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India Equity Research Reports, IPO and Stock News
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4Q was in line with our forecasts. Execution and margin management in FY11 were effective.
L&T remains the best play on Indian infrastructure growth, in our view. It faces short-term
macro headwinds, such as rising interest rates, but we believe these are adequately
captured in current valuations and upgrade to Buy.
4Q11 earnings in line with our forecasts: good inflow guidance for FY12
L&T reported 4Q11 sales of Rs153.8bn (up 13% yoy), exceeding our expectations, driven by
13% yoy growth in its core E&C business. Margins were flat during the quarter, which is
positive, in our view, given rising commodity prices. Profit for the quarter was Rs15bn (up 7%
yoy), in line with our forecast. Order inflow for the quarter was Rs300bn (up 27% yoy), and
the order backlog stood at Rs1.3tn (up 13% qoq).The company has guided for inflow growth
of 15-20% and revenue growth of 25% based on current backlog.
Robust order book in a tough environment provides strong visibility
L&T’s current order book of Rs1.3trn, which is 3x FY11 sales, provides strong visibility for its 25%
growth projection. About 32% of the order book is longer-gestation orders such as power, which
gives solidity to the book. L&T’s entry into higher-margin businesses, particularly power
equipment, to be executed over the next couple of years, should help margins. Management said
it is taking steps to ensure margins remain within 50-100bp of current levels. The company is
examining the possibility of raising cash via divestments of some of its non-core businesses. This
should lower its equity requirement and reduce pressure on its balance sheet.
Best play on infrastructure, in our view; risks in the price; we upgrade to Buy
We believe L&T remains the best play on the broad-based longer-term Indian capex story.
However, by virtue of it being a play on investment activity, it is more susceptible to near-term
macro headwinds, but we believe current valuations adequately capture these risks. We believe
the company remains the best positioned relative to its construction peers (see Charts 3-9. We
upgrade the stock to Buy from Hold and roll forward our estimates to FY14, which increases our
target price to Rs1,854.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
4Q was in line with our forecasts. Execution and margin management in FY11 were effective.
L&T remains the best play on Indian infrastructure growth, in our view. It faces short-term
macro headwinds, such as rising interest rates, but we believe these are adequately
captured in current valuations and upgrade to Buy.
4Q11 earnings in line with our forecasts: good inflow guidance for FY12
L&T reported 4Q11 sales of Rs153.8bn (up 13% yoy), exceeding our expectations, driven by
13% yoy growth in its core E&C business. Margins were flat during the quarter, which is
positive, in our view, given rising commodity prices. Profit for the quarter was Rs15bn (up 7%
yoy), in line with our forecast. Order inflow for the quarter was Rs300bn (up 27% yoy), and
the order backlog stood at Rs1.3tn (up 13% qoq).The company has guided for inflow growth
of 15-20% and revenue growth of 25% based on current backlog.
Robust order book in a tough environment provides strong visibility
L&T’s current order book of Rs1.3trn, which is 3x FY11 sales, provides strong visibility for its 25%
growth projection. About 32% of the order book is longer-gestation orders such as power, which
gives solidity to the book. L&T’s entry into higher-margin businesses, particularly power
equipment, to be executed over the next couple of years, should help margins. Management said
it is taking steps to ensure margins remain within 50-100bp of current levels. The company is
examining the possibility of raising cash via divestments of some of its non-core businesses. This
should lower its equity requirement and reduce pressure on its balance sheet.
Best play on infrastructure, in our view; risks in the price; we upgrade to Buy
We believe L&T remains the best play on the broad-based longer-term Indian capex story.
However, by virtue of it being a play on investment activity, it is more susceptible to near-term
macro headwinds, but we believe current valuations adequately capture these risks. We believe
the company remains the best positioned relative to its construction peers (see Charts 3-9. We
upgrade the stock to Buy from Hold and roll forward our estimates to FY14, which increases our
target price to Rs1,854.
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