3QFY2016 Result Update | Infrastructure
February 2, 2015
Larsen & Toubro
BUY
CMP
`1,122
Performance Highlights
Target Price
`1,310
Quarterly highlights - Standalone
Investment Period
12 Months
Y/E March (` cr)
3QFY16 2QFY16 3QFY15
% chg (yoy)
% chg (qoq)
Net sales
14,774
13,324
14,995
(1.5)
11.6
EBITDA
1,002
1,012
1,569
(36.2)
(1.0)
Stock Info
Adj. PAT
791
643
1,060
(25.3)
23.1
Sector
Infrastructure
Source: Company, Angel Research
Market Cap (` cr)
104,496
Standalone numbers disappoint: For 3QFY2016, Larsen & Toubro (L&T) reported
Net debt (` cr)
11,421
1.5% yoy decrease in its top-line to `14,774cr, reflecting revenue de-growth
Beta
1.2
across Infrastructure and Others segments. The EBITDA margin for the quarter is
down 368bp yoy to 6.8%, on account of surge in SAO and employee expenses. The
52 Week High / Low
1,893/1,070
PAT came in at `791cr, down 25.3% yoy, reflecting poor operational performance.
Avg. Daily Volume
2,542,243
Order inflows for the consolidated entity in 9MFY2016 declined 13.2% yoy to
Face Value (`)
2
`93,524cr. The order backlog stands at `2,56,458cr, thereby giving revenue
BSE Sensex
26,656
visibility for over the next 10 quarters.
Nifty
8,066
Hydro-carbon reports minimal losses: Despite completion of legacy projects in
Reuters Code
LART.BO
the international business, strong execution of ongoing projects helped the
Bloomberg Code
[email protected]
Hydro-carbon segment report revenues of `2,184cr in 3QFY2016. For the
quarter, this segment reported a turnaround in its EBIT to `39cr vs a loss of
Shareholding Pattern (%)
`137cr in 3QFY2015. On the whole, this segment ended 9MFY2016 with an
EBIT level profit of `77cr.
Promoters
-
MF / Banks / Indian Fls
39.3
Key Positives: Surprise on the order inflow numbers for the quarter, turnaround in
the Hydro-carbon segment; net WC cycle at 24% of sales.
FII / NRIs / OCBs
16.7
Key Negatives: Lowering of order inflow guidance for FY2016, revenue de-
Indian Public / Others
44.0
growth in 3QFY2016.
Outlook and valuation: L&T’s diversified presence and an anticipated recovery in
Abs. (%)
3m
1yr
3yr
the capex cycle coupled with the company’s strong balance sheet comfort us that
Sensex
(6.9)
(14.9)
25.5
it is well positioned to benefit from a revival in the award activity environment.
LT
(20.5)
(34.0)
9.7
With order backlog expected to grow, execution should pick-up gradually. We
have valued the company using the sum-of-the-parts (SoTP) methodology, to
capture the value of all its businesses and investments. Ascribing separate values
3-year price chart
to its parent business (on a P/E basis) and investments in subsidiaries (using P/E,
2,000
P/BV and M-cap basis), we arrive at FY2017E based target price of `1,310. We
1,500
are of the view that L&T is a good proxy play for investors wanting to ride on the
revival of the Indian infrastructure growth story. Given the 16.7% upside potential
1,000
in the stock from the current levels, we maintain our BUY rating on the stock.
