Thursday, February 09, 2017

Punj Lloyd Ltd: Buy
CMP: Rs.21.95
Last quarter saw some acceleration in execution in their projects. The management is positive on gradually improving macro environment and an enabling policy framework of the present government,  which is likely to improve the performance of the sector.  

A key development at the end of last year was the Cabinet decision on payment of arbitration awards by government agencies to EPC companies. This, the company, believe is a significant positive for the industry and will go a long way towards reducing debt.

Thus, implementation of the measures taken by the government like release of 75% of arbitral award to construction companies will help improve prospects over the medium term. Some construction companies have already received this payment in their escrow accounts against bank guarantees.

According to a recent  (rating agency) ICRA Report: the order book of construction companies is expected to improve with the government awarding sizable infrastructure projects over the last two years and many in the pipeline,

"The Government of Indias focus on infrastructure sector, particularly roads, railways, and urban infrastructure segments, is evident from the increased budgetary allocation to these sectors as well as the slew of measures taken to revive the sector," ICRA said in a statement.

Of all the infrastructure segments, the Railways have the highest planned capital outlay with Rs.8.56 trillion over the five-year period of 2015-2019. To keep up with this plan, the annual capital outlays for FY2016 and FY2017 was increased significantly.

The two ongoing dedicated freight corridors (eastern and western) are worth over Rs. 0.81 trillion. The other major capex planned is towards station modernisation and redevelopment and the high speed rail corridor (HSR) or bullet train project.

"These are likely to offer sizeable opportunities for the construction sector," the statement said.

"The budgeted capital outlay for the Railways is expected to increase from Rs 1.2 trillion in FY2017 to Rs 1.4 trillion in FY2018. However, given the 5-year plan this still would require to be ramped-up significantly in the remaining years. "The merger of the Railway budget with the central budget will provide an additional leeway for an increased outlay. While a major part of the outlay is expected to be towards the ongoing projects, sizeable newer projects are also expected to be awarded, providing construction opportunities, particularly for large players," said K Ravichandran, Senior Vice-President and Group-Head, Corporate Ratings, ICRA.

Moreover, valued at $180 million per annum in the 1970s, Indo-UAE trade is today around $50 billion, making the UAE India's third largest trading partner for the year 2015-16, after China and the US --- among the several private and public sector, Indian companies, working in the UAE, Punj Lloyd Ltd also figures in the list. 

Besides, a section of the market believes that Punj Ltd like HCC Ltd (Rs.41.80) is a BJP company; the former paying Rs.1 Crore in 2009 elections to the BJP. 

The promoters holding in the company stood at 36.14% while Institutions and Non-Institutions held 9.08% and 54.79% respectively. The total public holding stands at 63.86%. The stock is currently trading below its 50, 100, 150 nd 200 D SMA.

Therefore, buy the shares of Punj Lloyd Ltd around R.21.75-21.95 for short targets of Rs.27-28. The company is coming up with results on 11 February, 2017, where I am expecting a turnaround.

Note: The scrip was recommended to the Premium Group members today and it was displayed in the Premium Blog:
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