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The political uncertainty in Libya and a heavy order backlog in that country sent the Punj Lloyd scrip down by 5.33 per cent on the NSE to close at Rs 63.90 to a share.
Brokerages are circumspect about this stock and have already started recommending a hold or sell on it.
Company sources put the order backlog at $1.8 billion.
On November 24, 2010, the company had announced to the exchanges that it had bagged an order worth Rs 288 crore from Harouge Oil Operations in Libya. The scope of work included the design, engineering, procurement and construction of a new oil storage complex at Ras Lanuf export complex and other associated facilities. The order had to be completed within 16 months.
An Edelweiss report on the scrip said that though the company had received a 15 per cent advance (totalling $750 million) for five projects out of the total eight from Libya, execution would not be possible within the next three years. Delay from the client side in submission of master plan is the main reason, said the report.
“The political situation in the country is not going to help Punj Lloyd either,” said an analyst from another Indian brokerage. With a large exposure in the MENA countries (Middle East and North Africa) there is bound be a negative sentiment with respect to this scrip. Though valuations are close to bottoming out, prices might go down further driven by sentiment, he said.
Brokerages expect that execution would not pick up for the next two to three quarters and have asked their clients to wait until the events in Libya pan out to give a clearer picture.
An IndiaBulls institutional equities report said Punj Lloyd has booked revenue that is approximately one fourth of its advances received and this helped them cover the costs incurred on these projects. Though order inflow has been steady, brokerages estimate that revenue inflow would be slow due to slack execution and the company is sure to make losses in FY11. EBITDA margins would continue to be under pressure on account of lower absorption of overheads, lower contribution from Libyan orders and a perception that project specific losses and litigation would continue.
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