500
Key financials (Standalone)
0
Y/E March (` cr)
FY13
FY14
FY15E
FY16E
FY17E
Net Sales
51,611
56,599
57,017
58,870
65,708
% chg
9.7
0.7
3.2
11.6
Net Profit
4,385
5,493
5,056
3,981
4,975
Source: Company, Angel Research
% chg
25.3
(8.0)
(21.3)
25.0
EBITDA (%)
10.6
11.8
11.4
8.3
10.3
EPS (`)
53
59
54
42
53
P/E (x)
21.2
19.0
20.7
26.5
21.2
P/BV (x)
2.4
2.3
2.1
1.9
1.7
RoE (%)
14.2
15.6
13.3
8.8
11.2
RoCE (%)
17.5
18.7
16.3
11.6
13.9
Yellapu Santosh
EV/Sales (x)
2.0
2.0
2.0
2.0
1.8
022 - 3935 7800 Ext: 6811
EV/EBITDA (x)
18.5
17.0
17.8
24.1
17.5
[email protected]
Source: Company, Angel Research; Note: CMP as of February 1, 2016
Please refer to important disclosures at the end of this report
1
Larsen & Toubro | 3QFY2016 Result Update
Exhibit 1: Quarterly Performance (Standalone)
Particulars (` cr)
3QFY16
2QFY16
% chg (qoq)
3QFY15
% chg (yoy)
9mFY16
9mFY15
% chg
Net Sales
14,774
13,234
11.6
14,995
(1.5)
38,718
38,049
1.8
Total Expenditure
13,772
12,222
12.7
13,426
2.6
35,730
34,052
4.9
Operating Expenses
11,819
10,372
14.0
11,921
(0.9)
30,405
29,581
2.8
Employee benefits Expense
1,200
1,254
(4.4)
959
25.1
3,443
3,141
9.6
Sales, Admin & Other Expenses
753
596
26.4
546
38.0
1,882
1,330
41.6
EBITDA
1,002
1,012
(1.0)
1,569
(36.2)
2,988
3,998
(25.2)
EBIDTA %
6.8
7.6
10.5
7.7
10.5
Depreciation
244
254
(3.6)
264
(7.4)
744
762
(2.4)
EBIT
757
759
(0.2)
1,306
(42.0)
2,244
3,236
(30.6)
Interest and Financial Charges
381
383
(0.6)
500
(23.8)
1,052
1,085
(3.1)
Other Income
617
487
26.6
622
(0.8)
1,658
1,713
(3.2)
PBT before Exceptional Items
993
863
15.1
1,427
(30.4)
2,851
3,864
(26.2)
Exceptional Items
(92)
(546)
0
(638)
(171)
PBT after Exceptional Items
1,085
1,409
(23.0)
1,427
(24.0)
3,488
4,035
(13.6)
Tax
202
220
(8.2)
367
(44.9)
716
1,040
(31.1)
% of PBT
18.6
15.6
25.7
20.5
25.8
PAT
883
1,188
(25.7)
1,060
(16.7)
2,772
2,996
(7.5)
Adj. PAT (for excep. Items)
791
643
23.1
1,060
(25.3)
2,135
2,824
(24.4)
Adj. PAT %
5.4
4.9
7.1
5.5
7.4
Dil. EPS
9.44
12.71
(25.7)
11.34
(16.8)
29.63
32.06
(7.6)
Source: Company, Angel Research
Standalone business
Revenues de-grew 1.5% yoy
For the quarter, L&T reported a 1.5% yoy decline in its top-line to `14,774cr. The
reported revenues were below our expectation of `15,895cr. Revenue de-growth
on a yoy basis reflects (1) 8.7% decrease in Infrastructure segment, 2.6% decrease
in Metallurgical & Material Handling segment and 23.3% decrease in Others
segment. Revenue de-growth across Infrastructure segment was owing to
slowdown in payments cycle and delayed clearances. Sharp revenue de-growth in
Others segment reflects slowdown in the Realty business, and delayed receipt of
new orders. Whereas, on the other hand, Power segment reported strong yoy
revenue growth reflecting strong execution of large ticket projects won in the
previous year.
