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Analyst Research Report Snapshot


L&T (LT) - Visit Note - Dated - January 03, 2013




Axis Capital Limited


08 Jan 2013





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We recently met L&T management. Key takeaways are: FY13 guidance of 15-20% order inflow & revenue growth maintained: L&T management is confident of achieving 15-20% order inflow and revenue growth in FY13 and maintaining margins with a volatility of 50 bps. Despite deferment of hydrocarbon orders in Middle East, management is confident about order inflow growth based on finalization of BTG orders worth Rs 80 bn in Q4FY13. Revenue growth momentum to continue in FY14: The management expects to achieve 15-20% revenue growth in FY14 driven by backlog, which provides visibility for 2.5 years. Based on our channel checks we expect order inflow of Rs 904 bn in FY14 up 15% driven by increased ordering from (1) railways to USD 25 bn p.a. from USD 10 bn p.a. (includes railways, DFCC & Delhi Metro), (2) Oil & Gas sector orders driven by fuel up-gradation projects by refineries (USD 4-5 bn p.a), platform orders from ONGC (USD 2-3 bn p.a) and petchem orders from Reliance Industries (USD 7-8 bn pa) (3) increased ordering from power to 12 GW from 5-6 GW in FY13. Improving parent ROCE to 20% through FY16 from 16% currently by: (1) maintaining EBITDA margin (2) no new BOT projects and lowering investments in IDPL (3) limiting parent capex to maintenance capex of Rs 10 bn (4) limiting working cap/sales to 13% - 15% (currently 17%) and (6) revenue growth of 15-20% p.a. till FY16. Raise target PE to 18x from 16x, upgrade to BUY: We revise our standalone target PE multiple to 18x from 16x on strong order inflow growth of 15% and operating cash flow turning positive to Rs 46 bn in FY14 (vs. negative Rs 11 bn in FY13). Our revised target price of Rs 1,892 (earlier Rs 1,580) is based on 18x FY14E core EPS of Rs 80 (excluding dividend income from subsidiaries) and VoI of Rs 446. Upgrade to BUY from HOLD. At CMP of Rs 1,668 (implies 16% upside) the stock trades at PE of 17x FY13E core EPS of Rs 71 and 15x FY14E core EPS of Rs 80 (adj. for VoI of Rs 446). 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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