272 12% 7012 65% 17187 63%

Order backlog 12619 % of the total 46%

OIL AND GAS Punj Lloyds oil and gas business focuses on onshore field development projects, pipelines including offshore pipelines, process plants, and tanks and terminals. Within the process plants business, the Company also caters to the chemicals and petrochemical industry. ORDER BACKLOG OF OIL A ND GAS SECTOR (I N CR) pipelines Tanks Process &terminals plants Revenue 2565 933 1615 % of the 24% 9% 15% total Order 5068 1705 5846 backlog % of the 19% 6% 21% total

total 5113 48% 12619 46%

LISTS OF NEW ORDERS I N ENERGY IN MEA

DESCRI PTION
EPC Contract for Polysilicon plant Solar Grade Falcon jet fuel pipeline and bulk terminal facilities Field Development including wellheads and flow-lines

CLIENT
Qatar Solar Technologies (QSTec) Horizon Jabel Ali Terminals Ltd. (Dubai) Abu Dhabi Company for Onshore Oil Operations (ADCO)

COUNTRY
Qatar UAE UAE

VALUE
2,034 673 997

POWER With great scope in power deficit country like India as thermal power has been affected due to coal linkages, environment clearances and tariff related issues. As this makes one of the important vertical of Punj Lloyd but there is a reduction in companys activities but in nuclear power compa ny is playing fairly aggressive .In 2011-12 company bagged 2 new orders 600 mw thermal power project of haldia energy limited at Rs 1196 cr and 3*18 MW coal fired power plant sangatta Indonesia project at Rs350 cr. Nuclear power sector is going through phase of confidence re building in the wake of the Fukushima incident in Japan. In process of this punj Lloyd bagged projects kakrapara atomic power in Gujarat in Rajasthan for nuclear power Corporation of India limited with order value of Rs678 cr. expected to be completed by 2015.

CIVIL I NFRASTRUCTURE In civil and infrastructure vertical punj Lloyd limited focuses on the Indian market IN INFRASTRUCTURE as well as Middle East and Africa and its Singapore based subsidiaries in Singapore PUNJ LLOYD HAVE ORDER BACKLOG OF and he south east Asia region. Punj Lloyd Limiteds infrastructure business generated Rs. 4,270 crore of revenues and completed the year with an unexecuted Rs12098 CR order backlog of Rs. 12,098 crore in 2011-12. Punj Lloyd the jaipur bypass the Belgaum Maharashtra highway are few examples of the highway that they have delivered the golden quadrilateral

Financial performance of civil and infrastructure sector across different region(cr)

India Revenue % of total Order backlog % of total 1492 14% 4579 17% Mena 1 4002 15% Asia pacific 2279 21% 1508 5% total 3772 35% 10089 37%

Punj Lloyd also gained entry into railways sector , by winning a contract for rail siding work at anpara UP worth Rs 114 crore . Punj Lloyd is also bagged order for airport project worth 264 crore for building airport at paying, Sikkim. Company is also making effort in tapping market in overseas especially in Middle East, Africa and south East Asia for infrastructure. Punj Lloyd subsidiary sembawang engineers limited is one of its profitable subsidiary with core business in the urban infrastructure, building and environmental sectors. As part of efforts to diversify its business and to create recurrent income, Sembawang infused equity capital in April 2011. Its subsidiary, Sembawang Development Pte. Ltd., acquired a 50% stake in a thermal coal mine company in Central Kalimantan, Indonesia. SEMBAWANGS CIVIL I NFRASTRUCTURE & BUILDI NG PROJECTS EXECUTED OR UNDER EXECUTION IN 2011-12 Project Client Approximate contract value
Mass Rapid Transit (MRT) Downtown Line 1 Project C906, Singapore Construction and completion of Bay front Station and associated tunnel works Mass Rapid Transit (MRT) Downtown Line 2 Project C919, Singapore Construction and completion of Botanic Gardens Station Construction and completion of Aquarius Hotel, ESPA, beach villas, an oceanarium and a water theme park. Land Transport S$463 million Authority of Singapore Land Transport S$378 million Authority of Singapore Resorts World S$419 million Sentosa Pte Ltd

INVESTMENT RATIONALE Punj Lloyd has actively worked on diversifying its business in this region. In terms of service line, it became the first company to have received an award for a solar grade polysilicon manufacturing plant in the region. Polysilicon is a critical raw material for solar panels that go into the generation of solar power. There is high potential for further investments in solar power development especially in Qatar and Saudi Arabia. In CURRENT ORDER BOOK Punj Lloyd current order inflow for terms of geography, the Company is intensifying Mits FY2012 was Rs 13817 crore which foray in Africa to relatively more stable countries in East is 38% higher than FY2011 and Rs Africa and West Africa and India they have plenty 2854 crore for FY2013 opportunity to invest in solar power India has historically been a power deficit country and the demand for power will continue to grow as does its GDP so there is ample opportunity for investment. As relatively low order book at the beginning of the year revenue is out of the line

with the high capital investment. The aggressive efforts in securing new orders done in the last couple of years has started bearing fruit and good visibility of revenue in the next few years in 2011-12 punj Lloyd successes to secured new orders of worth 14000 cr.

