Larsen & Toubro Ltd - Q3FY14 Result Update - "ACCUMULATE"
Kisan Ratilal Choksey Shares and Securities Private Limited
24 Jan 2014
Available for Immediate Download
Larsen & Toubro Ltd - Q3FY14 Result Update CMP: Rs 1,034 Target
Price: Rs 1,135 Recommendation: ACCUMULATE “Strong operational
performance in difficult times…” L&T demerged its Hydro carbon
business into a wholly owned subsidiary. Current quarter results
published are standalone and do not include hydrocarbon segment.
Consequently L&T net sales grew by 12% YoY to Rs. 14,387.5 cr,
largely in line with expectation. EBIDTA margins improved by 186
bps to 11.6%, above expectation. Interest cost increased by 24.4%
on account stretched working capital. The company registered
exceptional item of Rs. 104.4 cr on sale of investment. On Adjusted
basis, PAT increased by 12% YoY to Rs 1136.3 cr. Order inflows
during the quarter increased by 21% YoY to Rs 21,700 cr. Order book
stands at Rs. 171,200 cr. Demerger of Hydro carbon segment into a
wholly owned subsidiary L&T demerged its Hydro carbon business
into a wholly owned subsidiary. The company from here on would
published standalone quarterly numbers (excluding hydrocarbon
segment). All disclosures including order book and order inflows
would also be for standalone business excluding Hydro carbon
segment. During FY13 L&T registered hydrocarbon net sales of
Rs. 9,308.9 cr; EBIDTA of Rs. 1,000.4 cr and PAT of Rs. 526.1 cr.
Demerger was a strategic move to increase focus on the hydrocarbons
segment. International business is a significant part of
hydrocarbon segment and has higher overseas deputation. We believe
this is right strategic move by L&T. However, quarterly
disclosure of performance would improve transparency.
Infrastructure segment drives growth in sales The company net sales
grew 12% YoY in Q3FY14. Strong growth in Urban Infra,
Transportation Infra, Water and Power T&D and Heavy Engineering
on the back of robust opening order book supported growth in sales.
Domestic v/s international sales mix stood 83:17. For 9M FY14, net
sales have increased by 9% to Rs. 36,520 cr. The company sees
limited risk to 15% sales growth guidance for FY14. We have
factored in a sales growth of 13% for FY14. Relatively stable
margin guidance maintained for FY14 The company registered healthy
EBIDTA margins of 11.6% up 186 bps YOY. Raw material cost as a
percentage of sales declined by 195 bps to 70.9% and contributed to
margin improvement. However, management maintained its full year
flat OPM% guidance with a 50 bps variation and commented quarterly
margins may vary as per job mix and stage of projects. NWC
stretched to 21% of sales Net Working capital stretched to approx
21.3%; which is concerning. Support to supply chain and lower
advances from customer have stretched the working capital. We
expect net working capital to remain stretched at these levels.
Healthy order inflows continue in Q3FY14 In Q3FY14 order inflows
increased by 21% YoY to Rs 21,700 crore (excluding Hydro carbon).
For 9MFY14 order inflow have increased by 23% YOY to Rs. 67,400 cr
(excluding Hydrocarbon). For 9M order inflow international orders
constituted 30% while domestic orders constituted 70%.
Consequently, order book stands at Rs.171,200 cr (excluding
hydrocarbon segment). Approx 10% are slow moving orders excluding
GMR & GVK road project orders. The company mentioned if few
projects are deferred to FY15; order inflows growth for full FY14
could be 15%. Sector wise it expects Building & Factories,
Power, Transportation infra to contribute to growth in orders. A
shift in focus to international territories continues. We hav...