CMP: Rs240 Target Price: UR
Punj Lloyd (PLL) reported better than expected performance in Q1FY09 with (1) 12.2% growth in revenues (2) 50 bps yoy expansion in operating margins and (3) 30.3% yoy increase in adjusted net profits – as against our expectations of a decline. Order backlog increased 38.3% yoy to Rs379 bn led by robust order inflows of Rs100 bn (up 86.0% yoy and equivalent to 78.2% of FY10E order inflows). There was enhanced clarity on vulnerable orders worth Rs20 bn, hitherto facing client-led delays – but orders worth Rs17.7 bn (6.4% of order book) continued to face client led delays. Balance sheet quality continues to deteriorate with DER increasing from 1.0X to 1.3X. With 78.2% of expected order inflows received in Q1FY10, likelihood of new order inflows in H2FY10E and margin guidance at 9.5-10.5%, upside room to FY10E and FY11E earnings have materialized. With likely near-term equity dilution, we will review our earnings estimates and rating shortly. Consequently, we keep our rating and earnings estimates 'Under Review'
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