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UBS Investment Research
L & T
Looking at key investor concerns
„ Event: We look for answers to key investor concerns on L&T
In this note we try to look at apparent key investor concerns on L&T. We believe
some of the most important ones include, a) growth in order inflows, b) slow-down
in execution, and, c) downsides to margins. In our view, a) order inflow growth is
likely to be driven by hydro-carbon and Middle-East, b) large backlog (2.4x 1-yr fwd
revenues) and good diversification are likely to support near-term execution, and, c)
operating leverage/productivity enhancements could limit dip in margins. We also
think that subsidiary investments are likely to create value in the medium-long term.
„ Impact: We believe that our estimates are not aggressive
We believe our estimates are reasonable despite near-term investor concerns on
business outlook. We project ~22% revenue growth (guidance 25%), 60bps dip in
standalone margins (guidance 50-75bps downside risk) and 15% order inflow
growth (guidance 15-20%) at the standalone level for FY12.
„ Action: Reiterate Buy, Top pick in Indian infrastructure space
On interest rate sensitivity, our analysis suggests that L&T stock price peaks/bottoms
1-4 months ahead of the interest rate cycle. Overall, we believe it is one of the best
exposures on India’s structurally strong infra growth story given its strong
competitive advantages, across the spectrum presence and robust balance sheet.
„ Valuation: SOTP-based PT of Rs2,100, trading at lower end of band
We maintain our sum-of-the-parts-based price target of Rs2,100. L&T is currently
trading at lower than the average of its historical range.
Q L & T
Larsen and Toubro (L&T) is India’s largest engineering and construction (E&C)
company, and is the only dedicated engineering procurement and contracts
(EPC) company in India. It also has interests in electrical goods such as
switchgears and control panels. L&T has several subsidiaries engaged in various
businesses such as IT services, financing of industrial equipment, collection of
toll from roads constructed under the BOT scheme, and power generation. It has
also diversified into shipbuilding and power plant equipment businesses.
Q Statement of Risk
We believe the main risks to our price target and estimates are: 1) a change in
order inflow estimates, 2) execution issues.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
L & T
Looking at key investor concerns
„ Event: We look for answers to key investor concerns on L&T
In this note we try to look at apparent key investor concerns on L&T. We believe
some of the most important ones include, a) growth in order inflows, b) slow-down
in execution, and, c) downsides to margins. In our view, a) order inflow growth is
likely to be driven by hydro-carbon and Middle-East, b) large backlog (2.4x 1-yr fwd
revenues) and good diversification are likely to support near-term execution, and, c)
operating leverage/productivity enhancements could limit dip in margins. We also
think that subsidiary investments are likely to create value in the medium-long term.
„ Impact: We believe that our estimates are not aggressive
We believe our estimates are reasonable despite near-term investor concerns on
business outlook. We project ~22% revenue growth (guidance 25%), 60bps dip in
standalone margins (guidance 50-75bps downside risk) and 15% order inflow
growth (guidance 15-20%) at the standalone level for FY12.
„ Action: Reiterate Buy, Top pick in Indian infrastructure space
On interest rate sensitivity, our analysis suggests that L&T stock price peaks/bottoms
1-4 months ahead of the interest rate cycle. Overall, we believe it is one of the best
exposures on India’s structurally strong infra growth story given its strong
competitive advantages, across the spectrum presence and robust balance sheet.
„ Valuation: SOTP-based PT of Rs2,100, trading at lower end of band
We maintain our sum-of-the-parts-based price target of Rs2,100. L&T is currently
trading at lower than the average of its historical range.
Q L & T
Larsen and Toubro (L&T) is India’s largest engineering and construction (E&C)
company, and is the only dedicated engineering procurement and contracts
(EPC) company in India. It also has interests in electrical goods such as
switchgears and control panels. L&T has several subsidiaries engaged in various
businesses such as IT services, financing of industrial equipment, collection of
toll from roads constructed under the BOT scheme, and power generation. It has
also diversified into shipbuilding and power plant equipment businesses.
Q Statement of Risk
We believe the main risks to our price target and estimates are: 1) a change in
order inflow estimates, 2) execution issues.
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