February 2, 2015
2
Larsen & Toubro | 3QFY2016 Result Update
Exhibit 2: Segment-wise Gross Revenue Split (Standalone)
Particulars (` cr)
3QFY16
2QFY16
% chg (qoq)
3QFY15
% chg (yoy)
9mFY16
9mFY15
% chg
Infrastructure
9,785
9,241
5.9
10,720
(8.7)
26,226
26,374
(0.6)
Power
2,107
1,352
55.9
1,075
96.1
4,551
3,034
50.0
Metallurgical & Material Handling
678
646
4.9
696
(2.6)
1,852
2,378
(22.1)
Heavy Engineering
826
568
45.5
749
10.3
1,989
2,361
(15.8)
Electrical & Automation
1,085
1,038
4.6
1,060
2.4
2,992
2,814
6.3
Others
791
833
(5.0)
1,030
(23.3)
2,376
2,086
13.9
Less: Inter-segment Revenues
327
289
13.2
205
59.9
803
633
26.7
Gross Segmental Revenues
14,944
13,388
11.6
15,125
(1.2)
39,183
38,412
2.0
Source: Company, Angel Research
Exhibit 3: Segment-wise Unadj. EBIT & EBIT Margins (Standalone)
Particulars (` cr)
3QFY16
2QFY16
% chg (qoq)
3QFY15
% chg (yoy)
9mFY16
9mFY15
% chg
Infrastructure
833
703
18.6
937
(11.1)
2,280
2,485
(8.3)
EBIT Margin (%)
8.5
7.6
8.7
8.7
9.4
Power
79
82
(3.5)
66
20.6
182
150
21.7
EBIT Margin (%)
3.8
6.1
6.1
4.0
4.9
Metallurgical & Material Handling
(24)
7
nmf
36
nmf
(39.6)
178
nmf
EBIT Margin (%)
(3.6)
1.1
5.2
(2.1)
7.5
Heavy Engineering
(17)
(88)
nmf
64
nmf
(64.7)
225
nmf
EBIT Margin (%)
(2.1)
(15.5)
8.6
(3.3)
9.6
Electrical & Automation
122
103
17.6
126
(3.7)
322
308
4.7
EBIT Margin (%)
11.2
10.0
11.9
10.8
10.9
Others
136
162
(16.0)
352
(61.4)
453
554
(18.2)
EBIT Margin (%)
17.2
19.4
34.2
19.0
26.5
Segmental EBIT (unadj.)
1,129
969
16.4
1,582
(28.7)
3,132
3,900
(19.7)
Source: Company, Angel Research; Note- nmf- Not Meaningful
Reports sub-7% EBITDA margin since 2QFY2007
L&T reported lower than expected EBITDA of `1,002cr in 3QFY2016. L&T, for the
first time since 2QFY2007 (6.4% margins), reported EBITDA margins below 7.0%
levels, ie at 6.8%. Further, 3QFY2016 is the third successive quarter where L&T
reported yoy decline in its EBITDA margins (down 368bps). Top-line de-growth
coupled with (a) 25.1% yoy increase in employee expenses (to `1,200cr), and (b)
38.0% yoy increase in Sales, Administrative and other (SAO) expenses (to `753cr)
led to the yoy decline in EBITDA margins.
At the segment level, EBIT margin pressure on yoy basis was seen across
Infrastructure (down 23bp to 8.5%), Electrical & Automation segment (down 72bp
to 11.2%); and Others segment (down 1,701bp to 17.2%). Margin compression
across Electrical & Automation segment is on account of change in project/
product sales mix and new product introductions.
Sharp decline in Other segment’s margin is owing to lower contribution from the
high margin Realty business. In 3QFY2016 there were no benefits of accumulated
margin recognition as in 3QFY2015.
February 2, 2015
3
Larsen & Toubro | 3QFY2016 Result Update
Exhibit 4: EBITDA margin declines to 6.8%
Exhibit 5: Adj. PAT margin decline yoy to 5.4%
3,000
13.1
14.0
2,000
12.0
1,800
9.9
2,500
10.5
10.5
12.0
10.0
1,600
8.2
9.1
10.0
1,400
2,000
7.1
8.0
7.6
6.5
6.8
8.0
1,200
5.4
1,500
1,000
4.9
6.0
6.0
800
1,000
4.0
4.0
600
400
500
2.0
2.0
200
0
0.0
0
0.0
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
EBITDA (`cr, LHS)
EBITDAM (%, RHS)
PAT (` cr, LHS)
PATM (%, RHS)
Source: Company, Angel Research
Source: Company, Angel Research
Adj. PAT numbers report yoy decline
L&T reported PAT of `883cr for the quarter, again below our estimate. On
adjusting for gains on divestment of part stake in 3 subsidiaries and stake in an
associate company (at `92cr), the Adjusted PAT of the company stood at `791cr.
The Adj. PAT margin of the company declined from 7.1% a year ago to 5.4% in
3QFY2016. Decline in yoy Adj. PAT is on account of decline in EBITDA and 23.8%
decrease in depreciation expenses to `381cr.
Consolidated business
Revenue grew 8.3% yoy
L&T reported an 8.3% yoy and 10.4% qoq growth in its consolidated business’ top-
line to `25,829cr. Revenue growth on yoy basis reflects (1) weak execution across
Infrastructure segment (2.5% revenue growth to `12,112cr), (2) strong execution
across Power segment (100.8% increase in revenue to `2,296cr),
(3)
22.7%
increase in Hydro-carbon segment (to `2,184cr), and 16.6% increase in IT &
Technology Services segment (to `2,320cr).
