Financial Review L & T

ROCE
L&T 2013 20.0% 30.0% 11.3% 5.1% 2012 15.1% 40.7% 8.5% 18.9% 2011 15.0% 44.7% 11.5% 31.2% 2010 15.9% 41.4% 9.7% 38.0%

10 Year
Mean Std Dev Co eff

BHEL
ABB

Siemens

17.5% 34.5% 27.5% 33.8%

2012 430 2,925 2011 503

0.0 0.1 0.2 0.1

2010 590

0.15 0.29 0.59 0.41

Mean Std Dev Co eff

Company Market Cap Share Price P/E Ratio L&T 118,898 1,283 25 BHEL 43,531 178 9 ABB 17,428 822 97 Siemens 26,606 747 136

EVA
L&T

2013 219 (700)

BHEL

1,800 2,475

436 158 1,625 1,617

0 1

Competitor Financial Analysis

L & T 10 Year mean average of ROCE IS 17.5% with minimal standare deviation and co efficient of variance. Its closest competitor, BHEL 10 YR ROCE mean is 34.5% with pretty impressive lower standard deviation. Although ABB and Siemens comes closer to BHEL, its past 4 year return is not very impressive and has high co efficient of variation. L & T has been consistently earning positive EVA with average mean of 436 Cr Rs compared to 1,625 Cr for BHEL. But BHEL std dev is very high compared to L & T making them more consistent in creating value to the shareholder If we consider market price is a sum of future cash flow of an entity, the market cap of L & T is far superior than its competitors. The share price has been mover Rs 1000 past 5 years making it all time favorite for shareholders. Its interesting to note that market is overvaluing ABB & Siemens share prices probably due to its international connection.

Comparing L & T with BHEL

Recently L & T has been venturing in Middle East, Africa and Asia continent market. This has worked well for L & T compared to BHEL as they are more tied to Power sector (slow economic growth). This is one of the strong reason why L &T share price continues to outperform BHEL. BHEL & L & T both are strong in execution. However L & T has been able to convert its order board to net sales faster than BHEL (due to client issues). BHEL order board is 2.5 times it net sales whereas its 3 times for L&T L & T strong diversification in to other sectors (80% of revenue for BHEL comes from power as against 25% for L & t) helped its business model de-risk from slow down in any particular industry. This keeps the cost of capital lower compared to its competitors. This also helps L & T to better manage it cash flows due to the availability of special purpose vehicles.

Diversification strategy Opportunties and Challenges

Opportunities Almost 20% of its revenue comes outside India. Ability to grow faster which helps to weather out economic meltdown in India Diversification in to various industry opening up lot of opportunity in developing economies Gives L & T ability to benchmark against global standards Expand manufacuturing hub outside india to generate adaption and aggregation.

Challenges Foreign terrain adds more complexity and risk to existing portfolio Ability manage diversified business under global environment. All 16 business units made to compete globally. Without good global strategy, this may backfire badly and increase risk of failure

Recommendations
Be asset light. Disinvest in non core business and assets to generate cash flow. This will help the company in globalization efforts Local JV to understand the local culture and risk profiles Global strategy. Moving in to developed markets to diversify faster Improve operational efficiency, cut cost and move more towards automation