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The next L&T? Not just yet!

Punj Lloyd was once touted to be the next big thing in the construction business, but it has not met expectations…

Go back to 2007. The world was a different place. “The world is not enough” claimed Punj Lloyd’s ad jingle. The company wanted more. It was on a high after the acquisitions of Singapore-based Sembawang and the British Simon Carves. It took on orders in the UK, Libya, Indonesia and India; and when land was not enough it even went offshore. Punj Lloyd was hailed as the next L&T. Two years later, the company was mired in execution delays and a sluggish order book movement. The “all terrain specialists” were now plunging to new depths.

Why does Punj feature here? Frequent write-offs on its UK-based Simon Carves have battered the company. Punj Lloyd finally put the company on administration (for eventual liquidation) in the first quarter of FY11. Orders worth Rs 3,900 crores in Libya were left hanging with the civil unrest there. The offshore business was also down. A disagreement over cost overruns with ONGC over its Heera platform still lingers.

where does it go from here? Punj is limping back to health albeit slowly. The Simon Carves chapter is closed with the deconsolidation of the firm from the group. The fate of the Libya orders still remains uncertain till the new government explicitly decides to honour past contracts. An outside expert group will now decide on the ONGC matter. Margin levels are dangerously low at 0.5 per cent in Q3FY12 against 4.5 per cent a year ago. Debt worries are not subsiding – debt grew by 3 per cent to Rs 5,305 crores this financial. If not for other income, earnings in the December 2011 quarter would have been in red.

What should you do? The ghosts of the past will continue to haunt Punj. Till such time, stay away. Sell.