Punj Lloyd
Reco price: Rs 203
Current market price: 202.90
Target price: Rs 192
Downside: 5.4%
Brokerage: Emkay Global Financial
Led by yet another instance of cost overrun of Rs 104 crore booked on project undertaken by WOS Simon Carves, Punj Lloyd reported a 63.3 per cent y-o-y decline in adjusted net profit to Rs 52.8 crore. Even revenues declined by 2.8 per cent y-o-y to Rs 2,870 crore, led by lower traction in key orders.
The lower revenues were not surprising, but recurrence of cost overruns despite clarification by management in earlier interaction is negative surprise. The stock has already taken a significant beating in last few trading sessions. While Emkay had a negative bias on the stock, the recent price correction has taken the sheen of the high expectations and valuations from overtly-optimistic levels to attractive levels. But, successful and profitable order book execution remains key risk to earnings, considering the track-record of cost overruns. Since, the company has not stabilised its operations, the brokerage has retained a ‘reduce’ rating and also increased the relatively discount to L&T’s valuations to 45 per cent versus 30 per cent earlier with a revised price target of Rs 192 per share. Consolidated earnings estimates have been maintained for 2009-10 and 2010-11 at Rs 14.1 and Rs 16.8 per share, respectively. At Rs 203, the PE works out to 14.4 times on estimated 2009-10 earnings.
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