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L&T reported strong execution (+21% yoy), a margin dip (-90bp yoy) on
account of input cost pressures in Jun-q, and marginally better-thanexpected
PAT growth (+12% yoy) in the Jun-q.
Management retains an order flow outlook of 15% growth in a
difficult environment: Prima facie this is surprising, but in our view it
partly stems from a changing strategy towards more exports, particularly
the Middle East. In the Jun-q, L&T largely delivered on our order flow
expectations: PPN’s gas power plant was only partly included (Rs14B
out of potential order of Rs35B). L&T also booked a captive road project
(Rs17B, which received a funding sanction letter, as per management),
an additional Rs12B of Hyderabad Metro (taking total Hyd Metro order
booking to Rs70B), Tata Steel’s Kalinganagar (Rs8.2B) and Bangalore
Airport expansion project of GVK (Rs8B). As expected, chunky
hydrocarbon orders from Middle East and Thailand came in as well.
Execution – management reiterated a revenue growth outlook of 20-
25% amid worries of some projects getting delayed/cancelled: For
instance, CNBC reported that the Jaypee Karchana project is facing
delays on land acquisition issues; this project had been awarded to L&T
and management confirmed that it had not received notice to proceed so
far. We think L&T’s diversified OB and low concentration risk puts it in
a better position than peers to meet revenue growth expectations.
With 1Q panning out largely as expected, we believe markets will
focus on the asking rate for order flows (Rs755B, implying 18% YoY
growth) for the remainder of the year. Prima facie, the investment cycle
seems to have received a hard jolt from rate increases and deteriorating
global/domestic environment over the past quarter. High capacity
utilizations, on the other hand, provide a compelling case for investment
revival, in our view. As the stock has done reasonably well in the past
quarter, we think a near-term correction / breather is possible to factor in
higher uncertainty. The stock is still our top pick to ride a potential
recovery in the investment cycle, and we remain OW.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
L&T reported strong execution (+21% yoy), a margin dip (-90bp yoy) on
account of input cost pressures in Jun-q, and marginally better-thanexpected
PAT growth (+12% yoy) in the Jun-q.
Management retains an order flow outlook of 15% growth in a
difficult environment: Prima facie this is surprising, but in our view it
partly stems from a changing strategy towards more exports, particularly
the Middle East. In the Jun-q, L&T largely delivered on our order flow
expectations: PPN’s gas power plant was only partly included (Rs14B
out of potential order of Rs35B). L&T also booked a captive road project
(Rs17B, which received a funding sanction letter, as per management),
an additional Rs12B of Hyderabad Metro (taking total Hyd Metro order
booking to Rs70B), Tata Steel’s Kalinganagar (Rs8.2B) and Bangalore
Airport expansion project of GVK (Rs8B). As expected, chunky
hydrocarbon orders from Middle East and Thailand came in as well.
Execution – management reiterated a revenue growth outlook of 20-
25% amid worries of some projects getting delayed/cancelled: For
instance, CNBC reported that the Jaypee Karchana project is facing
delays on land acquisition issues; this project had been awarded to L&T
and management confirmed that it had not received notice to proceed so
far. We think L&T’s diversified OB and low concentration risk puts it in
a better position than peers to meet revenue growth expectations.
With 1Q panning out largely as expected, we believe markets will
focus on the asking rate for order flows (Rs755B, implying 18% YoY
growth) for the remainder of the year. Prima facie, the investment cycle
seems to have received a hard jolt from rate increases and deteriorating
global/domestic environment over the past quarter. High capacity
utilizations, on the other hand, provide a compelling case for investment
revival, in our view. As the stock has done reasonably well in the past
quarter, we think a near-term correction / breather is possible to factor in
higher uncertainty. The stock is still our top pick to ride a potential
recovery in the investment cycle, and we remain OW.
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