Weak project execution in domestic markets was offset by strong execution across
International business within the Infrastructure segment. Despite legacy projects still
nearing completion, stronger execution across Hydro-carbon segment led the
segment report strong 22.7% yoy revenue increase. IT & Technology Services
benefitted from strong revenue contribution from wide range of sectors (barring
Energy sector). Commissioning of new roads and increase in traffic across GSRDC
roads led to 12.4% yoy increase in Developmental project revenues to `1,288cr.
February 2, 2015
4
Larsen & Toubro | 3QFY2016 Result Update
Exhibit 6: Quarterly Performance (Consolidated)
Particulars (` cr)
3QFY16
2QFY16
% chg (qoq)
3QFY15
% chg (yoy)
9mFY16
9mFY15
% chg
Net Sales
25,829
23,393
10.4
23,848
8.3
69,475
63,982
8.6
Total Expenditure
23,179
20,802
11.4
20,962
10.6
61,943
56,255
10.1
Man. Cons. & Opex Exp. (MCO)
19,049
16,996
12.1
17,763
7.2
50,499
46,458
8.7
Employee benefits Expense
2,411
2,433
(0.9)
1,929
25.0
6,937
5,949
16.6
Sales, Admin & Other Expenses
1,719
1,372
25.3
1,271
35.3
4,508
3,849
17.1
EBITDA
2,650
2,592
2.3
2,886
(8.2)
7,531
7,727
(2.5)
EBIDTA %
10.3
11.1
12.1
10.8
12.1
Depreciation
620
694
(10.6)
679
(8.7)
1,936
2,035
(4.9)
EBIT
2,030
1,898
7.0
2,207
(8.0)
5,596
5,692
(1.7)
Interest and Financial Charges
745
828
(10.0)
918
(18.9)
2,279
2,379
(4.2)
Other Income
452
219
106.2
237
90.8
929
728
27.5
PBT before Exceptional Items
1,737
1,289
34.8
1,525
13.9
4,245
4,041
5.0
Exceptional Items
0
(310)
0
(310)
(249)
PBT after Exceptional Items
1,737
1,599
8.7
1,525
13.9
4,555
4,291
6.2
Tax
556
494
12.6
569
(2.4)
1,595
1,487
7.2
% of PBT
32.0
30.9
37.3
35.0
34.7
PAT before Minority Int.
1,182
1,105
6.9
956
23.6
2,960
2,803
5.6
Extra-Ordinary Items
0
0
0
0
0
Share in profit of Associates (net)
(2)
(1)
2
(1)
4
Adj. of Minority Interests
(145)
(109)
(91)
(322)
(112)
PAT after Minority Interest
1,035
996
3.9
867
19.4
2,637
2,695
(2.2)
Adj. PAT (for excep. Items)
1,035
686
50.8
867
19.4
2,327
2,446
(4.8)
Adj. PAT %
4.0
2.9
3.6
3.3
3.8
Dil. EPS
11.07
10.65
3.9
9.27
19.4
28.20
28.84
(2.2)
Source: Company, Angel Research
EBITDA margin declines yoy to 10.3%
L&T reported an 184bps yoy decline in EBITDA margin in 3QFY2016 to 10.3%.
The decline is owing to (1) 25.0% increase in employee expenses to `2,411cr and
(2) 35.3% increase in SAO expenses to `1,719cr. Surge in employee expenses is
on account of manpower augmentation, normal revisions and higher staff mix
from international operations. Increase in yoy SAO expenses is mainly attributable
to higher provisions.
Further, if we look at the segment-wise details, then yoy EBIT margins were
impacted due to margin compression seen across Power (545bps), Electrical
Automation (193bps), Infrastructure (23bps), and Others segments (224bps).
Notably, the Hydro-Carbon business reported 1.8% EBIT margin during the
quarter, against loss margin in the previous quarter and the year ago quarter.
