Visit http://indiaer.blogspot.com/ for complete details Larsen and Toubro (L&T) has posted decent set of numbers for 2QFY2011. As on
2QFY2011, L&T had an order backlog of `1,15,393cr and order inflow during
the quarter stood at `20,464cr. The company has maintained its guidance of
25% order inflow and revenue growth of 20% for FY2011, which we believe is
achievable given the pick up in execution during the quarter in spite of prolonged
monsoons. Nonetheless, at current valuations we believe that most of the
positives are factored in and hence remain Neutral on the stock.
Top-line exceeds estimates, margins tad below bottom-line in line: L&T
reported decent top-line growth of 17.8% yoy to `9,331cr (`7,919cr), which
came in above our estimate of ~11.5% yoy growth. However, on the EBITDA
front, the company’s performance was below expectations mainly on account of
higher-than-anticipated staff costs – owing to increase in employee base and
annual salary revision above our expectations. Consequently, the company
reported EBITDA margin of 10.8% v/s 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.
Outlook and Valuation: At `2,013, the stock is trading at fair valuations of 28.7x
FY2012E standalone earnings of `70.1, which offers limited upside to our SOTP
Target Price of `2,024 and most positives are also factored in. Hence, we remain
Neutral on the stock. However, we maintain our equal-weight view on the stock
given that the near-term catalysts are in place (value unlocking at the subsidiary
level) and there are visible signs of pick up in execution.
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