4)

Comment on the trend in financial performance with respect to turnover and

profitability.
Financial Performance of Larsen and Toubro with respect to Turnover
Considering previous five years data of L&T its operating profit per share has
increased from March 2010 till March 2013. It was an increase from 121.00 0 to
160.21 rupees. Suddenly in march 2014 operating profit per share for the year
decrease by 27.58%. This shows that L&T is using up there inventory to create
revenue.
Turnover is determine by the revenue generated from operation. From year 2012
to 2013 it has increased by 14.5% while from year 2013 to 2014 its operating
revenue increase by 9.6%. This has happened because all the asset ratios such as
Total asset turnover, Working capital turnover, Invested capital Turnover and
Equity Turnover have increased.
Financial Performance of Larsen and Toubro with respect to Profitability
If we analyse five year profit after tax of L&T we can find that, Profitability was
constantly decreasing from starting of the year 2010 till starting of the year 2013.
Profit after Tax amount decreased by 42.6%. This decrease is clearly mentioned in
the financial report of the company that it
was due to slump in
the
manufacturing sector in world economy. Company is again on track after 2013
and its operating profit has increased by 3.2%.
As we analyse the report of past 5 year we found that L&T has increased its sales
by reducing inventory and also the company is expecting profit in future.

5)

Identify the trend of market price of the share in the market and give at least 3
reasons to justify the same. Face Value of share to be mentioned.
Face value of the L & T share is Rs 2.00
L & T share price fell from the average price of 1452.14 in March 2013 to
1120.61 in March 2014.Following were some of the reasons behind the same
Several financial giants like Nomura and Citibank downgraded the rating of
L&T owing to the slow moving orders. According to them has the risk to
growth as slow orders balloon. Slow moving order book dorms 12.52 % of L&Ts
total order book. Several high value orders like the one from NHAI were put on
hold.
L&T issued bonus shares in 1:2 ratios in July. These bonus shares immediately
improved the share price by 3%, only to be followed by a sharp fall later. The
reason for the same was that the new project starts and the total projects
outstanding data were almost similar to the levels of 2004.Projects under
implementation and the new project starts were going down at the same time
for the first time since June 1995.Project execution rate also fell in the same
time. In addition whenever there is a sudden increase in shares the share
value increases with the expectation of growth but falls soon after coming in
terms with the actual value of the company.

6)

Domestic economic slowdown and lower international margins also limited the
upside growth of the share. Low current level of infrastructure boosting orders
from central government also added to the fall

Prepare a (max ) 1 page summary of the Accounting policies followed

The company maintains its accounts on an accrual basis in accordance with the
Generally Accepted Accounting Principles (GAAP) except for the revaluation of
certain fixed assets
Presentation of financial statements-The Balance sheet, P & L statement and
the cash flow statement are all presented as per the accounting standards. All
amounts are presented in Indian rupees
Revenue recognition-Revenue is recognized based on the nature of activity when
consideration can be reasonably measured and there exists a reasonable certainty
of its recovery.
a) Revenue from sales are recognized when risks and rewards of ownership are
transferred to buyer under terms of contract
b) Revenue from property development activities is recognized on the basis of point
of completion method while service related activities are recognized using
proportionate completion method
c) Loss is recorded as an expense in the period in which it is foreseen
d) Other operational revenue-Recognized when the right to receive the income is
established as per terms of the contract
Extraordinary and exceptional items-Incomes or expenses arising out of
activities not strictly related to the companys operations are classified as
extraordinary items. Any external event beyond the control of the company that
significantly impacts the income and expenses is treated as an extraordinary item
and disclosed as such.
Employee Benefits-These are recorded in four categories namely ,short term, long
term, post-employment and termination benefits
Tangible Fixed Assets-Fixed assets are stated at the original cost less depreciation
and cumulative impairment
and those which were revalued on October 1 1984 are stated at the values
determined by the valuers less accumulated depreciation. Assets acquired on hire
purchase basis are stated on their cash values
Depreciation-Depreciation is provided on straight line method on the values and at
the rated given by valuers. The difference provided on revalued amount and on
historical cost is transferred from revaluation reserve to the statement of Profit &
Loss
Intangible Assets and amortization-Intangible assets are stated at original cost
net of tax/duty credits availed, less accumulated amortization. Intangible assets are
recognized when it is probable that the future economic benefits that are
attributable to the asset will follow to the enterprise and the cost of the asset can
be measures reliably.`
Inventories-It is valued after providing for obsolescence
Cash and Bank Balances-Includes Fixed deposits, margin money deposits,
earmarked balances with banks and other bank balances which have restriction on
repatriation. Short term liquid investment not free from the insignificant risk of
change in value are not included as a part of cash and cash equivalents.