Adj. PAT margins continue to decline
L&T reported a PAT of `1,035cr for 3QFY2016. PAT margins of the company were
at 4.0%, higher than the previous year’s 3.6%. Despite yoy EBITDA de-growth,
90.8% increase in other income to `452cr and lower tax rates (at 32.0% in
February 2, 2015
5
Larsen & Toubro | 3QFY2016 Result Update
3QFY2016 vs 37.3% in 3QFY2015) led to a 19.4% yoy increase in PAT. Increase
in other income on a yoy basis is owing to treasury gains. PAT numbers also
benefitted from 18.9% yoy decrease in interest expenses (to `745cr), which reflects
impact of loan refinancing and debt retrials.
Hydro-carbon business turns around
At the backdrop of stronger execution, Hydro-carbon business reported revenues
of `2,184cr.
Exhibit 7: Hydro-carbon - Quarterly Revenues & EBIT
2,500
40
39
100
50
2,000
(2)
0
1,500
(137)
(209)
(50)
(100)
1,000
(150)
500
(200)
0
(250)
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
Revenue (` cr, LHS)
EBIT (` cr, RHS)
Source: Company, Angel Research
Hydro-carbon business reported strong `39cr EBIT in 3QFY2016 (vs `137cr EBIT
level loss in the corresponding period a year ago). EBIT level turn around reflects
loss minimisation of international projects in the current year and legacy projects
nearing completion.
IT & Technology Services business report strong growth
L&T’s IT & Technology Services business reported an impressive 16.6% yoy
increase in revenue for the quarter to `2,320cr. Top-line growth was driven across
all the end-markets across sectors, except the Energy segment. On the profitability
front, operational efficiencies led to EBIT margin expanding by 233bp yoy to
19.8%.
February 2, 2015
6
Larsen & Toubro | 3QFY2016 Result Update
Order inflow growth disappoints
The consolidated order inflow for the quarter increased 11.3% yoy to `38,528cr
(on excluding the Services business, order inflow reported 9.9% yoy increase). A
majority of 3QFY2016 order inflows were from Transportation Infra, PT&D and
Water business.
On the whole, order inflows for 9MFY2016 declined 13.2% yoy to `93,524cr.
Exhibit 8: 3QFY16 Order Inflows mix (consol.)
Exhibit 9: 3QFY16 Order Book mix (consol.)
HE, 1%
EA, 4%
Others, 3%
EA, 1% Others, 3%
Hydrocarbon,
HE, 3%
Services, 0%
Hydrocarbon,
5%
MMH, 2%
3%
MMH, 5%
Power, 8%
Services,
14%
Power, 2%
Infrastructure,
Infrastructure,
71%
75%
Source: Company, Angel Research
Source: Company, Angel Research
L&T’s order book currently stands at `2,56,458cr, indicating a 13.6% yoy growth.
As of 3QFY2016, L&T’s order book is majorly dominated by Infra (75%), followed
by Power (8%) and Hydro-carbon (5%) segments. MMH (5%), HE (3%) and Others
(3%) which constitute the remaining order book. International order book
constitutes 27% of the total order book. The current order book gives revenue
visibility for over the next 10 quarters.
One of the positives of the 3QFY2016 results were 11.4% yoy increase in
3QFY2016 order inflows.
In the back-drop of lower 9MFY2016 order inflows and reduced bid pipeline of
`2,00,000cr (from the earlier `5,00,000cr at the beginning of year), company
Management lowered its order inflow growth guidance from earlier 5-7% to flattish
levels for FY2016. L&T in order to attain its flattish order inflow growth guidance
for FY2016 has to report `61,900cr order wins in 4QFY2016. This translates to an
asking rate of 30% order inflow growth in 4QFY2016, which in our view is very
challenging.
Despite management’s optimistic order inflow guidance, we revise downward our
order inflow (to `150,500cr and `162,600cr) and order book (to `2,88,800cr and
`3,47,000cr) assumptions for FY2016E and FY2017E, respectively.
February 2, 2015
7
Larsen & Toubro | 3QFY2016 Result Update
Revision of Estimates
Considering the yoy de-growth across 9MFY2016 order inflow numbers and lower
than expected revenue booking, we revise down our top-line and PAT number
estimates. We now expect L&T (standalone entity) to report PAT of `3,981cr and
`4,975cr for FY2016E and FY2017E, respectively.
Exhibit 10: Revised estimates
FY2016E
FY2017E
Particulars (` cr)
Old
New
% chg.
Old
New
% chg.
