14 March 2011

Larsen & Toubro Ltd. — Feedback from L&TMHI :BofA Merrill Lynch

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Larsen & Toubro Ltd. — Feedback from L&TMHI
Plant visit
Company Update
Visit to L&T-MHI, Fabrication / Shipyard @ Hazira; Buy
Key takeaways from our visit to L&T’s Hazira plant, where it houses L&T-MHI JV,
power auxiliaries factories, Oil & Gas fabrication yard and specialized ship yard.
Bullish on coal-base capex and case for Indian v/s Chinese BTG
Given the delay in India’s Nuke/Hydro capex and uncertain gas availability, L&T is
bullish on India’s reliance on coal capex and consequently expects market of
94.5GW in 13th plan (FY18-22E) of 135GW v/s ~35-40GW in 11th plan. Mr.
Uppal, supported our views (read Bharat Heavy Electricals, 19 January 2011) on
superior technology of domestic power equipments with EU/Japanese tech. v/s
Chinese and said that value of Chinese plants shall decline as operating
parameters deteriorate post-5 yrs. Hence, utilities should rely on cost of
ownership (kWh) and not only capital cost. He also said many Chinese customers
are now shifting and NTPC is likely to issue EPC tenders v/s multiple tenders,
which may help L&T.

Localization in 3-4 years to boost margins in-line with L&T
Mr. Uppal said L&T-MHI break-even ~60% and once the BTG, castings, forging,
ESP and piping facilities commission in 2 years and ramp-up production in 3-4
years, the margins shall approach L&T’s normal E&C margins of ~12-13% v/s
current low margins from initial orders (24% local content in AP Genco TG order).
JP Power & A.P. Genco deliveries @ L&T-MHI on-track
On the shop-floor, we saw the deliveries for JP Power’s Nigree (2x660MW) boiler
& TG (see Exhibit 4-6) and AP Genco (2x800MW) turbine getting ready (Exhibit
2). L&T has identified unique sea-river-road route for deliveries of over-dimension
cargo @ JP Nigree. Deliveries for L&T’s own Punjab project shall start in
Special forge shop in JV with NPCIL – ready for Nuke!
L&T is setting-up 40K tpa of large forge shop with 100t electric arc furnace
capable of producing nuke forging upto 600tn single piece. This facility when
started in 2012 will meet requirement of nuke, fabrication, power and steel sector.

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