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Prospects intact albeit mixed Q2FY15…
• L&T's standalone revenues were below estimates at | 12717 crore vs.
our estimate of | 13293 crore. The revenue miss was on account of
20%, 32%, 21% revenue decline across power, MMH, heavy
engineering segment, respectively. On the brighter side,
infrastructure revenues were up 27% YoY at | 9633 crore.
Consolidated revenues were up 10% at | 21593 crore
• On a consolidated basis, order inflow was up 17% YoY to | 39797
crore. The total tally of order inflows in H1FY15 is at | 73205 crore.
L&T retained its 20% YoY order inflow growth guidance.
Consolidated backlog as of H1FY15 was | 214429 crore, up 14% YoY
• The company reported an operating margin of 10.5%, in line with our
expectations. Losses in the hydrocarbon segment have reduced
considerably to | 54 crore vs. | 900 crore EBIT loss in Q1FY15.
Reported standalone PAT came in at | 1042 crore (up 20.5% YoY) vs.
our estimate of | 935 crore mainly on the back of margin expansion
and dividend from subsidiaries. On a consolidated basis, L&T
reported a PAT of | 862 crore
Proxy play on India Infrastructure story
It is the most diversified engineering & infrastructure developer in the
country with a presence across all segments of infrastructure i.e. power,
roads, hydrocarbons & process industries. It is also planning to scale up
in niche areas like defence, nuclear power and shipbuilding, which have
the potential to add significantly to overall revenues in the next three to
five years (for instance, opening of defence FDI and ordering can help
L&T achieve scale of 5x in terms of defence segment revenues from
current | 1000 crore run rate). Over the last couple of years, L&T has
added capacity to meet increasing volumes. For instance, the company
had added 5000 MW of power equipment facility, the heavy engineering
facility in Oman (FY10) and recently added a complex shipbuilding
facility. Hence, we expect L&T to register a revenue CAGR of 16.58% in
FY14-16E as it commands a strong order backlog of | 214000 crore,
thereby providing visibility for three years.
Ghost of hydrocarbon segment losses receding gradually…
In Q1FY15, hydrocarbon business reported an EBIT loss of | 942 crore.
This was mainly due to cost/time overruns in Middle East hydrocarbon
orders to the tune of | 10000 crore. The management expects these
orders to get executed by FY15E. However, in Q2FY15, the segment
reported a minor loss of | 54 crore indicating that most provisions are
provided for and losses will be completely provided for in the next six to
nine months. Hence, we expect most of the pain to be over by Q4FY15.
Worst seems to be getting over as FY16E to see robust execution; BUY
Concerns such as a depleting order book in the power/heavy
engineering segment seem to be abating as ordering trends in H1FY15
for these segments seems to be encouraging. This, we believe will lead
to robust revenue booking over FY16-17E coupled with continued strong
execution of the infra segment. Even the ghost of hydrocarbon seems to
be factored into the valuation. We assign a target price of | 2206 (24
months perspective) as we believe by December 2015; we will get clarity
on the intensity of the capex cycle recovery and markets will start
discounting into FY17E-18E earnings and visibility. Thus, we believe
L&T’s is the best option to play the capex recovery cycle in India.
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
-->
Prospects intact albeit mixed Q2FY15…
• L&T's standalone revenues were below estimates at | 12717 crore vs.
our estimate of | 13293 crore. The revenue miss was on account of
20%, 32%, 21% revenue decline across power, MMH, heavy
engineering segment, respectively. On the brighter side,
infrastructure revenues were up 27% YoY at | 9633 crore.
Consolidated revenues were up 10% at | 21593 crore
• On a consolidated basis, order inflow was up 17% YoY to | 39797
crore. The total tally of order inflows in H1FY15 is at | 73205 crore.
L&T retained its 20% YoY order inflow growth guidance.
Consolidated backlog as of H1FY15 was | 214429 crore, up 14% YoY
• The company reported an operating margin of 10.5%, in line with our
expectations. Losses in the hydrocarbon segment have reduced
considerably to | 54 crore vs. | 900 crore EBIT loss in Q1FY15.
Reported standalone PAT came in at | 1042 crore (up 20.5% YoY) vs.
our estimate of | 935 crore mainly on the back of margin expansion
and dividend from subsidiaries. On a consolidated basis, L&T
reported a PAT of | 862 crore
Proxy play on India Infrastructure story
It is the most diversified engineering & infrastructure developer in the
country with a presence across all segments of infrastructure i.e. power,
roads, hydrocarbons & process industries. It is also planning to scale up
in niche areas like defence, nuclear power and shipbuilding, which have
the potential to add significantly to overall revenues in the next three to
five years (for instance, opening of defence FDI and ordering can help
L&T achieve scale of 5x in terms of defence segment revenues from
current | 1000 crore run rate). Over the last couple of years, L&T has
added capacity to meet increasing volumes. For instance, the company
had added 5000 MW of power equipment facility, the heavy engineering
facility in Oman (FY10) and recently added a complex shipbuilding
facility. Hence, we expect L&T to register a revenue CAGR of 16.58% in
FY14-16E as it commands a strong order backlog of | 214000 crore,
thereby providing visibility for three years.
Ghost of hydrocarbon segment losses receding gradually…
In Q1FY15, hydrocarbon business reported an EBIT loss of | 942 crore.
This was mainly due to cost/time overruns in Middle East hydrocarbon
orders to the tune of | 10000 crore. The management expects these
orders to get executed by FY15E. However, in Q2FY15, the segment
reported a minor loss of | 54 crore indicating that most provisions are
provided for and losses will be completely provided for in the next six to
nine months. Hence, we expect most of the pain to be over by Q4FY15.
Worst seems to be getting over as FY16E to see robust execution; BUY
Concerns such as a depleting order book in the power/heavy
engineering segment seem to be abating as ordering trends in H1FY15
for these segments seems to be encouraging. This, we believe will lead
to robust revenue booking over FY16-17E coupled with continued strong
execution of the infra segment. Even the ghost of hydrocarbon seems to
be factored into the valuation. We assign a target price of | 2206 (24
months perspective) as we believe by December 2015; we will get clarity
on the intensity of the capex cycle recovery and markets will start
discounting into FY17E-18E earnings and visibility. Thus, we believe
L&T’s is the best option to play the capex recovery cycle in India.
LINK
http://content.icicidirect.com/mailimages/IDirect_LarsenToubro_Q2FY15.pdf
http://content.icicidirect.com/mailimages/IDirect_LarsenToubro_Q2FY15.pdf
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