Net Sales
64,148
58,870
(8.2)
73,241
65,708
(10.3)
EBITDA
7,377
4,857
(34.2)
8,569
6,735
(21.4)
EBITDA Margins (%)
11.5
8.3
11.7
10.2
Rep. PAT
5,776
3,981
(31.1)
6,155
4,975
(19.2)
Rep. PAT Margins (%)
9.0
6.8
8.4
7.6
Source: Company, Angel Research
Valuation
We recommend BUY with a target price of `1,310
We believe L&T has a tough chance to beat its revised order inflow guidance and
also attain its revenue growth guidance for FY2016. Further, on considering
9MFY2016 results for Hydro-carbon vertical, we expect improved performance to
continue in 4QFY2016. On the whole, L&T with its diverse business profile (E&C,
Power, Alternate Energy, Roads & Highways, Defense, Metros, Urban Infra) is well
positioned to benefit from revival in domestic infra capex cycle.
Exhibit 11: Derivation of SOTP-based target price for L&T (FY2017E)
Business Segment
Methodology
Remarks
` cr
`/share
% to TP
L&T- Parent
P/E
15.0x FY2017E Earnings
74,632
790
60.3
Infrastructure Subsidiaries
IDPL
P/BV
1.3x FY2017E BV
11,133
118
9.0
Key Subsidiaries - Services
L&T InfoTech
P/E
15.0x FY2017E Earnings
16,574
175
13.4
L&T Finance
M-cap Basis
20% holding company discount
7,667
81
6.2
Realty Space
L&T Realty (inc. Seawoods Realty)
P/BV
1.0x FY2017E BV
3,180
34
2.6
Hydro-Carbons Business
Hydro-Carbons
P/BV
1.5x FY2017E BV
1,965
21
1.6
Key Subsidiaries - Manufacturing
L&T Power-equipment JVs
P/BV
1.0x FY2017E BV
698
7
0.6
Other Associate Companies
P/BV
1.0x FY2017E BV
5,420
58
4.4
International Business
International Subsidiaries
P/BV
1.5x FY2017E BV
2,322
25
1.9
Grand Total
108,360
1,310
100
Upside
16.7%
CMP
1,122
Source: Company, Angel Research
February 2, 2015
8
Larsen & Toubro | 3QFY2016 Result Update
We have valued the company using sum-of-the-parts (SOTP) methodology to
capture the value of all its businesses and investments. Ascribing separate values to
its parent business on a P/E basis and investments in subsidiaries (using P/E, P/BV
and M-cap basis), we arrive at a FY2017E target price of `1,310. At the current
market price of `1,122, the standalone entity is trading at an implied P/E multiple
of 11.4x (FY2017), which is attractive. We are of the view that L&T is a proxy play
for investors wanting to play on the revival in the Indian infrastructure growth story.
Given the 16.7% upside potential in the stock from the current levels, we maintain
our BUY rating on the stock.
Investment arguments
Indian capex recovery is a matter of time: Recent burst of policy measures
would ease environment for capex. This along with rate cuts makes us believe
that strong recovery is on the cards. Considering that the award activity revival
should further gain momentum, we sense that a full-fledged recovery will be
seen only in FY2017, but we can expect early signs of improvement in L&T's
execution and margin expansion from 1QFY2017 onwards.
Slowdown in order inflow from the Middle East markets coupled with revival in
domestic capex cycle should lead to shift in the order inflow mix more towards
the domestic markets, going forward. On the back of shift in order book
towards domestic markets, we expect uptick in execution. Accordingly, we have
modeled a 7.4% top-line CAGR over FY2015-2017E.
Given that L&T is currently sitting on an order book which gives revenue
visibility for over 10 quarters, this shift in order inflow mix should help the
company in faster margin recovery. We expect EBITDA margins to expand
from 8.3% in FY2016E to 10.3% in FY2017E.
Best stock to play the Indian infrastructure theme: We are of the view that L&T
is very well positioned to benefit from gradual recovery in the domestic capex
cycle, given its diverse range of sectoral exposure, strong balance sheet and
better cash flow generating potential in comparison to its peers, which are
struggling with higher leverage, and strained cash flows.
Company background
L&T, the largest Indian infrastructure conglomerate, is present across almost all the
infrastructure segments and is at the forefront of the Indian infra growth story.
