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Company estimates order inflow delays to be temporary
L&T has indicated that order inflow slowdown for the company and the system have been due more to delays rather than
cancellations, which suggests order inflows will accelerate during FY12. The company will not sacrifice margins for the
sake of new orders as it expects the current slowdown is more a timing issue than anything structural.
Company highlighted that some of the government orders have seen land acquisition and environment clearance delays.
However, it expects new projects to have such clearances, which will reduce delays during construction.
While the domestic oil & gas sector has witnessed new order growth stagnation, the company has witnessed increased
traction in the Middle East. L&T has tied up with a Korean company for a mid-sized order and expects project specific tie
ups to increase in the future.
Past bitter experience in the road sector has guided company not to bid for any new projects with post-tax equity IRR of
less than 18%.
L&T has said it will declare comparable earnings for FY12 under the new International Financial Reporting Standards
(IFRS) although the new rules will mandate companies to declare comparables only from the second year. After the
business restructuring, L&T plans to declare more granular data on its various business segments.
Valuation and risks
We value L&T using a sum of the parts (SOTP) valuation at a target price of INR2,341, comprising its standalone business
valued at INR1,855 (22x Sep 2012e earnings) and the subsidiaries at INR486. Our target price implies 22.6x Sep 2012e
EPS compared with its past 5-year average of 23.8x.
Risks include a sharp slowdown in economic growth and the impact on government spending and industrial capex, higherthan-
anticipated EBITDA margin erosion over FY11-13, and a meaningful rise in interest rates, affecting project timelines.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Company estimates order inflow delays to be temporary
L&T has indicated that order inflow slowdown for the company and the system have been due more to delays rather than
cancellations, which suggests order inflows will accelerate during FY12. The company will not sacrifice margins for the
sake of new orders as it expects the current slowdown is more a timing issue than anything structural.
Company highlighted that some of the government orders have seen land acquisition and environment clearance delays.
However, it expects new projects to have such clearances, which will reduce delays during construction.
While the domestic oil & gas sector has witnessed new order growth stagnation, the company has witnessed increased
traction in the Middle East. L&T has tied up with a Korean company for a mid-sized order and expects project specific tie
ups to increase in the future.
Past bitter experience in the road sector has guided company not to bid for any new projects with post-tax equity IRR of
less than 18%.
L&T has said it will declare comparable earnings for FY12 under the new International Financial Reporting Standards
(IFRS) although the new rules will mandate companies to declare comparables only from the second year. After the
business restructuring, L&T plans to declare more granular data on its various business segments.
Valuation and risks
We value L&T using a sum of the parts (SOTP) valuation at a target price of INR2,341, comprising its standalone business
valued at INR1,855 (22x Sep 2012e earnings) and the subsidiaries at INR486. Our target price implies 22.6x Sep 2012e
EPS compared with its past 5-year average of 23.8x.
Risks include a sharp slowdown in economic growth and the impact on government spending and industrial capex, higherthan-
anticipated EBITDA margin erosion over FY11-13, and a meaningful rise in interest rates, affecting project timelines.
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