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Larsen & Toubro
Focus on Order Inflow Pickup
What's Changed
Price Target Rs2,268.00 to Rs2,010.00
F2012e EPS Down 4.4% to Rs91.4
F2013e EPS Down 4.3% to Rs114.2
Scoring on two out of three parameters, promising
delivery on third in F12e: L&T surprised us with
margins (up 140 bps YoY adjusted for one-time items)
moving to a new peak (16.5%) in F4Q11. More
importantly, the company answered the question that
has been worrying the Street – when does order inflow
begin? – by clocking 27% YoY growth in inflows to
Rs303 bn. The last key variable, revenue growth, was
not as exciting, with 13% growth in the quarter (albeit on
a high base). However, the company’s F12 revenue
growth guidance of 25% indicates that it sees a
strengthening of execution (in line with our thesis)
around the corner.
Shifting numbers and price target down marginally:
Despite the revenue disappointment, margin strength
ensured that overall net profit (for the standalone
company) came in 2% ahead of our estimate for F11.
However, we have conservatively taken down our
revenue estimates by 4-5% for F12-13e, assuming that
the execution pick up is not as strong as we thought
earlier, which results in a 4% downtick in our EPS for
F12-13e. Despite the downtick, we remain 17-20%
ahead of consensus on earnings for F12-13e.
Investment conclusion: L&T, in revenue terms, is
larger than the next six largest Indian construction
companies put together. Yet, owing to the fragmented
market (L&T’s market share is still only 2.5% in Indian
capex) and its high-quality execution, it has consistently
gained market share over the last two decades. It is also
the vendor of choice for the private sector, making it the
best way to play the structural growth story in Indian
infrastructure. Our revised price target of Rs2,010 per
share implies a 26% return from current levels.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Larsen & Toubro
Focus on Order Inflow Pickup
What's Changed
Price Target Rs2,268.00 to Rs2,010.00
F2012e EPS Down 4.4% to Rs91.4
F2013e EPS Down 4.3% to Rs114.2
Scoring on two out of three parameters, promising
delivery on third in F12e: L&T surprised us with
margins (up 140 bps YoY adjusted for one-time items)
moving to a new peak (16.5%) in F4Q11. More
importantly, the company answered the question that
has been worrying the Street – when does order inflow
begin? – by clocking 27% YoY growth in inflows to
Rs303 bn. The last key variable, revenue growth, was
not as exciting, with 13% growth in the quarter (albeit on
a high base). However, the company’s F12 revenue
growth guidance of 25% indicates that it sees a
strengthening of execution (in line with our thesis)
around the corner.
Shifting numbers and price target down marginally:
Despite the revenue disappointment, margin strength
ensured that overall net profit (for the standalone
company) came in 2% ahead of our estimate for F11.
However, we have conservatively taken down our
revenue estimates by 4-5% for F12-13e, assuming that
the execution pick up is not as strong as we thought
earlier, which results in a 4% downtick in our EPS for
F12-13e. Despite the downtick, we remain 17-20%
ahead of consensus on earnings for F12-13e.
Investment conclusion: L&T, in revenue terms, is
larger than the next six largest Indian construction
companies put together. Yet, owing to the fragmented
market (L&T’s market share is still only 2.5% in Indian
capex) and its high-quality execution, it has consistently
gained market share over the last two decades. It is also
the vendor of choice for the private sector, making it the
best way to play the structural growth story in Indian
infrastructure. Our revised price target of Rs2,010 per
share implies a 26% return from current levels.
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