UBS:: L & T - Robust orders, Strong guidance

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UBS Investment Research
L & T
R obust orders, Strong guidance
􀂄 Beats expectations led by robust margins
L&T reported Q4 revenues of Rs153.8bn (+13% y/y, UBS-e Rs159bn), EBITDA
margins of 15.2% (UBS-e 14%) and pre-ex PAT of Rs15bn (+13% y/y, UBS-e
Rs14.3bn; slightly below consensus estimates of Rs15.2bn). In FY11, standalone
revenues/PAT grew 19/16% y/y, with EBITDA margins of 12.8% (-20bps YoY).
􀂄 Large order backlog provides growth visibility
L&T won Rs303bn of orders in Q4, ahead of UBS-e of Rs270bn and much higher
than street expectations. The backlog at Rs1,302bn is 2.4x 1-yr forward revenues.
􀂄 Strong guidance for FY12: 25% growth in revenues, 15-20% in orders
L&T has guided for 25% YoY revenue growth (execution of major projects is on
track), 15-20% order growth (it expects delays in project awards seen in FY11 to
ease; it has seen an improvement in pace of award decisions in Q4) and downside
risk of 50-75bps in margins (though multiple initiatives are on to maintain margins;
FY11 guidance was also similar while it managed to largely maintain its margins).
􀂄 Valuation: Maintain Buy; Top pick in Indian infrastructure space
L&T stock underperformed the market by ~15% over the last six months on
concerns of lower orders given the weak macro environment, especially in the
infrastructure sector. However, it has bucked the trend with strong order-inflows.
In our view, it is the best play on India’s structurally strong infrastructure growth
story given its large order backlog, good execution track-record, diverse exposure,
strong competitive advantages and robust balance sheet. Valuations are attractive
and it is currently at lower than the average of its historical trading range.