Punj Lloyd's announcement that it has acquired a coal mine in Indonesia through its foreign subsidiary and the redemption of foreign currency convertible bonds at a cost of Rs 275 crore have done little to cheer the company's stock.

Concerns over Punj Lloyd's order backlog in turmoil-hit Libya have pulled down the stock a good 30 per cent in 2011 so far. While the stock has seen a short relief rally in recent times, it ended 2.5 per cent lower to close Monday's trade at Rs 72.3.

Repayment not significant

Punj Lloyd's zero-coupon $125-million FCCBs, issued in FY-07, were due for repayment in 2011. While 60 per cent of the bonds were converted into equity by shareholders earlier, the balance were repaid by the company as the low market price may have made conversion unattractive. The market price has been way below the conversion price of Rs 272.5 (post-share-split) for a while now.

Punj Lloyd's redemption did not appear too difficult as the company has been providing for premium on redemption in its balance sheet. Besides, its cash balance of Rs 1,184 crore as of September 2010 was sufficient to redeem the remaining 40 per cent of FCCBs. The Rs 275 crore repaid is only about 6 per cent of the company's total debt and is, therefore, unlikely to provide any significant relief on the leverage front.

Bigger worry

Punj Lloyd's bigger worry remains the outstanding order backlog in Libya. The country accounts for well over a third of Punj Lloyd's total order backlog of Rs 27,780 crore.

Of the Rs 9,500-crore of orders outstanding in Libya, Punj Lloyd has been troubled by a non-moving order backlog of Rs 6,000 crore (orders of its subsidiary Sembawang Engineering & Construction) for a year now. The company has stated that it may remove the same from its order backlog in the first quarter of FY-12 if there is no traction in work. After the political turmoil in Libya, the rest of the Rs 3,500-crore of orders also pose a risk of non-execution. While the company, in a conference call, had said it has incurred a cost of only Rs 215 crore on these projects, as against Rs 480 crore of advances received, concerns over revenue visibility have remained. Eliminating the Libya orders, the company's projects in hand are only 1.7 times its FY-10 revenues — not a comfortable ratio for an engineering and construction company.

Added to this, news of its subsidiary Sembawang acquiring a 50 per cent stake in a coal mine in Indonesia may only raise questions about why the company is charting a move into a business in which it has no presence.

A Sembawang press release states that the company has “added a new vertical to the business portfolio” and hopes to leverage the existing opportunities in the coal mining sector. It is noteworthy that Punj Lloyd had a series of cost overruns and terminated contracts that arose from its subsidiaries in 2008.

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