Unexecuted order book

5% 21%

6%
12%

offshore tankage power

19% 37%

pipeline
telecom 0% building &infra

The punj Lloyd bagged order of 500 cr the Singapore government on Monday. Richard Grosvenor, president and CEO of Sembawang Engineers & Constructors, the associate company in joint venture with Punj Lloyds explains that the USD 100-million projects is of a plain-vanilla type and the company will start to book revenues from Q1 of calendar year 2013. The existing order book is expected to be executed over the next two years. We Expect that given the concern on private sector capex, Punj Lloyd will be shifting its focus. To government driven infrastructure projects

The Companys order backlog stood for FY2012 at Rs27109 crore as against Rs 20677 cr in FY 2011 in which 70% of business is overseas but due to good order inflow in FY2012 company order backlog is much better than as compared to previous year.

ORDER BOOK UPDATE

Won a project worth Rs. 1,195 crore from Haldia Energy Limited, a wholly-owned subsidiary of Calcutta Electric Supply Company to boost the power supply in Kolkata and its suburbs Won a civil contract valued at Rs. 210 crore from NTPC Ltd. Won a contract worth Rs. 678 crore from the Nuclear Power Corporation of India Ltd. Secured a submarine pipeline project worth Rs. 825 crore from the Gujarat State Petroleum Corporation in an exploration block on the eastern coast of India. Bagged a contract from GMR worth Rs. 1,050 crore for the design, engineering, procurement and construction of the six-lane Chittorgarh-Udaipur bypass in Rajasthan, over a length of 124 km. Won a tender from Kolkata West International City to construct 194 villas in a satellite township in West Bengal. Won a contract for Rs. 1,300 crore from Delhi Police for developing its Police Residential Complex and Commercial infrastructure . Won a Rs 826-crore contract from Gujarat State Petroleum Corporation (GSPC) for a submarine pipeline project in an exploration block on the countrys east coast schedule to

completed by April 2013. Bagged a road contract worth Rs 285 crore in Kenya, in a joint venture with Index construction limited. Won a contract from the Emirates national oil company (ENOC) worth Rs. 623 crore to set up the Falcon jet fuel pipeline and bulk terminal facilities. Punj Lloyd wins its first offshore project in middle east worth Rs 314 crore on 15 march 2013

FOCUSED ON ENERGY SECTOR As the punj Lloyd energy portfolio has share of 65% revenue and 63% unexecuted order book and spread across all geography so have concentrate on this sector to generate revenue as many current orders are from offshore project .As project spread across south Asia, south east asia, middle east and Africa and they are split between government and private orders which helps to stabilizes margin in long run. ORDER INFLOW TO REMA IN ROBUST We expect strong trend in order booking to continue , considering that project often secured by the lowest bid at price including the project given by NPCL punj Lloyd was the lowest bidder worth Rs 180cr.In addition we believe that punj Lloyd benefit from the governments thrust on infrastructure development. The government is planning to double the investment s in infrastructure to almost USD 1 trillion during 12 th five year plan as compared to 11 th five plan throwing open large opportunities in this segment. Private and PPP investments are estimated to have accounted for a little over 30.0 per cent of total investment in infrastructure in the Eleventh Plan. Their share may have to rise to 50.0 per cent in the Twelfth Plan which provides opportunity to private epc segment to flourish more. ABILITY TO TAKE O N BIG PROJECT S As company is able to make big ticket project due to diversified work, strong presence globally and strong equipment base globally which can be readily mobilized. Delivering the quality and standards services to the client and to complete them ahead of schedule make them to take offshore and big ticket projects. The follows the joint venture route to bid for large projects and to meet pre qualification criteria.

