Why You Should Buy and Accumulate Punj Lloyd
The stock of Punj Lloyd has declined 20 per cent over the last four months. Weak market sentiment rather than any significant change in the company’s fundamentals appears to be behind the decline. The company’s financial results for the year ending March 2008 reinforce the company’s strong earnings prospects.
We reiterate a buy on the stock of Punj Lloyd. Investors who entered the stock at higher levels can also consider accumulating it on dips. At the current market price of Rs 273 the stock trades at 13 times its estimated consolidated earnings for FY-10.
A huge ramp-up in order book, entrenched position in key markets and presence in segments such as oil and gas, that hold huge business potential, underpin our recommendation.
The company’s recent financial performance also indicates that the company is no longer mired by the low-margin legacy orders of subsidiaries and is well-placed to move ahead.
Punj Lloyd’s current order book of Rs 19,600 crore has grown five-fold over its size at the time of its IPO in December 2005. The company has also been striving to move to big ticket orders that would help achieve better economies and margins.
A recent project worth over Rs 2,000 crore bagged by the company suggests that it may be making headway in targeting orders valued at $1 billion or more.
The current order mix continues to be tilted in favour of projects related to the oil and gas sector, while civil and power infrastructure projects account for about 35 per cent.
Punj Lloyd has made rapid strides not only in moving into new regions, but also in entering related business domains by acquiring the necessary capabilities through buyouts. Acquisitions and strategic stakes in companies have helped the company scale up its execution capabilities for large-sized orders and enter into new domains, within a short span of time. The company’s acquisitions have been primarily driven by the need to attain pre-qualification in new/larger projects.
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