Dalal Street Investments

Larsen & Toubro – Good Order Boook – Execution Matters

October 23, 2009

L&T reported 2QFY10 net profit of Rs 5804 mn, mostly in line with consensus estimate. Execution and, hence, sales growth in the quarter were tepid due to 1) a delay in clearances for infrastructure projects, and 2) lower demand for machinery and industrial products (sales down 26% yoy in 2QFY10).

However, order inflows for the quarter were up 47% yoy, after the 22% dip in 1QFY10. Management raised its order inflow guidance for FY2010 to 30%-35% yoy growth from 25%-30% and reiterated sales guidance of 15%-20% despite the sluggish execution in 1HFY10.

HSBC expects L&T to report an EPS of Rs 52 and Rs 65 for FY10 and FY11.

Goldman Sachs expects L&T to report an EPS of Rs 57 and Rs 72 for FY10 and FY11.

Credit suisse expects L&T to report an EPS of Rs 51 and Rs 68 for FY10 and FY11.

Anand Rathi expects L&T to report an EPS of Rs 54 and Rs 67 for FY10 and FY11.

At FY11 EPS, the stock appears to be fully pricing its growth for the next 12 months. However, L&T Infotech IPO story may unfold and add color to the stock. ADD only on corrections.


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