 ESOP-The intrinsic value of the option(Excess of market price over the exercise price
of the option) is treated as discount and accounted as employee compensation cost
over the vesting period
Foreign Currency Transactions-Recorded on initial recognition in the reporting
currency, using exchange rate of the date of the transaction. At each balance sheet
date foreign currency monetary items are reported using the closing rate.
Operating cycle for current and non-current classification-Operating cycle for the
business activities of the company covers the duration of the specific
project/contract/product line/service including the defect liability project, wherever
applicable and extends up to the realization of receivables within the agreed credit
period normally applicable to the respective line of business
Cash Flow Statement-Cash flow statement is prepared by segregating the cash
flows from operating, financing and investing activities. Cash flow from operating
activities is reported using indirect method

7)

Explain in your own words, what the Management has communicated to the
Shareholders through the Directors Report and the Management Discussion
Analysis. (Max 2 pages)
The gross sales and other income for the financial year under review were
59,045 crore as against 54,083 crore for the previous financial year registering
an increase of 9%.The Profit before tax from continuing operations including
extraordinary and exceptional items was 7,268 crore and the Profit after tax
from continuing operations including extraordinary and exceptional items of
5,493 crore for the financial year under review as against 5,932 crore and
4,385 crore respectively for the previous financial year, registering an increase of
23% and 25% respectively. The Directors recommend payment of dividend of
14.25 per equity share of 2/- each on the share capital.
Capital & Finance
The company allotted 32,32,101 shares to its employees upon exercise of stock
options by the employees eligible under the employee stock option scheme. The
company issued bonus shares in the ratio 1:2 which amounted to around
30,82,94,576 on July 15 2013.
Transfer to investor education and protection fund-The Company has
transferred a sum of 9449482to the investor education and protection fund
,the amount which was due and payable and remained unclaimed and unpaid for
over seven years.
Subsidiary
Companies-The
xCompany
subscribed
to
/acquired
equity/preference shares in various subsidiary companies. These include SPVs
executing projects through the Build operate Transfer route ,companies in ship
building, technology services or holding companies making investments in
companies such that those engaged in power, financial services ,real estate
business etc.
Sustainability Reporting-The Company has been one of the first engineering
and construction companies in India to publish its report on Corporate
Sustainability. The detailed Corporate Sustainability Report is also available on
the Companys website www.Larsentoubro.com.

Global economic condition-The year 2013-2014 showed slight signs of revival

of growth after the onset of the financial crisis. USA is introducing a gradual
taper on its stimulus and there are signs of revival even in the European Union.
However the emerging and the developing economies have faced challenges to
growth due to lack of external funding .This has been followed by a weak
domestic demand. Some of the reasons for this also include supply side
constraints due to structural and policy bottlenecks leading in turn to high
inflation. Growth in the Middle Eastern countries was also pretty low and the oil
prices were high. Global growth is expected to get better with the consolidation
of the developed countries.
Overview of Indian Economy-The GDP growth of the Indian Economy was
4.7% in the year 2013-2014. This is a clear indication of how challenged the
Indian Economy has been over the past few quarters where the growth has been
below 5 % consistently. The year has witnessed a high inflation and volatility in
the exchange rate and the subsequent tightening of the monetary policies has
choked the economic recovery
Business Scenario-Macroeconomic and policy uncertainties, persisting
inflation, tight liquidity conditions and high interest rates adversely impacted
business environment in India in the year 2013-14. While the Company
continued to focus on maximizing the domestic opportunities, it also
strengthened its presence in select overseas markets. The core sectors like
infrastructure power minerals & metals, defence, oil & gas have many projects
that are awaiting policy decisions and speedy reforms

