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L&T IDPL to slow project adds

September 13, 2010

Post L&T IDPL analyst meet we reiterate that Hyd. Metrorail (HMR) project may generate equity IRRs of 14-17% as a 24% hike in its project cost compensate for higher traffic / realty estimate. IDPL made a good pitch to improve visibility esp. of HMR. With Infra portfolio of Rs400bn IDPL intends to focus on execution v/s wins. A two year EPS CAGR of 27%, creation of growth vehicles in power equipment, shipyard, defense, nuke & aerospace domains and Infra concession wins support Buy. Capex in low RoE projects such as Rajpura Power & HMR are key risks.

L&T to invest ~Rs11bn p.a. in IDPL equity, for the next 4-5 years to complete the pipeline of Rs400bn (see exhibit 6), which may drag its consol. Dhamra port (DP) to start on Sept 18th; its Ph 1 of 27mtpa is sold-out. DP is expandable to >80mtpa over time. Its scalability is valuable given the rising mineral & metal trade in its hinterland and co-promoter such as TISCO.

Seawoods – L&T is still waiting for approval of drawings & improvement in traffic for this costly bid where it has paid Rs8bn of the Rs18bn bid and has re-scheduled the balance payment without paying DPC of RS2.7bn. L&T mgt. also highlighted buy-out of minority PE investors to consolidate ownership at IDPL, set valuation benchmark and plans IPO in 3 years.

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