Citigroup - Punj LLoyd

Citigroup in their report on Punj LLoyd

Time to Buy, target price Rs305 — Upgrade to Buy (1L) with a Rs305 target price, from Sell (3M) and a Rs175.4 target, on the back of an earnings revision and the rolling forward of our target P/E multiple to 23x FY09E (from 23x FY08E earlier), which is well supported by earnings CAGR of 38% over FY07-10E.

Starting to deliver on its early promise — Punj Lloyd is perhaps the only mid cap E&C company that could leapfrog to the next level which is occupied by L&T with its diversified skill sets. The first sign that Punj Lloyd can actually deliver on its potential came with a reported 4QFY07 PAT of Rs889mn, which was 59% ahead of CIR's estimate.

Painting on a larger canvas — In FY07 Punj Lloyd acquired Semb which scaled up its expertise to upstream oil & gas, airports, jetties, MRT/LRT and tunnelling. With these extended capabilities, Punj is now pre-qualified for larger/more complex projects. Indications of this scale-up are already visible (average order is up from US$30mn to US$100mn in FY07 and likely to go up to US$200mn).

More than just numbers — At the end of FY07 Punj Lloyd had the third largest order backlog of Rs159bn in our rated Engineering & Construction universe after BHEL (Rs550bn) and L&T (Rs369bn). The gap between Punj and the other mid-cap construction companies is not a mere numerical one but also one of skill sets, which Punj can leverage further in the coming years.