Punj Lloyd, L&T circling ABB Lummus

MUMBAI: Two leading Indian engineering and construction companies — Punj Lloyd and Larsen & Toubro — are eyeing ABB Ltd’s US subsidiary, ABB Lummus Global.

ABB Lummus Global, a $1-billion engineering and consulting company, is on the block as it is not core to the ABB group. In the recent past, ABB Lummus has come out unscathed from a damning asbestos liabilities case.

At this juncture, the New-Delhi based Punj Lloyd appears more earnest to acquire the ABB subsidiary than L&T, its Mumbai counterpart.

L&T, with its peculiar shareholding structure with employees controlling the company, is not expected to pick up the gauntlet as it has enough on its plate in terms of project execution and pending orders and may not want to risk making a big-ticket acquisition.

Punj Lloyd, the second-largest Indian engineering and construction company, has been on an overdrive, flush with order book size of Rs 16,000 crore. A section of the analysts tracking the company believe that Punj Lloyd should wait before making any fresh acquisitions. L&T could prove to be the dark horse.

Punj Lloyd’s EBIDTA margins are in the region of 6.2%, and are low compared to its peers. It is expected to raise money again from the financial markets to fund various projects. Therefore, to attempt another acquisition may be costly in the short run, sources added.

Punj Lloyd acquired Singaporean company SembCorp, and has, over time, integrated it well with its own system. It faced challenges with SembCorp’s government contracts, which did not have an escalation contract to protect against future inflation of project estimates.

Punj Lloyd, too, provides integrated design, engineering, procurement, construction and project management services for energy and infrastructure sector projects. The company, with operations spread across many regions in the Middle East, Caspian, Asia-Pacific, Africa and South Asia, could use the Lummus footprint to spread faster in these regions.

Efforts to reach Atul Punj, managing director of Punj Lloyd, failed. Punj is in Dubai on a business visit. Luv Chhabra, executive director in charge of finance and corporate affairs, who is on a business visit to Singapore, also could not be reached.

ABB Ltd is on record stating that it will sell its US subsidiary ABB Lummus Global in the medium term, following the recent resolution of the asbestos claims.

The company said that it’s not in a rush to sell the subsidiary but acknowledged the possibility of the sale in the medium term. Punj Lloyd, which listed early last year, has an order backlog of Rs 16,496.6 crore.

ABB Lummus has gained from the boom in the oil and gas sector and bagged big-ticket orders from global oil majors. Its turnover has reached $1billion.

Punj Lloyd recently won an order from ONGC for building a Rs 1,300-crore offshore platform. It is said to be the best in the country in laying pipelines. Bagging an offshore platform project was a first for the company as till recently offshore platforms were considered an exclusive domain of L&T.

Analysts claim that Punj Lloyd, with a surfeit of orders and the recent acquisition, may have to approach the secondary market with an equity dilution to augment its working capital requirement to service its burgeoning order book.

It makes sense for Punj Lloyd to acquire ABB Lummus as the two companies are in the same space. 

ABB reported that all the asbestos liabilities against its ABB Lummus Global had been resolved and that it had exited Chapter 11 protection.