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Larsen & Toubro Ltd.
Mgt. cut inflow & margin
guidance; New orders fall 21%
„Orders -21%; EBITDA +17%; Rec PAT +30% on treasury; Neutral
L&T cut its FY12 order inflows guidance to 5% vs 15-20% and hiked its margin fall
guidance to 75-125bps v/s 50-75 bps. We recently downgraded L&T predicated
on its likely miss of its inflow guidance & weak earnings (read L&T). L&T’s
2QFY12 new orders fell 21%YoY. Quality of its 2Q Rec PAT +30%YoY (3%
ahead of consensus) was poor as it was driven by 57% higher treasury income.
We maintain our non-consensus Neutral rating on risks of a de-rating in its core
business led by – 1. Weak FY12 order inflows guidance on loss of big-ticket
orders in power, metal & Infra space, and low business confidence in India (below
2009!), 2. Weaker EPS growth – 14% over FY11-14 v/s 19% over FY08-11, and
3. RoE decline on shift in its business model to an Infra developer.
Margin -50bps on wage hike; Treasury drive PAT; W. Cap Up
While L&T’s execution was good, its 2Q E&C EBITDA margin fell by 50bps on
higher staff cost (+33%) due to +16%YoY in manpower (+6k) and wage hike.
While Rec PAT grew 30%YoY on 57% higher treasury income led by subsidiary
dividend +68%. Importantly, balance sheet begun to stretch – L&T’s net working
capital expanded to 12.6% v/s 8.3% as L&T had to fund its SME vendors and its
investment in subs increased by Rs10bn +15%YTD to fund Infra assets.
Can it clock 2H growth of 18% to reach 5% inflow guidance?
L&T 2Q12 inflows fell 21YoY% mainly on a) lack captive orders which contributed
23% in 2Q11 inflows and b) 19%YoY fall in private orders. This was offset by 44%
growth in public orders. Mgt. cut its guidance for FY12 inflow to +5% (vs 15-20%)
requiring a ~18% growth in 2H order inflows, which looks a tough ask. However, it
maintained sales guidance of +25%YoY, which requires 2H growth of 27%YoY.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Larsen & Toubro Ltd.
Mgt. cut inflow & margin
guidance; New orders fall 21%
„Orders -21%; EBITDA +17%; Rec PAT +30% on treasury; Neutral
L&T cut its FY12 order inflows guidance to 5% vs 15-20% and hiked its margin fall
guidance to 75-125bps v/s 50-75 bps. We recently downgraded L&T predicated
on its likely miss of its inflow guidance & weak earnings (read L&T). L&T’s
2QFY12 new orders fell 21%YoY. Quality of its 2Q Rec PAT +30%YoY (3%
ahead of consensus) was poor as it was driven by 57% higher treasury income.
We maintain our non-consensus Neutral rating on risks of a de-rating in its core
business led by – 1. Weak FY12 order inflows guidance on loss of big-ticket
orders in power, metal & Infra space, and low business confidence in India (below
2009!), 2. Weaker EPS growth – 14% over FY11-14 v/s 19% over FY08-11, and
3. RoE decline on shift in its business model to an Infra developer.
Margin -50bps on wage hike; Treasury drive PAT; W. Cap Up
While L&T’s execution was good, its 2Q E&C EBITDA margin fell by 50bps on
higher staff cost (+33%) due to +16%YoY in manpower (+6k) and wage hike.
While Rec PAT grew 30%YoY on 57% higher treasury income led by subsidiary
dividend +68%. Importantly, balance sheet begun to stretch – L&T’s net working
capital expanded to 12.6% v/s 8.3% as L&T had to fund its SME vendors and its
investment in subs increased by Rs10bn +15%YTD to fund Infra assets.
Can it clock 2H growth of 18% to reach 5% inflow guidance?
L&T 2Q12 inflows fell 21YoY% mainly on a) lack captive orders which contributed
23% in 2Q11 inflows and b) 19%YoY fall in private orders. This was offset by 44%
growth in public orders. Mgt. cut its guidance for FY12 inflow to +5% (vs 15-20%)
requiring a ~18% growth in 2H order inflows, which looks a tough ask. However, it
maintained sales guidance of +25%YoY, which requires 2H growth of 27%YoY.
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