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UBS Investment Research
L & T
Strong order inflow announcements
„ Event: robust orders in the past two days, M-E to contribute strongly in FY12
L&T’s order announcements have been strong this week with ~Rs55bn of new
orders (~6% of FY12E). The other positive news is L&T Infrastructure
Development Projects (L&T IDPL) signing the concession agreement for the
Rs26bn road project with the National Highways Authority of India (NHAI)
yesterday. In a recent interview, the president of L&T’s construction division
stated that order activity in the Middle East (M-E) started well this year and could
contribute ~15% of order inflow in FY12 (versus 8%/4%/8% in
FY09/FY10/FY11).
„ Impact: we maintain 15% YoY order inflow growth estimate for FY12
L&T had stated earlier that it expects order activity to pick up from Q2 onwards.
For FY12, we factor in 15% YoY order inflow growth (at lower end of guidance)
and think that the recent announcements would be a positive amid concerns of a
domestic slowdown. The president of the construction division also stated that
growth is not at the cost of margins and the company expects margins to be
maintained YoY. In FY12, we estimate standalone EBITDA margins of 12.2% (-
60bps YoY); further downside is unlikely in our view.
„ Action: reiterate Buy rating, order inflow a key stock driver
We like L&T for its large order backlog, good execution track record, diverse
exposure, strong competitive advantages, and robust balance sheet. The strong
order inflow growth augurs well for stock price performance.
„ Valuation: price target of Rs2,100, trading at lower end of band
We maintain our sum-of-the-parts-based price target of Rs2,100. L&T is currently
trading at lower than the average of its historical range and we think it is an
attractive choice in the Indian infrastructure space.
Q L & T
Larsen and Toubro (L&T) is India's largest engineering and construction (E&C)
company, and is the only dedicated engineering procurement and contracts
(EPC) company in India. It also has interests in electrical goods such as
switchgears and control panels. L&T has several subsidiaries engaged in various
businesses such as IT services, financing of industrial equipment, collection of
toll from roads constructed under the BOT scheme, and power generation. It has
also diversified into shipbuilding and power plant equipment businesses.
Q Statement of Risk
We believe the main risks to our price target and estimates are: 1) a change in
order inflow estimates; and 2) execution issues.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
L & T
Strong order inflow announcements
„ Event: robust orders in the past two days, M-E to contribute strongly in FY12
L&T’s order announcements have been strong this week with ~Rs55bn of new
orders (~6% of FY12E). The other positive news is L&T Infrastructure
Development Projects (L&T IDPL) signing the concession agreement for the
Rs26bn road project with the National Highways Authority of India (NHAI)
yesterday. In a recent interview, the president of L&T’s construction division
stated that order activity in the Middle East (M-E) started well this year and could
contribute ~15% of order inflow in FY12 (versus 8%/4%/8% in
FY09/FY10/FY11).
„ Impact: we maintain 15% YoY order inflow growth estimate for FY12
L&T had stated earlier that it expects order activity to pick up from Q2 onwards.
For FY12, we factor in 15% YoY order inflow growth (at lower end of guidance)
and think that the recent announcements would be a positive amid concerns of a
domestic slowdown. The president of the construction division also stated that
growth is not at the cost of margins and the company expects margins to be
maintained YoY. In FY12, we estimate standalone EBITDA margins of 12.2% (-
60bps YoY); further downside is unlikely in our view.
„ Action: reiterate Buy rating, order inflow a key stock driver
We like L&T for its large order backlog, good execution track record, diverse
exposure, strong competitive advantages, and robust balance sheet. The strong
order inflow growth augurs well for stock price performance.
„ Valuation: price target of Rs2,100, trading at lower end of band
We maintain our sum-of-the-parts-based price target of Rs2,100. L&T is currently
trading at lower than the average of its historical range and we think it is an
attractive choice in the Indian infrastructure space.
Q L & T
Larsen and Toubro (L&T) is India's largest engineering and construction (E&C)
company, and is the only dedicated engineering procurement and contracts
(EPC) company in India. It also has interests in electrical goods such as
switchgears and control panels. L&T has several subsidiaries engaged in various
businesses such as IT services, financing of industrial equipment, collection of
toll from roads constructed under the BOT scheme, and power generation. It has
also diversified into shipbuilding and power plant equipment businesses.
Q Statement of Risk
We believe the main risks to our price target and estimates are: 1) a change in
order inflow estimates; and 2) execution issues.
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