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Key Takeaways
Environment challenging but no meaningful adverse impact
The external environment is plagued by a policy logjam and high capital costs. L&T
is experiencing extended award timelines but there is no meaningful adverse impact
on ordering activity. The management said its diversified portfolio was helping L&T
counter external headwinds and was confident of 15% growth in FY12.
L&T expects 15,000MW of orders, besides NTPC bulk orders, over the next few
quarters. It announced large orders such as the Hyderabad Metro (INR12b), fourlaning
of NH14 between Beawar and Pindwara (INR17b), a 360MW plant order from
PPN (INR14b), EPC order from Zawtika Wellhead Platforms for PTTEP of Thailand
(INR10b), PPN's order to construct a power plant (INR35b), orders from ADNOC
(Abu Dhabi) and a UAE-based company (USD639m), driving order intake growth.
We expect the order book to grow to INR899b. Prospects are improving in sectors
like infrastructure, hydrocarbons and process segments. In the power sector, demand
outlook is strong in T&D and BoP spaces. However, uncertainty plagues sectors like
downstream hydrocarbon, defense and power equipment. The hydrocarbon division
is facing competitive pressure from new entrants. There is a project pipeline worth
USD15b from the Middle East, where L&T aims to bag orders worth USD3b-4b. It is
well placed (lowest bidder) in three orders (two in Abu Dhabi, one in Thailand),
aggregating INR35b, which will be booked this year.
Execution momentum to drive FY12 revenue growth of 25%
The management maintained its FY12 revenue growth guidance of 25% but is
cautiously optimistic and might review it after 2QFY12 results, given the uncertain
business environment. Our estimates factor in FY12 revenue growth of 23% and
25% for FY13. Margins are under pressure due to rising commodity prices. The
management stated that margins could be hit by 70-80bp due to headwinds from
commodity prices. Softer commodity prices can limit margin contraction.
Other takeaways
L&T is executing infrastructure projects aggregating INR627b with equity requirement
of INR125b. L&T aims to infuse USD300m-400m of equity in subsidiaries in FY12.
The management has guided USD300m of corporate capex while its working capital
requirement is likely to increase by USD100m-200m by the end of FY12.
Valuation and view
We expect L&T to post earnings CAGR of 25% over FY11-13. Buy with an SOTPbased
target price of INR2,127. We have valued L&T standalone at 20x FY13E earnings
and subsidiaries at INR484/share. We believe improved order intake visibility justifies
the target P/E of the standalone business.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
Environment challenging but no meaningful adverse impact
The external environment is plagued by a policy logjam and high capital costs. L&T
is experiencing extended award timelines but there is no meaningful adverse impact
on ordering activity. The management said its diversified portfolio was helping L&T
counter external headwinds and was confident of 15% growth in FY12.
L&T expects 15,000MW of orders, besides NTPC bulk orders, over the next few
quarters. It announced large orders such as the Hyderabad Metro (INR12b), fourlaning
of NH14 between Beawar and Pindwara (INR17b), a 360MW plant order from
PPN (INR14b), EPC order from Zawtika Wellhead Platforms for PTTEP of Thailand
(INR10b), PPN's order to construct a power plant (INR35b), orders from ADNOC
(Abu Dhabi) and a UAE-based company (USD639m), driving order intake growth.
We expect the order book to grow to INR899b. Prospects are improving in sectors
like infrastructure, hydrocarbons and process segments. In the power sector, demand
outlook is strong in T&D and BoP spaces. However, uncertainty plagues sectors like
downstream hydrocarbon, defense and power equipment. The hydrocarbon division
is facing competitive pressure from new entrants. There is a project pipeline worth
USD15b from the Middle East, where L&T aims to bag orders worth USD3b-4b. It is
well placed (lowest bidder) in three orders (two in Abu Dhabi, one in Thailand),
aggregating INR35b, which will be booked this year.
Execution momentum to drive FY12 revenue growth of 25%
The management maintained its FY12 revenue growth guidance of 25% but is
cautiously optimistic and might review it after 2QFY12 results, given the uncertain
business environment. Our estimates factor in FY12 revenue growth of 23% and
25% for FY13. Margins are under pressure due to rising commodity prices. The
management stated that margins could be hit by 70-80bp due to headwinds from
commodity prices. Softer commodity prices can limit margin contraction.
Other takeaways
L&T is executing infrastructure projects aggregating INR627b with equity requirement
of INR125b. L&T aims to infuse USD300m-400m of equity in subsidiaries in FY12.
The management has guided USD300m of corporate capex while its working capital
requirement is likely to increase by USD100m-200m by the end of FY12.
Valuation and view
We expect L&T to post earnings CAGR of 25% over FY11-13. Buy with an SOTPbased
target price of INR2,127. We have valued L&T standalone at 20x FY13E earnings
and subsidiaries at INR484/share. We believe improved order intake visibility justifies
the target P/E of the standalone business.
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