The major growth strategies for the company are

Strengthening execution and operational efficiency: The business has
taken various steps to reduce costs and increase productivity to increase the
profit margins
Capacity augmentation: The Company has made a lot of investments over the
years to increase the capacity but the returns on these investments can only be
expected in the long term. It is focussing on increasing capacity utilization to get
the maximum out of these investments
International business: The achievement of the plans with respect to
international business depends on acquiring the right targets amid stiff
competition from various companies across the world .This however an
additional advantage of hedging against the domestic volatilities.
Human Resource Development: Talent acquisition and retention remain the
focus areas to augment the journey of internationalization to create a
multicultural work force and for strengthening leadership cadre with appropriate
domain competencies.
8)

Provide a brief explanatory note on the significant aspects mentioned in the

Segment Report (1 page)
Infrastructure Segment- Order inflow of the segment during the year at
76396 crore registered a healthy growth of 37% over the previous year. Heavy
Civil, Transportation Infrastructure and Water & Renewable Energy businesses
have recorded significant growth in the order inflow. Buildings & Factories and
Power Transmission & Distribution businesses also secured major orders during
the year 2013-14. The segment revenue for the year at 35115 crore recorded a

significant increase of 22% over the previous year. The segment recorded
improved EBITDA margin of 12.3% for 2013-14 vis-a-vis 11.3% earned in the
previous year on the back of execution efficiencies and better contract
management.
Power Segment- Order inflow of the segment during the year at 3277 crore
registered a decline of 59% over the previous year. The year witnessed drying up
of order prospects, as the power sector in India faced multiple bottlenecks, which
impacted new investments in the sector. The segment, however, secured a
prestigious international order towards the end of the year. The segment revenue
for the year at 5140 crore also declined 36% over the previous year, mainly due
to lower opening order book and delays in award of targeted order inflow. The
segment recorded improved EBITDA margin of 11.0% for 2013-14 vis-a-vis 7.9%
earned in the previous year on the back of progress achieved on the jobs under
execution
Metallurgical and material handling segment- Order inflow of the segment
during the year at 2574 crore registered a decline of 50% over the previous
year. Order inflow was lower due to deferment
of targeted orders, as Minerals & Metals sector which constitutes major customer
base for the segment, witnessed slower growth on account of several unresolved
policy issues. The segment revenue for the year at 5546 crore declined by 14%
over the previous year due to reduced
opening order book and delays in receipt of fresh orders. The segment recorded
decline in EBITDA margin at 17.0% for 2013-14 vis-a-vis 17.9% earned in the
previous year on account of cost overruns and delays in approval of claims.
Heavy Engineering Segment- Order inflow of the segment during the year at
3323 crore registered a decline of 17% over the previous year due to
postponement of projects and the consequent deferment of targeted orders.
International orders at 1056 crore represents 32% of the total order inflow. The
segment revenue for the year at 4322 crore registered an impressive growth of
44% over the previous year, mainly driven by Process Plant & Nuclear Equipment
jobs under execution. The segment EBITDA margins for both 2013-14 and 201213 were subdued due to cost overruns. The segment recorded a decline in
EBITDA margin at 18.2% for the year 2013-14 vis-a-vis 21.3% earned in the
previous year.

Electrical & Automation Segment- The segment revenue of Electrical &

Automation business stood at 3907 crore for the year 2013-14, recording an
increase of 7% over the previous year. The EBITDA margin for the year at 14.2%
improved by 60 basis points as compared with the previous year, contributed by
operational efficiencies and better sales mix.
Machinery

& Industrial Products Segment (MIP)- The segment revenue

declined in the year 2013-14 to 1943 crore due to restructuring of business
portfolio and sluggish market conditions. International sales revenue during
2013-14 at 458 crore constituted 24% of the revenue during the year, largely
led by Industrial Valves and Rubber Processing Machinery businesses. The
segment margin declined during the year 2013-14 to 12.7% compared to 16.3%
in the previous year due to the lower sales volume and competitive pressures

IT & Technology Services (IT&TS)- IT&TS segment recorded gross segment

revenue of 6417 crore for the year ended March 31, 2014 registering an
impressive growth of 28.4% over the previous year. Most of its revenues are from
international customers. L&T InfoTech Group recorded total income of
4823 crore during the year ended March 31, 2014, registering 25% growth over
the previous year. The EBITDA margin for the year 2013-14 stood healthy at
22.2%, however, the same is lower as compared to 24.0% recorded in the
previous year
Financial Services (FS)- FS segment, represented by L&T Finance Holdings
Limited and its subsidiaries, continued its growth momentum during the year
ended March 31, 2014 with an impressive 27.0% growth in its revenue at 5181
crore