Punj Lloyd

Punj Lloyd - Key highlights.

Progress on adjudication proceedings against SABIC.
Post termination of the contract by SABIC Petrochemicals, Simon Carves had commenced adjudication proceedings against SABIC. Earlier SABIC Petrochemicals had argued that adjudication doesn't have the jurisdiction to decide the case. But the court has overruled this and final hearing is expected by third week of April, with likely decision expected to be announced within 2-3 days after the final hearing. Since client has also revoked the performance and advance bank guarantee to the tune of Rs 2.14bn, we have written off this amount as an exceptional item in the current fiscal financials on the basis of conservative accounting policy.

Certain orders of Punj Lloyd have been facing delays since Q3FY09 due to the credit crunch. Project worth Rs 18bn related to Integrated Condensate Splitter Aromatics Complex at Jurong Island, Singapore has still not achieved financial closure and is likely to be cancelled.The delays witnessed in these projects may likely have a negative impact on company's operating margins.

Valuations.

At current market price of Rs 115, Punj Lloyd is currently factoring in most of the negatives and is trading at attractive valuations of 7.9x P/E and 5.8x EV/EBITDA multiples for FY10. The core business of the company is valued at 10x its FY10 estimates earnings, which gives a target price of Rs 158 based on sum-of-the-parts methodology.