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UBS Investment Research
L & T
Performance in-line with expectations
„ Event: Q1FY12 results in line with UBS-e and consensus expectations
L&T reported revenues of Rs94.8bn (+21% y/y, UBS-e Rs93.8bn, consensus
Rs95bn), operating profit of Rs11.3bn (+12% y/y, UBS-e Rs11.3bn, consensus
Rs11.4bn), EBITDA margins of 11.9% (UBS-e and consensus expectation of 12%)
and pre-ex PAT of Rs7.5bn (+12% y/y, UBS-e Rs7.3bn, consensus Rs7.4bn).
„ Impact: Project execution on track; reiterates guidance of 25% growth
L&T reiterated its FY12 guidance of 25% YoY revenue growth (UBS-e ~22%) and
stated that execution of existing orders is in-line with expectations. It also
maintained its margin outlook for FY12 at downside risk of 50-75bps YoY (UBS-e
-60bps). L&T Infotech reported 30% YoY revenue growth and 18% PAT growth.
„ Action: Order inflows of Rs162bn; backlog is 2.6x 1-yr forward revenues
Q1 orders are 18% of our yearly estimate. Order-flows in the E&C business can be
lumpy- in FY10/11, Q1 orders comprised 13/19% of the yearly order intake.
Backlog at Rs1,362bn is 2.6x 1-yr forward revenues. L&T stated that though
elongated decision-making processes continue and there is stiff competition, it sees
no reason to change its guidance of 15% growth in orders for FY12 currently. It is
witnessing signs of pick-up in export markets and is positive on the Middle-East.
L&T sees good momentum in hydro-carbon and T&D segments.
„ Valuation: Maintain Buy; Top pick in Indian infrastructure space
We have a SOTP-based PT of Rs2,100. In our view, L&T is the best play on
India’s structurally strong infrastructure growth story. While Q1 results for E&C
companies have not been good, L&T’s performance was in line with expectations.
Key takeaways from conference call:
Q Q1 orders: Major projects- In Q1FY12, L&T booked Rs17bn BeawarPindwara project, Rs14bn gas based power EPC project in Tamilnadu from
PPN Power Generating Co, Rs12bn civil works related project from
Hyderabad metro and Rs8/8/5bn projects from Tata Steel/Bangalore
International Airport/Reliance Infrastructure. Major international orders
comprised Rs10bn EPC project from PTTEP in Thailand and Rs4bn Power
T&D project in Abu Dhabi.
Q Order inflows: Though ordering environment continues to witness deferral
of award decisions and level of competition continues to be stiff, the
company sees no reason currently to revise its order inflow guidance of 15%
growth YoY in FY12. The company continues to be selective in the road
sector as competition continues to be high. In the power sector, a number of
issues remain and though the project pipeline is large, progress remains slow.
L&T continues to be bullish on the Middle-East order flows. It sees good
momentum in the hydro-carbon and T&D segments.
US$640m orders in Abu Dhabi declared on 7
th
August would be booked in
Q2. Out of the Rs35bn order announced form the PPN Power Generating
Company for gas-based projects, only Rs14bn has been booked as orders in
Q1 as Notice to Proceed has been received only for one unit (balance would
be booked as and when the client provides Notice to Proceed). Slow moving
orders comprise 5-10% of the order book at any point of time.
Q Hyderabad metro: ~Rs70bn has been booked and more parcels of the total
project still need to be ordered out (total project cost is ~Rs160bn, though
EPC ordering would be lower as project cost includes IDC etc). Land
acquisition has progressed well.
Q Karchana project: Though there are land-acquisition related issues in the
project, the client has requested not to cancel the order. Execution of this
order is not factored in the FY12 guidance given by the company.
Q KPCL project: Although land acquisition has been completed,
environmental clearance is still pending.
Q Increase in staff costs: Staff cost has risen driven by increase in manpower
(6,400 employees on a base of about 45,000 employees), revision in
compensation structure and normal increments.
Q Working capital: Net working capital has increased to 10.3% of sales from
7.9% of sales in last quarter. This was due to increased support forwarded to
vendors in light of tight liquidity conditions.
Q Capex- Rs15bn at the standalone level and Rs15-20bn earmarked for
investment in subsidiaries in FY12.
Q Depreciation: Higher in Q1, mainly driven by incremental capex.