Over the years, the company has diversified across various segments to encash the
untapped infra opportunity, not only in India but in other geographies as well, and
has an excellent track record of achieving the same. Currently, L&T manufactures
and services its business in over 30 countries worldwide.
February 2, 2015
9
Larsen & Toubro | 3QFY2016 Result Update
Profit & loss statement (Standalone)
Y/E March (` cr)
FY13
FY14
FY15
FY16E
FY17E
Net Sales
51,611
56,599
57,017
58,870
65,708
% Chg
9.7
0.7
3.2
11.6
Total Expenditure
46,138
49,932
50,530
54,013
58,973
Raw Mat. & Contracting Exp.
40,205
43,346
44,397
45,889
51,679
Employee benefits Expense
3,861
4,662
4,151
5,181
4,797
Sales, Admin. & Other Expenses
2,072
1,923
1,982
2,944
2,497
EBITDA
5,473
6,667
6,488
4,857
6,735
% Chg
22
(3)
(25)
39
EBIDTA %
10.6
11.8
11.4
8.3
10.3
Depreciation
728
792
1,008
1,013
1,102
EBIT
4,745
5,875
5,480
3,844
5,633
% Chg
23.8
(6.7)
(29.8)
46.5
Interest and Financial Charges
955
1,076
1,419
1,466
1,618
Other Income
1,887
1,881
2,283
2,328
2,547
PBT
5,678
6,679
6,344
4,706
6,561
Exceptional Item
(176)
(589)
(357)
(546)
(120)
PBT after Exceptional Item
5,854
7,268
6,701
5,252
6,681
Tax Expenses
1,541
1,775
1,645
1,271
1,706
% of PBT
27.1
26.6
25.9
27.0
26.0
PAT before Extra-Ordinary Items
4,313
5,493
5,056
3,981
4,975
Extra-Ordinary Item
(72)
0
0
0
0
PAT
4,385
5,493
5,056
3,981
4,975
% Chg
25.3
(8.0)
(21.3)
25.0
PAT %
8.5
9.7
8.9
6.8
7.6
EPS (after Extra-ord. Items)
53
59
54
42
53
% Chg
11.6
(8.3)
(21.6)
25.0
February 2, 2015
10
Larsen & Toubro | 3QFY2016 Result Update
Balance Sheet (Standalone)
Y/E March (` cr)
FY13
FY14
FY15
FY16E
FY17E
Sources of Funds
Equity Capital
123
185
186
186
186
Reserves Total
29,020
33,476
36,899
40,847
45,111
Networth
29,143
33,662
37,085
41,032
45,297
Total Debt
8,834
11,459
12,937
15,000
16,500
Other Long-term Liabilities
788
393
470
557
569
Deferred Tax Liability
242
410
363
363
363
Total Liabilities
39,007
45,924
50,854
56,952
62,729
Application of Funds
Gross Block
11,855
11,397
12,604
14,554
16,534
Accumulated Depreciation
3,550
3,836
4,844
5,856
6,959
Net Block
8,305
7,561
7,760
8,697
9,575
Capital WIP
597
676
222
250
250
Investments
16,103
19,215
23,053
26,103
28,413
Current Assets
47,419
50,853
55,869
58,436
62,051
Inventories
2,064
1,983
2,208
2,359
2,575
Sundry Debtors
22,613
21,539
23,051
23,876
24,475
Cash and Bank Balance
1,456
1,783
1,516
2,269
2,735
Loans, Advances & Deposits
9,413
10,067
10,533
12,088
13,279
Other Current Asset
11,873
15,481
18,562
17,845
18,987
Current Liabilities
33,417
32,381
36,050
36,534
37,560
Net Current Assets
14,002
18,472
19,820
21,902
24,491
Total Assets
39,007
45,924
50,854
56,952
62,729
Cash Flow Statement (Standalone)
Y/E March (` cr)
FY13
FY14
FY15P
FY16E
FY17E
Profit before tax
5,678
6,679
6,344
4,706
6,561
Depreciation
728
792
1,008
1,013
1,102
Change in Working Capital
(3,703)
(5,029)
(1,579)
(2,229)
(3,030)
Net Interest & Financial Charges
422
581
909
946
1,083
Direct taxes paid
(1,653)
(1,977)
(1,645)
(1,271)
(1,706)
Cash Flow from Operations
1,472
1,047
5,037
3,165
4,011
(Inc)/ Dec in Fixed Assets
(1,000)
(962)
(1,655)
(1,922)
(1,980)
(Inc)/ Dec in Investments
1,657
(252)
(2,345)
397
149
Cash Flow from Investing
657
(1,214)
(3,999)
(1,524)
(1,831)
Issue/ (Buy Back) of Equity
163
144
0
0
0
Inc./ (Dec.) in Loans
(1,515)
2,612
1,478
2,063
1,500
Dividend Paid (Incl. Tax)
(1,115)
(1,227)
(1,375)
(1,485)
(1,595)
Interest Expenses
(850)
(1,025)
(1,419)
(1,466)
(1,618)
Cash Flow from Financing
(3,316)
504
(1,316)
(888)
(1,713)
Inc/(Dec) in cash (inc. Dis. Opr)
(410)
337
(278)
753
467
Opening Cash balances
1,906
1,496
1,794
1,516
2,269
Closing Cash balances
1,496
1,794
1,516
2,269
2,735
February 2, 2015
11
