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Larsen & Toubro (LART.BO)
Buy Equity Research
Inline with expectations: growth guidance retained; reiterate Buy
What surprised us
L&T reported 1QFY12 sales of Rs95 bn, implying 20% yoy growth – inline
with our and Bloomberg consensus estimates. EBITDA margin for the
quarter at 11.9% was slightly below our estimate of 12% and 90 bp below
1QFY11 margins. While closing order backlog at Rs1.36 tn implied a 26%
yoy growth, order inflows for the quarter grew only by 4% yoy, reflecting
uncertain overall investment activity across domestic Industrial and
Infrastructure segments. The company retained its guidance for 25%
revenue growth driven by its order book (2.7X FY12E sales coverage) and
15% order inflow growth for FY12E (with Hydrocarbons a key area of
incremental growth).
What to do with the stock
While the domestic power segment continues to be the most under
pressure, order inflows from the domestic Infrastructure and Middle East
Hydrocarbon segments have compensated. We believe L&T’s broader
service portfolio and deeper geographical reach positions it well to acquire
market share and to grow inflows faster than the overall market.
Along with order inflows, we believe the market also has concerns over
the company’s ability to achieve 25% revenue growth this year – but we
forecast parent sales growth of 25% for FY12E as we believe on schedule
execution of the existing order book itself would ensure a majority of these
billings, and hence should be reasonably secure. We fine-tune our EPS
estimates by -1% to -3% and cut our 12m SOTP-based TP slightly to
Rs1,953 (from Rs2,006). Risks: 1) Aggressive bidding for projects; 2) Longer
than expected delay in order inflow pick-up; 3) Volatile commodity prices
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Larsen & Toubro (LART.BO)
Buy Equity Research
Inline with expectations: growth guidance retained; reiterate Buy
What surprised us
L&T reported 1QFY12 sales of Rs95 bn, implying 20% yoy growth – inline
with our and Bloomberg consensus estimates. EBITDA margin for the
quarter at 11.9% was slightly below our estimate of 12% and 90 bp below
1QFY11 margins. While closing order backlog at Rs1.36 tn implied a 26%
yoy growth, order inflows for the quarter grew only by 4% yoy, reflecting
uncertain overall investment activity across domestic Industrial and
Infrastructure segments. The company retained its guidance for 25%
revenue growth driven by its order book (2.7X FY12E sales coverage) and
15% order inflow growth for FY12E (with Hydrocarbons a key area of
incremental growth).
What to do with the stock
While the domestic power segment continues to be the most under
pressure, order inflows from the domestic Infrastructure and Middle East
Hydrocarbon segments have compensated. We believe L&T’s broader
service portfolio and deeper geographical reach positions it well to acquire
market share and to grow inflows faster than the overall market.
Along with order inflows, we believe the market also has concerns over
the company’s ability to achieve 25% revenue growth this year – but we
forecast parent sales growth of 25% for FY12E as we believe on schedule
execution of the existing order book itself would ensure a majority of these
billings, and hence should be reasonably secure. We fine-tune our EPS
estimates by -1% to -3% and cut our 12m SOTP-based TP slightly to
Rs1,953 (from Rs2,006). Risks: 1) Aggressive bidding for projects; 2) Longer
than expected delay in order inflow pick-up; 3) Volatile commodity prices
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