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
Performance in-line with expectations
„ Event: Q1FY12 results in line with UBS-e and consensus expectations
L&T reported revenues of Rs94.8bn (+21% y/y, UBS-e Rs93.8bn, consensus
Rs95bn), operating profit of Rs11.3bn (+12% y/y, UBS-e Rs11.3bn, consensus
Rs11.4bn), EBITDA margins of 11.9% (UBS-e and consensus expectation of 12%)
and pre-ex PAT of Rs7.5bn (+12% y/y, UBS-e Rs7.3bn, consensus Rs7.4bn).
„ Impact: Project execution on track; reiterates guidance of 25% growth
L&T reiterated its FY12 guidance of 25% YoY revenue growth (UBS-e ~22%) and
stated that execution of existing orders is in-line with expectations. It also
maintained its margin outlook for FY12 at downside risk of 50-75bps YoY (UBS-e
-60bps). L&T Infotech reported 30% YoY revenue growth and 18% PAT growth.
„ Action: Order inflows of Rs162bn; backlog is 2.6x 1-yr forward revenues
Q1 orders are 18% of our yearly estimate. Order-flows in the E&C business can be
lumpy- in FY10/11, Q1 orders comprised 13/19% of the yearly order intake.
Backlog at Rs1,362bn is 2.6x 1-yr forward revenues. L&T stated that though
elongated decision-making processes continue and there is stiff competition, it sees
no reason to change its guidance of 15% growth in orders for FY12 currently. It is
witnessing signs of pick-up in export markets and is positive on the Middle-East.
L&T sees good momentum in hydro-carbon and T&D segments.
„ Valuation: Maintain Buy; Top pick in Indian infrastructure space
We have a SOTP-based PT of Rs2,100. In our view, L&T is the best play on
India’s structurally strong infrastructure growth story. While Q1 results for E&C
companies have not been good, L&T’s performance was in line with expectations.
Key takeaways from conference call:
Q Q1 orders: Major projects- In Q1FY12, L&T booked Rs17bn BeawarPindwara project, Rs14bn gas based power EPC project in Tamilnadu from
PPN Power Generating Co, Rs12bn civil works related project from
Hyderabad metro and Rs8/8/5bn projects from Tata Steel/Bangalore
International Airport/Reliance Infrastructure. Major international orders
comprised Rs10bn EPC project from PTTEP in Thailand and Rs4bn Power
T&D project in Abu Dhabi.
Q Order inflows: Though ordering environment continues to witness deferral
of award decisions and level of competition continues to be stiff, the
company sees no reason currently to revise its order inflow guidance of 15%
growth YoY in FY12. The company continues to be selective in the road
sector as competition continues to be high. In the power sector, a number of
issues remain and though the project pipeline is large, progress remains slow.
L&T continues to be bullish on the Middle-East order flows. It sees good
momentum in the hydro-carbon and T&D segments.
US$640m orders in Abu Dhabi declared on 7
th
August would be booked in
Q2. Out of the Rs35bn order announced form the PPN Power Generating
Company for gas-based projects, only Rs14bn has been booked as orders in
Q1 as Notice to Proceed has been received only for one unit (balance would
be booked as and when the client provides Notice to Proceed). Slow moving
orders comprise 5-10% of the order book at any point of time.
Q Hyderabad metro: ~Rs70bn has been booked and more parcels of the total
project still need to be ordered out (total project cost is ~Rs160bn, though
EPC ordering would be lower as project cost includes IDC etc). Land
acquisition has progressed well.
Q Karchana project: Though there are land-acquisition related issues in the
project, the client has requested not to cancel the order. Execution of this
order is not factored in the FY12 guidance given by the company.
Q KPCL project: Although land acquisition has been completed,
environmental clearance is still pending.
Q Increase in staff costs: Staff cost has risen driven by increase in manpower
(6,400 employees on a base of about 45,000 employees), revision in
compensation structure and normal increments.
Q Working capital: Net working capital has increased to 10.3% of sales from
7.9% of sales in last quarter. This was due to increased support forwarded to
vendors in light of tight liquidity conditions.
Q Capex- Rs15bn at the standalone level and Rs15-20bn earmarked for
investment in subsidiaries in FY12.
Q Depreciation: Higher in Q1, mainly driven by incremental capex.
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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