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Larsen & Toubro (LART.BO)
Strong FY12E Guidance – But It Could Be Quite a Stretch
4Q11 PAT - 7% below expectations — L&T’s 4Q11 Recurring PAT at Rs15.1bn, up
12% YoY, was 7% below CIRA on lower sales growth, higher depreciation and higher
tax rate. FY11 Recurring PAT at Rs36.8bn, up 18% YoY, was 3% below CIRA.
Inflows in line - But miss guidance by 8% — Gross inflows in FY11 at Rs798bn, up
15% YoY, were in line with CIRA @ Rs791bn (FY11 guidance of Rs870bn). Net inflows
at Rs739bn, up 10% YoY, resulted in FY11 end backlog at Rs1302bn growing 30% YoY.
Strong FY12E sales and inflow guidance — The L&T management guided for 15-
20% YoY gross inflow growth in FY12E implying inflows of Rs917-957bn. Further, the
sales growth guidance is 25% YoY, which implies sales of Rs549bn in FY12E. Finally,
the management has also guided for EBITDA margins contracting 50bps in FY12E.
We assume inflow growth of 15% — Given the tough macro-environment in 2HFY11
led to a gross inflow miss of 8% in FY11, we believe that the tough macro-environment
in 1HFY12 implies that achieving the gross inflow guidance would be a quite a stretch.
We assume L&T will achieve the lower end of the guidance band for inflows in FY12E.
Sales guidance – A bigger stretch — As it assumes that the execution cycle will be
the same in FY12E as in FY11. Logically this seems difficult. Given L&T has almost
~Rs300bn of BTG orders with execution cycles > 4 years and Hyderabad Metro is a 5
year project we have assumed sales growth of 20% vs. management guidance of 25%.
Maintain Hold (2L) - Target price cut to Rs1745 — To factor: (1) parent EPS increase
of 1% and cons EPS cut of 4-6%. (2) roll forward of all target P/E to Sep12E
(Jun12E/Mar12E) and (3) cut in target P/E to 18x (20x) to factor in the tougher macroenvironment. Given the lack of compelling liquid investment options in the Indian
infrastructure space we would advise equal weight on L&T. However, the 6% stock
move post results today provides limited upside of 10%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Larsen & Toubro (LART.BO)
Strong FY12E Guidance – But It Could Be Quite a Stretch
4Q11 PAT - 7% below expectations — L&T’s 4Q11 Recurring PAT at Rs15.1bn, up
12% YoY, was 7% below CIRA on lower sales growth, higher depreciation and higher
tax rate. FY11 Recurring PAT at Rs36.8bn, up 18% YoY, was 3% below CIRA.
Inflows in line - But miss guidance by 8% — Gross inflows in FY11 at Rs798bn, up
15% YoY, were in line with CIRA @ Rs791bn (FY11 guidance of Rs870bn). Net inflows
at Rs739bn, up 10% YoY, resulted in FY11 end backlog at Rs1302bn growing 30% YoY.
Strong FY12E sales and inflow guidance — The L&T management guided for 15-
20% YoY gross inflow growth in FY12E implying inflows of Rs917-957bn. Further, the
sales growth guidance is 25% YoY, which implies sales of Rs549bn in FY12E. Finally,
the management has also guided for EBITDA margins contracting 50bps in FY12E.
We assume inflow growth of 15% — Given the tough macro-environment in 2HFY11
led to a gross inflow miss of 8% in FY11, we believe that the tough macro-environment
in 1HFY12 implies that achieving the gross inflow guidance would be a quite a stretch.
We assume L&T will achieve the lower end of the guidance band for inflows in FY12E.
Sales guidance – A bigger stretch — As it assumes that the execution cycle will be
the same in FY12E as in FY11. Logically this seems difficult. Given L&T has almost
~Rs300bn of BTG orders with execution cycles > 4 years and Hyderabad Metro is a 5
year project we have assumed sales growth of 20% vs. management guidance of 25%.
Maintain Hold (2L) - Target price cut to Rs1745 — To factor: (1) parent EPS increase
of 1% and cons EPS cut of 4-6%. (2) roll forward of all target P/E to Sep12E
(Jun12E/Mar12E) and (3) cut in target P/E to 18x (20x) to factor in the tougher macroenvironment. Given the lack of compelling liquid investment options in the Indian
infrastructure space we would advise equal weight on L&T. However, the 6% stock
move post results today provides limited upside of 10%.
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