Punj Lloyd turns around at operating level

The stock of Punj Lloyd soared 18 per cent in Tuesday's trade after the company managed consolidated net profit for the quarter ended March 2011 from losses a year ago.

Consolidated sales for the latest ended March quarter rose 29 per cent to Rs 2,192 crore compared with a year ago, while net profit stood at Rs 18 crore against losses in the same period last year. This performance comes after three previous quarters of either losses or sharp decline in profits. For the full year, though, consolidated sales declined 25 per cent to Rs 7,849 crore while losses were lower than the previous fiscal, at Rs 50 crore. While the markets gave a thumbs-up to this performance, the engineering and construction company may not be entirely out of the woods given that it is carrying forward uncertain orders and cost overrun issues that can hurt profits in future quarters.

Increased orders from the Asia-Pacific and South Asian region though, may reduce the risk in the order-book going forward, thus improving revenue visibility.

Subsidiaries perform

Thanks to strong performance by its foreign subsidiaries, Punj Lloyd managed a 29 per cent growth in group sales for the March '11 quarter compared with a year ago. Improved execution in the infrastructure segment appears to have driven sales. A sharp decline in other operating expenses, perhaps on account of lower establishment costs in Libya also enhanced operating profits. The sound performance of the fourth quarter helped the company turnaround at the operating level for the full fiscal, although it closed the year with net losses, thanks to interest costs swallowing 96 per cent of profits before interest and taxes.

Worries remain

Punj Lloyd also has a couple of other worrying issues; one of them being its order book in the troubled geography of Libya.

For one, the company in March stated that it removed Rs 6,245 crore of orders from its book as these projects were inactive for over 18 months.

As a result, the group's total order book declined 18 per cent to Rs 22,805 crore, compared with orders outstanding as of March 2010. The remaining Rs 3,677 crore of orders is currently on hold and may revive based on any improvement in the political scenario.

Punj Lloyd still has outstanding issues with cost over-runs in its ONGC project and has claims outstanding of Rs 243 crore, which has been qualified by the auditor.

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