Visit http://indiaer.blogspot.com/ for complete details Result Review – 2QFY2011
L&T
L&T reported decent top-line growth of 17.8% yoy to `9,331cr (`7,919cr), above our
estimates of ~11.5% growth, mainly on account of pick-up in the E&C segment, which
recorded 16.9 top-line growth to `8,015cr. On the EBITDA front, the performance was
below our expectations mainly because of higher-than-anticipated staff cost – owing to an
increase in employee base and annual salary revision. Therefore, the company reported
EBITDAM of 10.8% against our expectation of 11.4%. Adjusting for extraordinary income
(`70.8cr – Satyam share sale) and dividend from subsidiaries, the company reported
bottom line of `650.2cr, marginally above our estimate of `637.4cr.
L&T has always traded at a premium to Sensex valuations and has outperformed the
Sensex on a consistent basis, given its strong operating cash flows, superior return ratios
(in excess of 20%) and excellent capital efficiency. At the CMP of `2,013, the stock is
trading at P/E multiple of 28.7 on FY2012E standalone earnings of `70.1/share and offers
limited upside to our SOTP Target Price of `2,024. Hence, we recommend Neutral on the
stock. Further, it should be noted that our target price factors in `1,542/share value at 22x
FY2012E EPS (~22% earnings CAGR over FY2010–12E) for L&T parent and values its
subsidiaries at `482/share. Therefore, at the current juncture, we believe most of the
positives are factored in and the near term catalyst can come from value unlocking at the
subsidiary level.
Sesa Goa
Sesa Goa’s top line increased by 70.5% yoy to `918cr. Iron ore sales volume at 2.0mn
tonnes were up by 23.7% yoy. Volumes were severely affected by the state-wide temporary
export restriction imposed by the Karnataka government at the end of July. Despite
benchmark iron ore prices increasing by ~30% qoq, the company’s realisations were
lower by 19.1% qoq (an increase of 48% yoy) at US $73/tonne. Pig iron sales volume
increased by 25.4% yoy to 84,000 tonnes. Average realisation also increased by 35.6%
yoy to `25,326/tonne, flat on a qoq basis. EBITDA margin declined by 2,349bp qoq to
37% on account of lower-than-expected realisations, higher export duty, increased royalty
rates and higher freight cost per tonne. Other income decreased by 37.6% qoq to
`100.4cr (up 12.5% yoy). Lower tax rate at 4.6% v/s 22.9% in 2QFY2010 led to bottom
line increasing by 131.3% yoy to `385cr, down 70.4% qoq, during the quarter.
At the CMP of `369, the stock is trading at 4.0x and 3.2x FY2011E and FY2012E
EV/EBITDA, respectively. We currently have a Neutral rating on the stock and will review
our numbers/rating post the conference call.
Rallis India
Rallis India’s 2QFY2011 results were broadly in line with our estimates. Although total
sales grew 14.7% to `368cr, it was 10% below our estimate of `407.1cr. For 2QFY2011,
RAIL reported lower gross margin of 41.9% (43.4%) owing to price erosion in key products.
The company however, reported EBITDA margin of 24.3% for the quarter, which was
ahead of our estimate by 190bp and came on the back of high operating leverage. Given
that monsoons have been normal, industry is expected to continue to register healthy
growth in FY2011. As a result, with RAIL being a major player in the domestic market, we
expect it to grow at a higher pace than industry. We maintain our estimates and expect the
company to register a CAGR of 21% and 36% in net sales and profit over FY2010-12,
respectively. Post out-performing the Sensex by 104% over the last one year, at current
levels, the stock is trading at fair valuations of 15x FY2012E EPS. Hence, we remain
Neutral on the stock.
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