Larsen & Toubro | 3QFY2016 Result Update
Key Ratios (Standalone)
Y/E March
FY13
FY14
FY15
FY16E
FY17E
Valuation Ratio (x)
P/E (on FDEPS)
21.2
19.0
20.7
26.5
21.2
P/CEPS
18.7
16.6
17.4
21.1
17.3
Dividend yield (%)
0.0
0.0
0.0
0.0
0.0
EV/Sales
2.0
2.0
2.0
2.0
1.8
EV/EBITDA
18.5
17.0
17.8
24.1
17.5
EV / Total Assets
2.6
2.5
2.3
2.1
1.9
Per Share Data (`)
EPS (fully diluted)
52.9
59.0
54.1
42.4
53.0
Cash EPS
59.9
67.5
64.6
53.2
64.7
DPS
12.0
12.3
13.3
14.4
15.4
Book Value
464
493
542
607
668
Returns (%)
RoCE (Pre-tax)
17.5
18.7
16.3
11.6
13.9
Angel RoIC (Pre-tax)
17.5
17.2
15.5
11.0
13.2
RoE
14.2
15.6
13.3
8.8
11.2
Turnover ratios (x)
Asset Turnover (Gross Block) (X)
4.4
4.9
4.8
4.3
4.2
Inventory / Sales (days)
15
13
13
14
14
Receivables (days)
160
142
143
145
134
Payables (days)
134
122
127
125
113
Leverage Ratios (x)
D/E ratio (x)
0.3
0.3
0.3
0.4
0.4
Interest Coverage Ratio (x)
6.9
7.2
5.5
4.2
5.1
February 2, 2015
12
Larsen & Toubro | 3QFY2016 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
DISCLAIMER
Angel Broking Private Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited,
Bombay Stock Exchange Limited and Metropolitan Stock Exchange of India Limited. It is also registered as a Depository Participant with
CDSL and Portfolio Manager with SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking Private Limited is
a registered entity with SEBI for Research Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration number
INH000000164. Angel or its associates has not been debarred/ suspended by SEBI or any other regulatory authority for accessing
/dealing in securities Market. Angel or its associates including its relatives/analyst do not hold any financial interest/beneficial
ownership of more than 1% in the company covered by Analyst. Angel or its associates/analyst has not received any compensation /
managed or co-managed public offering of securities of the company covered by Analyst during the past twelve months. Angel/analyst
has not served as an officer, director or employee of company covered by Analyst and has not been engaged in market making activity
of the company covered by Analyst.
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should
make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the
companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine
the merits and risks of such an investment.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
fundamentals.
The information in this document has been printed on the basis of publicly available information, internal data and other reliable
sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this
document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way
responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.
Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot
testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document.
While Angel Broking Pvt. Limited endeavors to update on a reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing so.
This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,
redistributed or passed on, directly or indirectly.
Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from
or in connection with the use of this information.
Note: Please refer to the important ‘Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the
latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may
have investment positions in the stocks recommended in this report.
Disclosure of Interest Statement
L&T
1. Analyst ownership of the stock
No
2. Angel and its Group companies ownership of the stock
No
3. Angel and its Group companies' Directors ownership of the stock
No
4. Broking relationship with company covered
No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
February 2, 2015
13