RISING CAPEX WOULD DRIVE OPERATIONAL EFFICIENCY Punj gross block has raised from Rs 3364 cr to Rs 4145cr as the company Higher capex on equipment will has significantly ramped up its capital expenditure on equipment. This lead to substantial cost saving. translates to savings on equipment hiring charges and also bolsters operating efficiency. The investment into new segments warrants different types of equipment and we expect to grow capex by 48% by FY2013-14 due to strong order book and healthy execution which in turn drives revenue. Higher capex on equipment will also reduce sub contracting requirement and help to maintain margins with an upward bias in the prevailing competitive scenario.

CONCERNS
RISK At each stage company has to manage the risk. In dynamic market has to led risk like in emerging market south Asia, south east Asia, and MEA where punj Lloyd as strong presence and market are very competitive due to European slowdown which results into high intensity competition between peers. INTEREST RATES Benchmark interest rate increased from 5.5% at the beginning of 2011-12 to 7.5% by March end 2013. This increase in interest rates has significantly increased the cost of capital. Punj Lloyd is actively tightening its cash management to release as much capital as possible and is also exploring options of global sources of capital and also affects the capacity expansion plan and the investment. GEOPOLI TICAL RISK Many of the new opportunities are in under-development markets like Africa and Libya turmoil where there are often very unstable political, social or economic conditions. Implementing long term projects in such an environment of uncertainty is fairly risky for the project executors. INFLA TION India remains a country with supply side condition trailing demand generation. Consequently, there has been a sharp rise in prices across the board but primarily in basic commodities. Inflation directly affects the Company in terms of higher costs, which may not be directly passed on to the client. As inflation in FY13 recorded 6.86 as compared to 6.56 in previous year.

SWOT ANALYSIS

Strategic alliances with large construction and engineering companies. Global presence with new establishment in 3 countries. Strong order book well equipped with certification. Engages in various CSR activities. strong network Strong equipment base

Exposed to uncertain political and economic environments, government instability and legal systems. The company is into capitalintensive segments and the higher depreciation costs and interests costs keep its net margins low. Dont have consistensy in operation and making revenue

STRENGTH S

WEAKNESS ES

OPPORTUN ITIES
High level of investments expected in the defence area. More investment in civil infrastruction project will help to boost revenue. More concentration on pipeline project in offshore as large quantum of money coming into oil producing nations mainly Middle East countries which will translate into multiple increases in its own capex in Oil and Gas sector.ore countries will help

THREAT
The fixed annual sharingmechanism for under-recoveries and the uncertain timing of cash pay-outs from the government adversely affect the profitability and working capital management. Business is exposed to commodity price volatility as a sharp increase in raw material prices may impact margins. As a major portion of revenue of the company is from outside India. Sharp fluctuation in currency may impact profitability

FINANCIAL OUTLOOK

Revenues to grow at 16.30% CAGR over FY13-19E

Expect revenue CAGR of 16.30% over FY13-FY19E We expect punj Lloyd revenues to grow at a 16.30% CAGR over FY13FY19 to Rs 13113.75 Cr. driven by strong order momentum in all Segments. The company has witnessed continuous order accretion over the past year, the most recent being projects worth.

VALUATION PEER COMPARISON

Company L&t ivrcl Punj lloyd Order book/sales 10.41 17.52 24.602 EBITDA Margin (%) 14.3% 9.1% 52 M/Cap/sales 1.54 0.102 0.299 P/Bv(x) 3.29 0.28 0.46 FY13E P/E (x) 53.48 FY14E P/E (x) 50.49

GRAPHICAL REPRESENTA TION

100000

10000

10,312.92

11,320.00

12,726.00

14,306.00

1000

653

895

1006

1131 OPERATING PROFIT(IN CR)

NET INCOME(IN CR)

100 92 24 27 SALES(IN CR) 22

10

1 2012 2013E 2014E 2015E

EBITDA MARGIN(%)
18 16
14 12 10 8 6 4 2 0 2012 2013e 2014e

16.5

13.3

13.04

EBITDA MARGIN(%)

Target of 49.99 represents the downside of 4% exit

Using the discounted cash flow analysis FCFF target price of Rs 49.99 exit. We have a target price of 49.99 for the company, at which the stock would trade at 16.28 x on FY13-14e EPS. We initiate coverage on exit and target price of 49.99 an downside of 4% from the current level. STOCK PERFORMANCE

