Feb 24, 2011

Punj Lloyd falls on Libyan worries

Shares of Punj Lloyd Ltd fell nearly 6 percent on strong volumes on concerns of political instability in Libya, three dealers said. "Punj Lloyd has 35 percent of its order backlog in the Republic of Libya , which is currently facing significant political upheaval," Indiabulls Institutional Equities said in a note on Tuesday.

The execution of the projects in Libya which was expected to pick up steam from FY12 onwards, will take longer time than expected, the brokerage added in a note. At 3:25 p.m., the stock was down 5.19 percent. About 3,545,689 shares changed hands on the BSE thus far, compared with a five-day daily average volume of 2,049,657 shares. 

Punj Lloyd has large operations in Libya with around 1,800 employees. Its projects in the country are worth $1.8 billion. However, the company's $1-billion project in high-end housing and commercial infrastructure has been on hold for some redesigning and hence does not figure in its order book. It is the company's social infrastructure project of $800 million that had to be stopped for the past week. 

Mr Atul Punj, Chairman, said, “I have been speaking to our staff there every two hours. They are fully equipped with food and others things. We have had no threats, no sabotage… no such problem and I believe it will all come to normal very soon. Our projects are in regions where there are few issues. The main problem is in Benghazi where we do not have any project.”

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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