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Larsen & Toubro Ltd.
Guidance at risk; NTPC order
lost on poor MHI TG specs
„Lost opportunity in bulk tender on poor MHI TG specifications
L&T group lost power orders worth Rs82-106bn from NTPC’s bulk tender for
9x800MW. Key trouble for L&T was not only the price but the poor technical
specifications (heat rate, Aux consumption) of Mitsubishi TG, which helped Toshiba
emerge L2 and L&T-MHI lost the order as in this bid only 2 bidders apart from BHEL
could win an order. This big order loss and its disqualification in 660MW TG bulk
tender could not only cause L&T to miss its FY12 inflow guidance but also make its
BTG JVs struggle to break-even. Despite this we maintain our Buy at 13x FY13E
EPS on EPS CAGR of 23% (FY11-13E) driven by backlog +26%YoY and the stock
under-performance (1 year -4%). Capex in lower RoE infra assets – Rajpura Power,
Hyderabad metro etc. are risks.
Group lost Rs82-106bn order in NTPC 800MW bulk tender
L&T (Parent) lost orders of ~Rs16bn / Rs41bn (2% / 4% of its FY12E inflows) on
poor MHI TG specifications. L&T-MHI bid @ Rs17.1mn/MW (+4% L1 bid) in boiler
and Rs10.4mn/MW (+2% L1 bid). While in boilers, its price was high, in TG it was
just Rs1mn higher vs Toshiba at Rs71.5bn. However, due to higher Aux power
consumption of MHI turbines vs Toshiba (6426kW vs 6316) and its poor heat rate
(1823 kCal/kWh vs 1819), L&T's bid faced with higher loading and lost to Toshiba.
Strategic observations from NTPC 9x800MW bulk tender
In boiler bid: a) BGR-Hitachi (lost last 2 bids vs BHEL) and Thermax-Babcock (1st
bid loss) may re-think their presence in India on lack of competitiveness, while
Doosan makes an entry and b) healthy ASP from new competition (Doosan) leading
to sustained margins and improving visibility for BHEL. In TG bid: a) Lower profits /
higher losses in the TG sector on fragmentation / low utilization ex-BHEL. The
winner of 1st bulk tender of 660MW - BF-Alstom (5 sets), didn't win any sets in 2nd
bulk tender of 800MW and BGRH won 5 sets, and b) Increase in competition on
entry of BGRH in India and aggressive bids by BGRH, L&T and Toshiba.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Larsen & Toubro Ltd.
Guidance at risk; NTPC order
lost on poor MHI TG specs
„Lost opportunity in bulk tender on poor MHI TG specifications
L&T group lost power orders worth Rs82-106bn from NTPC’s bulk tender for
9x800MW. Key trouble for L&T was not only the price but the poor technical
specifications (heat rate, Aux consumption) of Mitsubishi TG, which helped Toshiba
emerge L2 and L&T-MHI lost the order as in this bid only 2 bidders apart from BHEL
could win an order. This big order loss and its disqualification in 660MW TG bulk
tender could not only cause L&T to miss its FY12 inflow guidance but also make its
BTG JVs struggle to break-even. Despite this we maintain our Buy at 13x FY13E
EPS on EPS CAGR of 23% (FY11-13E) driven by backlog +26%YoY and the stock
under-performance (1 year -4%). Capex in lower RoE infra assets – Rajpura Power,
Hyderabad metro etc. are risks.
Group lost Rs82-106bn order in NTPC 800MW bulk tender
L&T (Parent) lost orders of ~Rs16bn / Rs41bn (2% / 4% of its FY12E inflows) on
poor MHI TG specifications. L&T-MHI bid @ Rs17.1mn/MW (+4% L1 bid) in boiler
and Rs10.4mn/MW (+2% L1 bid). While in boilers, its price was high, in TG it was
just Rs1mn higher vs Toshiba at Rs71.5bn. However, due to higher Aux power
consumption of MHI turbines vs Toshiba (6426kW vs 6316) and its poor heat rate
(1823 kCal/kWh vs 1819), L&T's bid faced with higher loading and lost to Toshiba.
Strategic observations from NTPC 9x800MW bulk tender
In boiler bid: a) BGR-Hitachi (lost last 2 bids vs BHEL) and Thermax-Babcock (1st
bid loss) may re-think their presence in India on lack of competitiveness, while
Doosan makes an entry and b) healthy ASP from new competition (Doosan) leading
to sustained margins and improving visibility for BHEL. In TG bid: a) Lower profits /
higher losses in the TG sector on fragmentation / low utilization ex-BHEL. The
winner of 1st bulk tender of 660MW - BF-Alstom (5 sets), didn't win any sets in 2nd
bulk tender of 800MW and BGRH won 5 sets, and b) Increase in competition on
entry of BGRH in India and aggressive bids by BGRH, L&T and Toshiba.
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