CONSOLIDA TED FI NANCI AL PROFI T AND LOSS ACCOUNT (I N CR) Fy12 Revenue %growth ebidta Growth % depreciation ebit Growth% Interest Other income ebt tax Effective tax rate% Adjusted net income Growth% Extra ordinary items Reporter net income Growth% Share outstanding Basic eps fdeps dps 0.15 0.15 0.15 0.15 0.15 3.38 0.65 0.73 0.82 0.92 193.12 112.39 -291% 75.77 44.09 -61% 85.17 49.57 12% 95.75 55.72 12% 107.64 62.64 12% 10,784.04 31.86% 1,124.35 51.9% 298.73 825.6 75.3% 632.5 471.12 193.12 80.73 7% Fy13e 11665.31 8.17% 1,239.46 10.2% 349.27 890.2 7.8% 814.42 344.41 75.77 31.67 3% Fy14e 13113.73 12.42% 1,393.36 12.4% 392.64 1000.7 12.4% 915.54 387.17 85.17 35.60 3% Fy15e 14742.00 12.42% 1,566.36 12.4% 441.39 1125.0 12.4% 1,029.22 435.24 95.75 40.03 3% Fy16e 16572.4 3 12.42% 1,760.85 12.4% 496.20 1264.7 12.4% 1,157.02 489.28 107.64 45.00 3%

BALA NCE SHEET Fy12 Cash And Cash Eq Account Receivable Inventory Others Current Assets Current Assets Long-Term Investment Net Fixed Assets CWIP Intangible Assets Other Assets Total Assets Account Payable Others Current Liabilities Debt Funds Provision Equity Capital Reserves Shareholder Funds Total Liabilities Bvps
973.15 2,421.29 6,218.10 9,612.54 370.69 2,786.96 266.89

Fy13e
967.30 2,657.95 6,904.94 10,530.19 457.67 2,878.11 273.30

Fy14e
1,076.61 2,987.97 7,762.29 11,826.87 514.49 3,055.99 307.23

Fy15e
1,124.79 3,358.97 8,726.09 13,209.85 578.38 3,255.96 345.38

Fy16e
1,179.67 3,776.04 9,809.56 14,765.26 650.19 3,480.76 388.27

7,951.25

8,549.67

9,420.96

10,325.74

11,343.57

6,452.64 4,944.39 188.56 66.42 2,853.79 66.42 7,951.25

7,083.32 5,516.67 213.67 66.42 2,869.56 66.42 8,549.67

7,962.82 6,193.82 240.20 66.42 2,888.00 66.42 9,256.92

8,951.52 6,955.04 270.02 66.42 2,909.45 66.42 10,052.71

10,062.99 7,810.79 303.55 66.42 2,934.29 66.42 10,948.03

CASH FLOW STATEMENT Fy12 Net Income Depreciation Other Adjustment, Net Change In Working Capital Cash Flow From Operation Change In Investments Loan & Advances Cash Flow From Investing Free Cash Flow Dividend Paid Cash Flow From Finance Opening Cash & Cash Eq Closing Cash & Cash Eq 112.39 298.73 -887.57 363.82 13.03 -445.42 -857.09 -150.42 251.48 1214.95 973.16 Fy13e 44.09 349.27 -446.83 -218.75 -86.98 -152.02 -353.58 -5.79 566.49 973.15 967.30 Fy14e 49.57 392.64 -440.42 -226.31 -56.83 -212.00 -335.75 -5.79 671.36 967.30 1,076.61 Fy15e 55.72 441.39 -570.52 -254.41 -63.88 -238.32 -452.85 -5.79 755.44 1,076.61 1,124.79 Fy16e 62.64 496.20 -641.36 -285.99 -71.81 -267.91 -509.08 -5.79 849.95 1,124.79 1,179.67

FINANCIAL RATIO Fy12

Ebitda margin (%) Ebit margin (%) Net profit margin (%) Fdeps growth (%) Receivable (days) Inventory (days) Current ratio(x) Quick ratio(x) Interest coverage ratio(x) Debt/equity(x) Roe (%) Roa (%) Roce (%) Ev/sales(x) Ev/ebitda(x) P/e(x) P/bv(x) 16.50 0.077 0.0109 107 245 1.49 0.526 1.305
1.7

Fy13e
13.03 0.076 0.0039 108 266 1.48 0.51 1.09
1.9

Fy14e
13.03 0.076 0.0039 108 264 1.48 0.51 1.09
2.1

Fy15e
13.03 0.076 0.0039 108 264 1.47 0.50 1.09
2.3

Fy16e
13.03 0.076 0.0039 108 264 1.46 0.49 1.09
2.6

0.04 0.34 0.55 0.58 5.35 53.48 1.0

0.02 0.35 0.61 0.56 5.16 52.17 0.2

0.02 0.36 0.69 0.53 4.86 68.48 0.3

0.02 0.37 0.82

0.02 0.38 0.99

0.3

0.3