Pick of the Week

Key Data Risk Category

Bloomberg Code NSE Code BSE Code Sector Industry Face value (` per share) Book value (` per share) Dividend yield 52 Wk.Range (`) Market Cap. (` mn)

Larsen & Toubro Ltd (L&T)

LOW
LT LT 500510 Infrastructure Infrastructure 2 315 1.8% 678 /1152 971,889

CMP: 1050

BUY with a target upside of 24%

L&T is India's leading technology, engineering, construction and manufacturing company It is often considered as the bellwether of Indias engineering & construction sector. It has a current order backlog of `1,760 bn at 2.8x TTM sales. The order book has 69% contribution from infrastructure, 13% from hydrocarbons, 9% from process and 7% from power segment. L&Ts performance in Q2FY14 provided hope of the company successfully achieving its full year guidance. In H1FY14 the order book has grown by 15% from Mar13 end order book of `1,536 bn. Topline grew by a mere 7.6% in H1FY14 as compared to H1FY13. The management has guided of robust execution and strong order intake as it maintained its guidance of 20% order book growth and 15% topline growth for the full year despite a sub-par intake in first half. Order intake in H2FY14 was to the tune of `498 bn which seem to be inline with the full year guidance of ~`1008 bn. Incidentally, L&T had secured `280 bn order in the last week of Q4FY13 out of the total order intake of `880 bn in FY14. In Q2FY14, revenue from infra segment grew by over 31% compensating for the lower sales in hydrocarbons, power and metallurgical & material handling which fell by 9%,40% and 23% respectively. With a few big ticket orders on eastern and western DFC and EPC rail projects lined up infra segment is expected to grow at robust pace. Recent pick up in orders from middle east are expected to keep the margins on tight leash. Currency fluctuation has also impacted the margin as the MTM losses in Q2FY14 came in at `2 bn. Management has guided an operating margin swing of +0.5% in current fiscal.

Shareholding Pattern
Sep-13 FII DII Bodies Corporate Custodians Others Total 15.3% 37.4% 7.4% 3.0% 37.0% 100% Jun-13 16.1% 37.0% 7.2% 3.2% 36.6% 100% Mar-13 16.6% 36.3% 7.3% 3.6% 36.3% 100% Dec-12 16.7% 36.8% 7.0% 3.4% 36.2% 100%

Key Ratios & Consensus Estimates

FY12
P/E (x) P/B (x) EV/Sales EV/EBITDA ROA ROE 21.8 3.9 1.66 14.1 7.0% 17.5%

FY13
19.8 3.3 1.45 13.8 7.6% 16.0%

FY14E
20.7 3.1 1.30 12.8 7.7% 14.8%

FY15E
18.4 2.8 1.14 11.3 6.7% 15.1%

Working capital at 18% of sales at Sep13 end galloped on the higher side. Outstanding debt at `121 bn increased from `88 bn at the end of FY13. Management indicated that working capital at 15%-20% of sales is acceptable in current scenario. At 0.4 D/E L&Ts balance sheet is still very strong and the company is expected to reap the benefits of recent policy actions initiated by the govt. In our opinion, L&T remains a better play in the cyclical space with its wide portfolio and strong execution capability. We recommend BUY on Larsen & Toubro Ltd with a target price of `1300 per share.

Relative Stock Performance (Dec12=100)

113 100 87 74 61
May-13 Mar-13 Sep-13 Aug-13 Nov-13 Dec-13 Dec-12 Feb-13 Apr-13 Oct-13 Jan-13 Jun-13 Jul-13

Earnings Summary & Consensus Estimates

Standalone (in ` mn) Net Sales Sales Growth% (YoY) EBITDA EBITDA Margin% PAT NPM% EPS (`) Price Performance Absolute FY12 531,705 7.4% 62,826 11.8% 44,015 8.3% 48.2 CY10 18.0% FY13 608,733 14.5% 64,071 10.5% 46,566 7.6% 53.1 CY11 -49.7% FY14E 679,258 11.6% 68,939 10.1% 47,013 6.9% 50.8 CY12 61.6% 33.9% FY15E 775,595 14.2% 78,349 10.1% 52,933 6.8% 57.2 YTD 0.9% -2.3%

LT

NIFTY

Relative 0.0% -25.1% Source: Company, Destimoney Research, Bloomberg

December 13, 2013

Destimoney Research: research@destimoney.com

Pick of the Week

Technical View
L&T Ltd is trading in a rising channel. The stock is making higher-high, higher-low. Placement above short term MAs confirms the bullish undertone. One can accumulate the stock on every dip. The stock could attain a target of `1300 in medium term. One can maintain a stoploss (closing basis) of `890 for the position.

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December 13, 2013

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