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India Equity Research Reports, IPO and Stock News
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Squeezed but resilient
L&T’s 1QFY12 recurring net profits rose 11%YoY to Rs12.2/sh – below estimates
on weaker than expected performance across all three segments. L&T maintained
its guidance for the year; we were more conservative across items, we now further
lower our E&C margin outlook and E&E, MIP Ebitda to cut FY12-14 EPS by 3-4%.
L&T’s resilient stock performance and the weak macro leave few catalysts for a
near term re-rating but its broad sector footprint, strong execution and a net cash
balance sheet should still allow it to maintain its valuation premium to peers. O-PF.
Margins hit core harder than expected; recurring EPS up 11% YoY
L&T’s 1Q standalone revenue rose 21%YoY to Rs95bn, 3% below estimate; Ebitda
(Rs11bn, +21%YoY, ex forex changes) was 8% lower. Performance was weaker across
segments. E&C revenues (Rs80bn, +22%YoY) were marginally lower while margins
(down 186bps YoY to 11.9%) also contracted more than we expected on higher raw
material, employee costs (+36% YoY) and as some large projects were yet to reach
margin recognition thresholds in 1Q. Ebitda in E&E (3%YoY drop in revenues, 1.3ppt
cut in margins, higher input cost, competition) and in MIP (2.9ppt cut in margins,
higher input costs, adverse mix) also disappointed. Fx gains (Rs350m), higher interest
income (+109%YoY) helped while depreciation (capacity increase, change in norms)
and interest costs (rates) hurt. Recurring EPS (Rs12.2, +11%YoY) was 6% below.
Orders +4% YoY driven by domestic private infra; PSU still anaemic
Overall orders rose 4% YoY to Rs162bn; E&C orders too rose 4%YoY to Rs142bn and
came lower than anticipated on the part deferral of an Rs35bn gas-based power-plant
EPC order announced earlier. While domestic orders fell 2%YoY, this is skewed by the
Rs52bn internal Rajpura win in 1QFY11. External domestic orders rose 30%YoY driven
by a ~40% rise in private sector orders primarily in infra; public sector orders (flat
YoY) remain anaemic. Export orders picked up (+59%YoY, 16% of 1Q orders).
L&T maintains guidance; we now model in a 1.3ppt cut in Ebitda margins
Despite the 4% rise in order-flow in 1Q and the uncertain macro, L&T reiterated its 15-
20% orderflow guidance for the year (implied 9m = +18-24%); we model +14%
(implied 9m = +16%). L&T remains confident of its +25% revenue growth as well
(noting that it has accounted for a execution freeze in the JPA Karchana project) and
reiterated its 50-75bps downward bias expectation for Ebitda margins; we now model
in a 1.3ppt cut in margins in FY12 and 3ppt over FY12-14. We also lower our estimates
for E&E and MIP to cut FY12-13 consol EPS by 3-4%. Our cuts also model in marginally
lower other income too as working capital rises (1Q saw a 2.4ppt rise to 10% of sales).
Best positioned to weather the weak macro; maintain O-PF
L&T’s resilient stock performance and the weak sector macro leave few catalysts for a
near term re-rating but its broad sector footprint, strong execution and a net cash
balance sheet should still allow it to maintain its valuation premium to peers. O-PF.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Squeezed but resilient
L&T’s 1QFY12 recurring net profits rose 11%YoY to Rs12.2/sh – below estimates
on weaker than expected performance across all three segments. L&T maintained
its guidance for the year; we were more conservative across items, we now further
lower our E&C margin outlook and E&E, MIP Ebitda to cut FY12-14 EPS by 3-4%.
L&T’s resilient stock performance and the weak macro leave few catalysts for a
near term re-rating but its broad sector footprint, strong execution and a net cash
balance sheet should still allow it to maintain its valuation premium to peers. O-PF.
Margins hit core harder than expected; recurring EPS up 11% YoY
L&T’s 1Q standalone revenue rose 21%YoY to Rs95bn, 3% below estimate; Ebitda
(Rs11bn, +21%YoY, ex forex changes) was 8% lower. Performance was weaker across
segments. E&C revenues (Rs80bn, +22%YoY) were marginally lower while margins
(down 186bps YoY to 11.9%) also contracted more than we expected on higher raw
material, employee costs (+36% YoY) and as some large projects were yet to reach
margin recognition thresholds in 1Q. Ebitda in E&E (3%YoY drop in revenues, 1.3ppt
cut in margins, higher input cost, competition) and in MIP (2.9ppt cut in margins,
higher input costs, adverse mix) also disappointed. Fx gains (Rs350m), higher interest
income (+109%YoY) helped while depreciation (capacity increase, change in norms)
and interest costs (rates) hurt. Recurring EPS (Rs12.2, +11%YoY) was 6% below.
Orders +4% YoY driven by domestic private infra; PSU still anaemic
Overall orders rose 4% YoY to Rs162bn; E&C orders too rose 4%YoY to Rs142bn and
came lower than anticipated on the part deferral of an Rs35bn gas-based power-plant
EPC order announced earlier. While domestic orders fell 2%YoY, this is skewed by the
Rs52bn internal Rajpura win in 1QFY11. External domestic orders rose 30%YoY driven
by a ~40% rise in private sector orders primarily in infra; public sector orders (flat
YoY) remain anaemic. Export orders picked up (+59%YoY, 16% of 1Q orders).
L&T maintains guidance; we now model in a 1.3ppt cut in Ebitda margins
Despite the 4% rise in order-flow in 1Q and the uncertain macro, L&T reiterated its 15-
20% orderflow guidance for the year (implied 9m = +18-24%); we model +14%
(implied 9m = +16%). L&T remains confident of its +25% revenue growth as well
(noting that it has accounted for a execution freeze in the JPA Karchana project) and
reiterated its 50-75bps downward bias expectation for Ebitda margins; we now model
in a 1.3ppt cut in margins in FY12 and 3ppt over FY12-14. We also lower our estimates
for E&E and MIP to cut FY12-13 consol EPS by 3-4%. Our cuts also model in marginally
lower other income too as working capital rises (1Q saw a 2.4ppt rise to 10% of sales).
Best positioned to weather the weak macro; maintain O-PF
L&T’s resilient stock performance and the weak sector macro leave few catalysts for a
near term re-rating but its broad sector footprint, strong execution and a net cash
balance sheet should still allow it to maintain its valuation premium to peers. O-PF.
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