Buy: Punj Lloyd, target Rs. 532

Source: Sharekhan
Recommendation: Buy
Price target: Rs 532
Current market price: Rs 283

Punj Lloyd has won 2 orders this week. The first,  to engineer, procure, install and commission a 211km pipeline with associated stations and infrastructure in Qatar — an $800 million contract (Rs. 3636 crore) from Qatar Petroleum for a gas transmission project, while the second order is much smaller at $42 million (about Rs. 190 crore) for an onshore drilling project in Libya.

The Middle-East has been one of the key business markets for the company and 27 per cent of its current order backlog constitutes of orders from this region.  Sharekhan believes the investments planned in the Gulf Cooperation Council countries over 2006-12 spell a great opportunity for the company. Punj Lloyd’s increased foothold in these geographies will further enhance the company’s capability to win larger and more important projects in the Gulf Cooperation Council nations.

With this, the order backlog for the engineering and construction firm stands at Rs. 24,063 crore, which is 3.1x its 2007-08 earnings, imparts ample visibility to the company’s future revenues.  In the June 2008 quarter, the order book stood at Rs. 20,162 crore a growth of 32% year on year. While the top line will get a boost, typically margins for international projects tend to be lower due to higher cost viz., contractor charges and staff costs.

Since June this year, the stock has outperformed the market, gaining 6 percent compared with a 16 percent fall in the Sensex. Sharekhan believes the stock is attractively valued at these levels given that the company’s earnings are estimated to grow at a compounded annual growth rate of 51.2 per cent over FY2008-10E and has thus maintained ‘buy’ on Punj Lloyd with a 12-18 month price target of Rs 532.

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Author: Austin Comments: 1 comment Date: 28 Sep 2008
Categories: Stock Calls Tags: , , ,

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