Bullish on L&T; FY14 topline growth seen at 13%: Kotak Sec

Engineering major Larsen and Toubro's (L&T) net profit for the March quarter fell 6.9 percent year-on-year to Rs 1788 crore, weighed by a steep rise in interest cost.

However, Sanjeev Zarbade, Kotak Securities continues to be bullish on the stock as the company has recently seen good order intake, which gives a sense of optimism about its growth prospects ahead. In FY14, he expects L&T to post around 13 percent topline growth. Below is the verbatim transcript of Sanjeev Zarbade’s interview on CNBC-TV18 Q: Larsen and Toubro (L&T) posted net profit of Rs 1788 crore, lower than estimate, we have a margin picture of 12.1 percent and top line Rs 20300 crore. What is your first take on the numbers? A: At the top line side, the numbers are very much in line with our expectations though there is still a marginal miss again. On the EBITDA margin side, there has been quite a bit of diversion from what we were expecting. Even at the net profit level the numbers are lower than what we were expecting. We were expecting about Rs 1897 crore as against the actual numbers. So it is a miss on the bottom-line as well. Q: L&T has reported other income of Rs 374 crore, how would that compare to your estimates? A: That is in inline, we were expecting Rs 350 crore of other income in Q4. But we will have to see if there is any one time expense at the operating expenses level and to get a sense of why the margins were lower than our expectation. The EBITDA margin level is around 100 bps, we were expecting 13.5 percent in Q4 and will have to see what went wrong there. Q: Based on the numbers that you have seen, currently, what are your FY14 EPS estimates and is there a reason to tweak your EPS estimates? A: We had an EPS estimate of Rs 94 for FY14 and we would again revisit our numbers post the analysis and the guidance that the company gives both on order intake side as well as on the revenue side. So in the fiscal that is gone by FY13, we had seen that most of the revenue growth was driven by exports and not much of domestic revenues had contributed to the top line growth.
For the current fiscal, for the revenue growth to remain strong, the domestic market revenues need to chip in a very strong way. So we would be watchful on that front. Q: The actual net profit number is Rs 1769 crore, would that go down as a big miss in that case? A: Yes the numbers are definitely disappointing. Q: Based on the numbers that you have seen, what would your FY14 revenue guidance be, your expectation from the management? A: It is difficult to say what the management could guide but what we are expecting in FY14 is around 13 percent growth in the top line. So the order intake growth also should be around 15-20 percent in FY13. The revenue growth guidance could also be in the mid teens mostly. Q: What would be your overall call on the stock now and the price target? A: We will revisit our numbers and overall recommendation, but we continue to be positive on L&T. We have seen that in recent times there has been quite good order intake that the company has received. Some of them have not been announced and that gives us a sense of optimism about the company’s growth prospects in the coming years.