L&T: Analysts take on Q1 earnings & outlook

Heavy engineering and construction major Larsen & Toubro announced its June quarter numbers yesterday. Despite the company posting slightly better--then-- expected results, analysts remain cautious due to moderate domestic business environment and global uncertainties in near term.

Even the company management while announcing numbers said that delayed policy measures, slowdown in industrial production, elevated interest rates and liquidity concerns have moderated L&T's growth. But in the same breath, the company's chief financial officer R Shankar Raman also said that on the international front, select markets in the middle-east, south-east Asia and CIS countries hold promising prospects and the company is strengthening its position there.

Meanwhile, the company's net profit grew higher than expected by 16%, year-on-year at Rs 864 crore on the back of a healthy orderbook and good progress in execution of various projects. The company's sales also grew 26% to Rs 11,955 crore. However, company disappointed the street by its EBITDA margin that came in at 9.1%, a drop of 280 basis points YoY. Analysts had forecast it at 11.5% for the quarter.

Though the order inflow also grew 21% YoY to Rs 19,594 crore, it includes a spillover of nearly 25% from FY12, say analysts.

Here is what different brokerages read of L&T's Q1 numbers and the way forward.

Nomura
We remain cautious over the medium term on L&T despite a slightly better-than-expected 1QFY13 results. We highlight that, while revenue
growth is the key positive surprise, it has not led to a change in full-year FY13 guidance. Furthermore, the order inflow run rate (net of spillover
from FY12 and L&Tnfrastructure Development Projects Ltd projects) is only Rs 120 billion per quarter compared to an ask rate of Rs 200 billion per quarter from here on to meet full-year guidance.
The brokerage further says that the stock has run up  around 38% YTD compared to 9% in the SENSEX  "We believe that current valuations already build in return to normal levels of growth and margins for the company. However, we see risk to both order inflows," it adds. The firm has maintained assigned a reduce rating with a target price of Rs 992.

SBI Cap Securities
Nirav Vasa, sector analyst at the firm points out that the order backlog at L&T is slow moving. For instance, order execution in the power segment which makes up 21% of the total order size for the company is sluggish at this point in time. However, the analyst says compared to other industry players, L&T is better placed.

Antique Broking

While the inflow clearly exceeded our expectations, the management maintained its FY13 guidance for order book growth to 13%, implying an order inflow of around Rs 820 billion in  FY13e, a portion of which would consist of spillover orders from FY12.While the economic landscape has not improved significantly, L&T is  tapping international markets for orders. After taking these factors into account, the firm has downgraded the stock to ' hold' with a target price of Rs 1,381