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Analyst Research Report Snapshot


Larsen & Toubro (LT) - Qtr. Update - Dtd. - October 22, 2012




Axis Capital Limited


23 Oct 2012





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Better than expected performance in Q2FY13: with rise in revenue to Rs 132 bn (up 17% YoY; our est. Rs 129 bn) led by strong execution. Margin at 10.7% (down 10 bps YoY; our est. 10%) and adj net profit at Rs 9.2 bn (up 15% YoY; Rs 8.8 bn) were helped by lower than expected construction costs. FY13 guidance maintained: at 15-20% growth in revenue and orders. Management expects 50 bps decline in FY13 margin from 12.6% in FY12. While inflow was strong at Rs 210 bn in Q2 (up 29% YoY led by infrastructure segment), we expect growth to be lower at 12% in FY13 as Power and Process segments are likely to remain weak in H2FY13. Rising Buildings & Factories (B&F) orders augur well for margin: Around 80% of orders in B&F are on negotiated basis and have 12-15% margin. Also, proportion of slow moving orders in the backlog is stable at 10%, hence revenue growth of 15-20% in FY13 is achievable. We revise our revenue estimate to Rs 634 bn/Rs 723 bn for FY13/FY14 from Rs 619/Rs 701 bn. Our EPS estimate stands revised to Rs 79/Rs 87 for FY13/FY14 from Rs 74/Rs 82. We raise our target PE to 16x (15x earlier) to factor in potential surprise in order inflow led by government’s efforts to ease bottlenecks in investments such as National Investment Board and SEB debt restructuring. Our revised SoTP-based TP of Rs 1,580 (Rs 1,412 earlier) is based on (1) standalone FV of Rs 1,251 on 16x FY14E and (2) value of investments at Rs 329. Maintain HOLD as CMP of Rs 1,668 prices in most positives. At CMP of Rs 1,668 (implies 5% downside) the stock trades at PE of 17x FY13E EPS of Rs 79 and 16x FY14E EPS of Rs 87 (adj. for VoI of Rs 329). Regards, Bhavin Vithlani (Executive Director – Power & Cap Goods) Institutional Equity Research Axis Capital Ltd. Tel: +91 22 43251144 Charanjit Singh (Vice President – Capital Goods) Institutional Equity Research Axis Capital Ltd. Tel: +91 22 43251123

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