Citigroup maintains `Sell’ rating on Punj Lloyd

RESEARCH: CITIGROUP

RATING: SELL

CMP: 119.95

Citigroup maintains `Sell’ rating on Punj Lloyd. Punj Lloyd reported Q1FY11 PAT loss of 30.6 crore, significantly below the estimate of 43.9 crore profit. PAT loss was driven by sharp decline in revenues. Q1FY11 revenue at 1,610 crore declined 46% y-o-y and was 36% below CIRA estimate of 2,500 crore. Continuing execution delays and operating leverage led to EBITDA margins falling to 0.4% in Q1FY11 from 9.7% in Q1FY10. Auditor qualification on profit of 119 crore on sale of investment has been removed in the quarter, but other auditor qualifications on 243 crore of project claims and 65.5 crore of liquidated damages related to the ONGC project continue . Work has started on civil projects in Libya, and the company expects to book revenue from Q2FY11. ONGC’s Heera project has been completed, and all four offshore rigs are fully operational now. Punj Lloyd continues to face execution delays, cost overruns in projects and auditor qualifications. 38% order backlog consists of delayed Libyan orders where execution is slow.