Dalal Street Investments

Larsen & Toubro – Results Review

January 18, 2011

Larsen & Toubro’s (L&T) Q3FY11 PAT, at Rs 8.1 bn, driven by strong execution in the E&C segment. Robust revenue growth of 41% YoY reinforces confidence in execution of strong order book of Rs 1,149 bn. Margins have dipped YoY by 150 bps to 10.8%, but this is more a qtly fluctuation than a trend. While revenue guidance has been maintained (20% YoY growth in FY11E), mgmt has highlighted that order flow guidance (25% YoY growth) could be at risk due to deferment of orders to FY12E.

L&T removed order for IT parks of ~Rs20bn from Godrej & Arun Excello on lack of progress. Led by delay of orders from power (captive orders – Karnataka JV, NTPC), roads (mega roads), Oil & Gas and Infra space like urban infra (Hyd. Metro), high-rise buildings etc… we think L&T is set miss its 25%YoY inflow guidance. However, L&T’s book to bill at 3x (Q2 FY11) has the ability to support 2-3 quarters of order inflow volatility. Hence a revival during FY12 (except in Real Estate) in most laggard sectors (delays were primarily due to technical / policy issues) coupled with contribution from in-house projects (Metro and Roads) should improve the business outlook for L&T.

L&T IT PAT was flat at Rs730mn on 217bps decline in PAT margin.

L&T is expected to report an EPS between Rs 72 to Rs 84 with Sum of the Parts Valuation for Stock Price target between Rs1,900 to Rs 2300.


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