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L&T represented in our Namaste India conference. Key highlights of the
meetings were -
*The overall sentiment has improved, but that is not reflected in the ordering
at the ground level yet.
* Margins vs. volumes - L&T has witnessed intense competition in particular
sectors such as roads, hydrocarbon, etc. While the company has not
won any blockbuster order during FY12, the overall base level orders have
been good and the order book position remains comfortable at the moment,
hence the Board has not allowed individual businesses to dilute the minimum
margin threshold for bidding of any projects.
* Risk management - The basic philosophy is that both 0% and 100%
hedging are speculative and also that the viability of business should not
rely solely on presence /absence of hedges. Hence the company believes
in dynamic hedging for business. While it hedges the forex loans to the
extent (currently 80-90%) to reduce P&L volatility, the level of hedging beyond
the hygiene level by individual project managers is dynamic, based on
project-specific variables like margin profile, the contingencies factored in,
etc.
* Hyderabad Metro - The govt. has completed the land acquisition and it
may allow to start the survey work in 2 weeks and the ground level construction
may start in 2 months. However, the 'Appointed Date' is not yet
finalized. Meanwhile, L&T is proceeding with the pre-construction work.
* Middle-east - Most of the projects in M.E. markets are fixed-price contracts
and denominated in local currency (generally pegged to USD). The
reason for focusing on these markets is to diversify away from India and
also due to high entry-barrier of these markets. (e.g. a new T&D equipment
player could take 8-10 years to qualify for all ratings of equipment.)
* Power equipment JV - Currently backlog is good for 1.5 years, but may
face problems if don't get new orders over next 1 year. In the long term,
the proposed efficiency-based bidding for power projects, where fuel cost
is pass-through, could be positive for its business as it believes its equipment
have one the best efficiency metrics. L&T thinks that to make at least
a small margin, the lowest price of its basic boiler must be at least INR
15mn/MW and boiler with ESP, critical piping at INR 18/MW.
We have a Buy on L&T with a target price of INR 1600 and reiterate it as
one of our top-infra picks.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
L&T represented in our Namaste India conference. Key highlights of the
meetings were -
*The overall sentiment has improved, but that is not reflected in the ordering
at the ground level yet.
* Margins vs. volumes - L&T has witnessed intense competition in particular
sectors such as roads, hydrocarbon, etc. While the company has not
won any blockbuster order during FY12, the overall base level orders have
been good and the order book position remains comfortable at the moment,
hence the Board has not allowed individual businesses to dilute the minimum
margin threshold for bidding of any projects.
* Risk management - The basic philosophy is that both 0% and 100%
hedging are speculative and also that the viability of business should not
rely solely on presence /absence of hedges. Hence the company believes
in dynamic hedging for business. While it hedges the forex loans to the
extent (currently 80-90%) to reduce P&L volatility, the level of hedging beyond
the hygiene level by individual project managers is dynamic, based on
project-specific variables like margin profile, the contingencies factored in,
etc.
* Hyderabad Metro - The govt. has completed the land acquisition and it
may allow to start the survey work in 2 weeks and the ground level construction
may start in 2 months. However, the 'Appointed Date' is not yet
finalized. Meanwhile, L&T is proceeding with the pre-construction work.
* Middle-east - Most of the projects in M.E. markets are fixed-price contracts
and denominated in local currency (generally pegged to USD). The
reason for focusing on these markets is to diversify away from India and
also due to high entry-barrier of these markets. (e.g. a new T&D equipment
player could take 8-10 years to qualify for all ratings of equipment.)
* Power equipment JV - Currently backlog is good for 1.5 years, but may
face problems if don't get new orders over next 1 year. In the long term,
the proposed efficiency-based bidding for power projects, where fuel cost
is pass-through, could be positive for its business as it believes its equipment
have one the best efficiency metrics. L&T thinks that to make at least
a small margin, the lowest price of its basic boiler must be at least INR
15mn/MW and boiler with ESP, critical piping at INR 18/MW.
We have a Buy on L&T with a target price of INR 1600 and reiterate it as
one of our top-infra picks.
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