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Larsen & Toubro Ltd.
Weak 4Q; Not to divest E&E;
EPS / PO Cut
„4Q execution disappoints while inflows surprise; PO cut
L&T 4Q11 Rec PAT +12%YoY (12% below BofAMLe) on weak execution (sales
+13%YoY). Tough macro and intense competition caused L&T to miss its FY11
guidance – inflows +15%YoY (vs 25%) despite 4Q +29%YoY. We cut FY12-13E
parent EPS by 7-12% on weak 4Q, delay in orders and likely slow execution of
4Q11 orders. We cut our PO to Rs2070 (Rs2280) to factor in EPS & multiple cut.
Mgt said it has no plans to sell the electrical business. Buy on inexpensive
valuation (13x FY13E) post the stock's underperformance (8% v/s market/BHEL
after stock fell 20% YTD) and EPS CAGR of 23% (FY11-13E) driven by backlog
+30%YoY. Creation of growth vehicles in power equipment, shipyard, defense,
nuke, aerospace domains and concession wins support Buy. Capex in lower RoE
infra assts – Rajpura Power, Hyderabad metro etc. are risks.
Captive/private orders led Inflows +27%; Quality an issue
4Q inflows grew 27% YoY driven by 10x rise in captive orders – Hyd. Metro (Rs59bn)
and Seawoods (Rs9.8bn). External orders fell 2% on a 59%YoY fall in Public orders,
which was partly offset by a 95% growth in Private orders. Quality of orders was weak,
with its largest pvt. order – Rs58bn (19% of 4Q inflow) blast furnace order – from a
2nd tier steel mill without “customary advance” and it is yet to close funding. Mgt.
guided for FY12 inflow +15-20% and sales +25%YoY, which is in line with BofAMLe.
L&T IT PAT was flat on 651bps decline in PAT margin.
Mgt. address concerns on new orders; Guide for 15-20%
At the analyst meeting, L&T assured that it will be able to grow FY12 inflows at 15-
20% YoY on a) pick-up in delayed hydrocarbon orders in 1QFY12 from India & abroad
(Thailand/Middle East), b) its own coal-based/external gas power project orders and
balance of plant should drive power orders, c) pick-up in Infra orders led by roads,
building and factories, and d) steady minerals and metals orders. We cut our FY12E
inflows by 2%, implying a 15% growth on weak capex environment.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Larsen & Toubro Ltd.
Weak 4Q; Not to divest E&E;
EPS / PO Cut
„4Q execution disappoints while inflows surprise; PO cut
L&T 4Q11 Rec PAT +12%YoY (12% below BofAMLe) on weak execution (sales
+13%YoY). Tough macro and intense competition caused L&T to miss its FY11
guidance – inflows +15%YoY (vs 25%) despite 4Q +29%YoY. We cut FY12-13E
parent EPS by 7-12% on weak 4Q, delay in orders and likely slow execution of
4Q11 orders. We cut our PO to Rs2070 (Rs2280) to factor in EPS & multiple cut.
Mgt said it has no plans to sell the electrical business. Buy on inexpensive
valuation (13x FY13E) post the stock's underperformance (8% v/s market/BHEL
after stock fell 20% YTD) and EPS CAGR of 23% (FY11-13E) driven by backlog
+30%YoY. Creation of growth vehicles in power equipment, shipyard, defense,
nuke, aerospace domains and concession wins support Buy. Capex in lower RoE
infra assts – Rajpura Power, Hyderabad metro etc. are risks.
Captive/private orders led Inflows +27%; Quality an issue
4Q inflows grew 27% YoY driven by 10x rise in captive orders – Hyd. Metro (Rs59bn)
and Seawoods (Rs9.8bn). External orders fell 2% on a 59%YoY fall in Public orders,
which was partly offset by a 95% growth in Private orders. Quality of orders was weak,
with its largest pvt. order – Rs58bn (19% of 4Q inflow) blast furnace order – from a
2nd tier steel mill without “customary advance” and it is yet to close funding. Mgt.
guided for FY12 inflow +15-20% and sales +25%YoY, which is in line with BofAMLe.
L&T IT PAT was flat on 651bps decline in PAT margin.
Mgt. address concerns on new orders; Guide for 15-20%
At the analyst meeting, L&T assured that it will be able to grow FY12 inflows at 15-
20% YoY on a) pick-up in delayed hydrocarbon orders in 1QFY12 from India & abroad
(Thailand/Middle East), b) its own coal-based/external gas power project orders and
balance of plant should drive power orders, c) pick-up in Infra orders led by roads,
building and factories, and d) steady minerals and metals orders. We cut our FY12E
inflows by 2%, implying a 15% growth on weak capex environment.
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