Share Trading Tips

PUNJ LLOYD
Reco price: Rs 222.90
Current market price: Rs 219.40
Target price: Rs 197
Downside:10.2 %
Brokerage: Citi Investment Research

The brokerage has revised earnings downwards and thus has cut the company’s 20010-12 EPS estimates by 8-11 per cent. This is primarily on account of 4-5 per cent lower sales growth and 28-40 basis point cut in EBITDA margins on potential write-offs in projects.

The report mentions that it changed its view from “Hold” earlier to “Sell” giving a price target of Rs 197 compared to Rs 228 earlier since at the recommended price the risk reward trade-off seems unfavourable. This is largely due to the risks that emerge on account of additional write offs. Like in the case of the Ensus bio ethanol project every month’s delay beyond December 12, 2009 will cost Simon Carves (Punj’s subsidiary) 5 million pounds.

Technically, Ensus can also claim liquidated damages on this project in the future. While in the case of the ONGC Heera project, according to the FY09 annual report, estimated revisions on the ONGC Heera project have resulted in costs and revenues on the project increasing by Rs 360 crore and Rs 150 crore respectively. The company has filed claims with ONGC amounting to Rs 510 crore against the increase in cost estimates. Pending acceptance, these claims have not been accounted for in the books. At recommended price, stock trades 16.3 times FY11 and 13 times FY12 estimates.

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