Sushil Finance is bullish on Larsen and Toubro (L&T) and has recommended buy rating on the stock with a price taget of Rs 1856 in its June 11, 2013 research report.
Sushil Finance's research report on Larsen and Toubro (L&T)
"During Q4FY13, L&T delivered 9.9 percent YoY Revenue growth, mainly due to delay in execution of some domestic projects. However, the export market achieved strong 56 percent YoY growth led by order wins in hydrocarbon & transportation infra segment. The Gross Revenues of E&C segment grew by 10.1 percent YoY to Rs. 183.9 bn, led by its strong order book, and Revenues from its Machinery & Industrial Products segment grew 9.3 percent YoY to Rs. 7.4 bn, due to strong export growth of industrial valves, while the Revenues from its Electrical & Electronic (E&E) segment declined 2.3 percent YoY to Rs. 11.2 bn, due to subdued industrial off-take & tight liquidity condition of SMEs. During FY13, it delivered 14.5 percent Revenue growth, driven by strong 95 percent growth in overseas market. While the Revenue from E&C segment grew by 15.3 percent to Rs.545 bn and the E&E segment grew 1.8 percent to Rs. 36.4 bn, the Machinery & Industrial Products segment declined 6.2 percent to Rs.23.9 bn. The management has guided for 15-17 percent Revenue growth in FY14, which we believe is achievable given its strong order book & order inflows pipeline."
"During Q4FY13, its EBITDA declined 4.3 percent YoY to Rs. 24.5 bn, while its EBITDA margins fell 180 bps YoY to 12.1 percent, mainly due to higher proportion of low margin overseas Revenue (18 percent v/s 12.6 percent in Q4FY12). Its adjusted Net Profits (APAT) declined by 5.9 percent YoY to Rs. 17.7 bn. During the quarter, its E&C biz's margins contracted 240 bps due to high input cost & change in job mix.'
'During FY13, its EBITDA grew 2 percent to Rs. 64.1 bn, while its EBITDA margins fell 130 bps to 10.5 percent, due to higher share of overseas Revenue (20 percent v/s 11.7 percent in FY12). The management expects its E&C EBITDA margins in FY14 to remain stable at 10.3 percent, as export contribution continues to be at be on higher side at ~24-25 percent level."
"During FY13, the company witnessed fast investment decisions in transportation, urban Infra & water infra sectors, which contributed significantly to its strong order inflows, while the ordering environment in Power generation EPC & Mining Projects remained sluggish although it managed to receive a 2x660 MW Power EPC order in Q4FY13. The company also sees huge prospects in overseas markets as hydrocarbon, transportation infra and T&D segments provide decent growth opportunities. During FY13, L&T's outstanding order book grew by 5.4 percent to Rs. 1,536 bn, while its order inflows grew 24.7 percent to Rs.880 bn (32 percent YoY growth in Q4FY13). The management took conscious decision to remove Rs.170 bn worth of order which were non-executable in near term."
"Going forward, the growth in domestic infra projects, activities in Hydrocarbon & Power T&D in Middle East regions, and some pick up in domestic Power EPC segment will provide order inflow momentum. Considering the current domestic market environment and its business outlook of export market, the management expects its FY14 order inflows growth at 15-20 percent, with strong focus on overseas orders. The current order book provides Revenues growth visibility for next two years and we expect L&T to deliver decent Revenue growth in ensuing period."
"Outlook & valuation: Over the years, L&T has invested in various businesses and expanding capacities and it will now focus on leveraging these investments, improving the productivity & cash flow utilization. Its net working capital has also increased substantially and is currently at elevated level (17 percent of sales), which it expects to bring down gradually. These initiatives will help L&T improve its RoE levels from 17 percent currently to 20 percent in next 3-4 years. In view of its FY13 performance and growth outlook, we have marginally reduced our FY14E Revenues & APAT estimates and also have introduced our FY15E estimates. At CMP of Rs.1405, the stock trades at 16.5x & 15.1x its FY14E & FY15E standalone EPS of Rs.85.3 & Rs.93.3, respectively. We change our rating to 'BUY' with SOTP based target price of Rs.1,856," says Sushil Finance research report.
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