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Above estimates; Maintain Buy
Revenue & PAT above estimates: L&T’s standalone revenue increased 22% YoY and 32% QoQ to Rs184.6bn due to rise in E&C revenue to Rs 165bn( up 22% YoY and 34% QoQ), E&E segment revenue increased Rs9.4bn (up 14.8% YoY and 29.3% QoQ) , and other segment business revenue to Rs2.7bn (up 28% YoY and 7% QoQ). EBIDTA margins increased 430bps QoQ and 30bps YoY to 13.9% due to increase in contribution from E&E and other business segments and also change in project mix from E&C vertical. Interest cost declined 11% YoY and 37% QoQ to Rs1.2bn. Resultant, PAT grew 14% YoY to Rs19.9bn was above our estimates of Rs16.3bn.
Healthy Order backlog: We estimate order inflow of 2.5% growth in FY13 against management’s guidance of 15% for FY13 (missed target for FY12 of 5% growth). Further, we estimate order inflow to grow 10% YoY in FY14. Order backlog of Rs1466bn provides revenue visibility of 2.8x of FY12revenue.
Focus on international business: L&T in order to mitigate its slowdown in domestic business has ventures into new territories with offices in Kuwait, Qatar, Saudi Arabia, Iraq, Indonesia, Brazil, Perth and CIS countries. However in FY13, more focus will be on Kuwait, Qatar and Saudi Arabia. While in FY14 more focus will be on Iraq, Indonesia, Brazil, Perth and CIS countries.
Key positives: Continued traction in execution and recovery in order flows from domestic clients.
Key negatives: Continued margin pressure, lack of order visibility in new business segments – forging and ship building, and competitive intensity.
Valuation: Given L&T’s robust order backlog, strong balance sheet and proven execution capabilities, we believe our SOTP based TP of Rs 1436 per share is fairly valued. To arrive at one-year forward target, we have valued L&T’s standalone business at 15x P/E FY13 and balance subsidiaries at 1xBV or discount to CMP. Our estimates factor in continued pressure on margins due to high input costs and competitive intensity. Our target multiple is below the average trading range of stock price over the past five years.
Thanks and Regards
Rajeev Desai
Research Analyst
IFIN: IFCI Financial Services Limited
