Punj Lloyd Ltd. (PUNJ), India’s third- largest engineering company, is counting on peace in war-torn Libya to help revive 17 percent of its orderbook and sustain profit for a second straight year as growth slows at home.
The company, backed by Warburg Pincus LLC, plans to resume work next month in the North African nation where it has $800 million worth of projects, Chairman Atul Punj said. It aims to begin drilling in Sirte Basin for Waha Oil Co. starting July and resume construction of a road and upgrading a township in Tripoli after elections, Punj said.
Projects in Libya may help boost revenue by as much as $500 million in the year starting in April 2013, Punj said. Overseas contracts may “soon” account for 80 percent of sales of the builder as the weakest pace of expansion in almost a decade in India prompts the company to look for more business abroad.
“This will be a big positive for the company and give a boost to the revenues,” said Nitin Arora, an analyst at Mumbai- based Angel Broking Ltd, who has a neutral rating on the stock. “Given the current scenario in India, they have to go overseas to improve their orderbook.”
Campaigning began this month for Libya’s first national parliamentary election after four decades of rule by dictator Muammar Qaddafi, who was toppled and killed by rebels in a violent uprising last year.
The conflict cost the nation billions of dollars in lost trade and revenue, the International Monetary Fund has said, while the Libyan government says the revolution killed 30,000 people and wounded 50,000.
In February 2011, Punj Lloyd plunged in Mumbai trading after the chairman said projects in Libya may be disrupted because of the unrest. A month later, the company said it evacuated most of its employees from the country.
“It was a perfect storm,” Punj, 54, said in an interview at his headquarters in Gurgaon near New Delhi. “Now we’re seeing movement in each one of the areas.”
Punj Lloyd fell 2.4 percent to 46.8 rupees at the close of trading in Mumbai yesterday. The stock has dropped 34 percent in the past year compared with a 30 percent fall in the BSE India Capital Goods Index.
The builder renegotiated contracts for four projects after the new Libyan regime took over, Punj said. On some of the contracts, the company agreed to cut the royalty fee it receives from local partners by half to 1 percent, he said.
Punj Lloyd may not be able to revive all its projects in Libya. The company is no longer counting another $1 billion of orders won in the country by its Singapore-based unit Sembawang Engineers & Constructors Pte. because of lack of progress.
Middle East, Africa
Other Indian construction companies are also expanding in Middle East and Africa as demand slows in their domestic market. Larsen & Toubro Ltd. (LT), the nation’s biggest builder of power plants and airports, last year won a $269 million contract from Qatar General Electricity & Water Corp. The Mumbai-based company aims to double overseas orders in three years.
India’s economy expanded at the weakest pace in nine years in the quarter ended in March. Companies have delayed new investments and expansion plans as a paralysis in policy making and a faltering global recovery damp confidence. Fitch Ratings and Standard & Poor’s have said they may strip the nation of its investment-grade rating.
Adani Power Ltd. (ADANI) and other electricity generators have delayed building $36 billion of power stations in the country because of concerns about coal supply. Plans by Posco, the world’s third-largest steelmaker, to build a $12 billion steel mill have languished since 2005 for want of environmental clearances and issues over land acquisition.
Punj inherited a construction unit with $2 million revenue and debt of more than $3 million when his family business was split in 1989. The company posted a profit of 1.1 billion rupees ($19.3 million) in the year ended in March after three straight annual losses, according to data compiled by Bloomberg. Overseas sales accounted for 65 percent of sales in the previous year.
The company’s profit may increase 54 percent in the year ending March 31, 2014 after remaining unchanged in the current fiscal year as it boosts overseas focus, according to a median estimate of 15 analysts compiled by Bloomberg. Punj Lloyd had an orderbook of 273 billion rupees as of March.
“There’s no real major activity happening at this point in time in India,” Punj said. The company’s strategy is to be “location agnostic and go after interesting opportunities anywhere in the world.”
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