Larsen & Toubro - No surprises in 1QFY12 results :: Macquarie Research,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Larsen & Toubro
No surprises in 1QFY12 results
Event
 L&T reported its 1QFY12 results with 20% and 12% growth in revenues and
earnings respectively, exactly in line with estimates. The company has kept its
guidance unchanged on all parameters – revenues, guidance and order inflow
growth. We believe macro uncertainty has definitely increased risk on the
order inflow front. We still maintain our Outperform with a one-year view and a
revised price target of Rs2,074 (from Rs2,093).
Impact
 1QFY12 results in line with estimates: There were no surprises in L&T’s
1QFY12 results, with revenues at Rs94.83bn (up 20% YoY), core EBITDA
margin at 11.9% (down 90bps YoY) and net earnings at Rs7.5bn (up 12%
YoY). Reported segmental EBIT margins have shown higher declines due to
higher forex income last year. Ex all adjustments (explained in detail on page
2), EBIT is down by only 60bps.
 Guidance maintained, comfort higher on revenues and margins: L&T
management has maintained guidance of a) 25% revenue growth b) potential
margin decline of 50-75bps and c) order inflow growth of 15%. Domestic E&C
revenue growth remains robust, while exports E&C should rebound strongly
with 50% growth in order book. Similarly on margins, the company still has
cushion on potential write-back of provisions created for Delhi airport in FY11.
 Macro economic uncertainties may put order inflow at risk: Order inflows
in 1QFY12 stood at Rs16.5bn (flat YoY), which was better than
management’s expectations. The company’s guidance of 15-20% order inflow
growth is contingent on strong order inflow from overseas markets, especially
the Middle East. It is difficult to assess the impact of heightened global
uncertainties on project awards in the Middle East.
 Downside risk to earnings limited: Revenue growth only at 25% and 50bps
decline in FY12 (our projections of 28% growth and 20bps decline) should
lead to downside of only 4%. Further, if FY12 order inflows disappoint at 10%
YoY growth, additional negative impact on FY13 EPS should be limited to 3%.
We have already built in margin decline of 70bps over FY11-13.
Earnings and target price revision
 No change in earnings. Marginally change target price to Rs2,074 (from
2,093) to factor in dilution at L&T Finance Holdings.
Price catalyst
 12-month price target: Rs2,074.00 based on a Sum of Parts methodology.
 Catalyst: pick up in order inflow in India and overseas markets
Action and recommendation
 Trading at attractive valuation with 1-yr perspective, maintain
Outperform: L&T is trading at 15x FY12 and 13x FY13 EPS (adjusted for
subsidiaries valuation). There is near-term risk due to macro uncertainty but
possible benefit from lower commodity prices and potentially peaking interest
rates. Retain Outperform with a revised price target of Rs2,074 (from Rs2,093
earlier).