L&T has announced orders worth ~Rs300bn for the quarter against reported order inflow of Rs334bn in Q1FY15. Order flow announced in the current quarter has been dominated by domestic orders which constituted 74% of orders against 44% in Q1FY15. Maintain buy.

1.
Larsen & Toubro
Strong order flow momentum
October 09, 2014
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Company Update
Kunal Sheth
kunalsheth@plindia.com
+91‐22‐66322257
Samir Bendre
samirbendre@plindia.com
+91‐22‐66322256
Rating BUY
Price Rs1,487
Target Price Rs1,783
Implied Upside 19.9%
Sensex 26,637
Nifty 7,961
(Prices as on October 09, 2014)
Trading data
Market Cap. (Rs bn) 1,365.7
Shares o/s (m) 918.5
3M Avg. Daily value (Rs m) 6558.8
Major shareholders
Promoters 0.00%
Foreign 19.61%
Domestic Inst. 36.57%
Public & Other 43.82%
Stock Performance
(%) 1M 6M 12M
Absolute (7.4) 14.5 75.9
Relative (5.1) (2.8) 44.4
How we differ from Consensus
EPS (Rs) PL Cons. % Diff.
2015 53.9 55.4 ‐2.5
2016 64.2 65.9 ‐2.6
Price Performance (RIC: LART.BO, BB: LT IN)
Source: Bloomberg
0
500
1,000
1,500
2,000
Oct‐13
Dec‐13
Feb‐14
Apr‐14
Jun‐14
Aug‐14
Oct‐14
(Rs)
 Strong inflow for the quarter dominated by domestic orders: L&T has
announced orders worth ~Rs300bn for the quarter against reported order
inflow of Rs334bn in Q1FY15. Order flow announced in the current quarter has
been dominated by domestic orders which constituted 74% of orders against
44% in Q1FY15. Infrastructure continued to dominate order inflow with ~46%
share.
 Revival in new project announcements: Recent data on new project
announcements published by CMIE indicates signs of revival. Investment
aggregates for the quarter ended Sep 2014 indicates a sharp rise in
announcement of new industrial and infrastructure projects, up 95% YoY at
Rs2.17trn. The value of investments proposed was highest in the last nine
quarters. The key sectors which saw new project announcements were Power,
Transportation and Real estate. The trend, which is visible in L&T’s inflow, with
domestic inflow showing signs of revival, is also in line with management
commentary of expected pick‐up in domestic market from H2FY15. L&T has
guided for order growth of 20% YoY for FY15 which looks quite achievable, given
that H1FY15 is likely to see inflow growth of ~21%.
 Outlook and Valuation: The stock is trading at core PE of 15.3xFY16E earnings.
L&T continues to be the best play in the Indian Infrastructure space, given its
strong business model, diverse skill sets, strong execution capabilities and
relatively healthy/large balance sheet. Maintain ‘BUY’.
Key financials (Y/e March) 2013 2014 2015E 2016E
Revenues (Rs m) 516,110 565,989 634,937 730,228
Growth (%) (2.9) 9.7 12.2 15.0
EBITDA (Rs m) 54,731 66,671 70,708 82,577
PAT (Rs m) 41,366 49,047 49,553 58,988
EPS (Rs) 45.0 53.4 53.9 64.2
Growth (%) (6.1) 18.6 1.0 19.0
Net DPS (Rs) 12.1 14.4 14.5 17.3
Profitability & Valuation 2013 2014 2015E 2016E
EBITDA margin (%) 10.6 11.8 11.1 11.3
RoE (%) 15.2 14.7 12.8 14.0
RoCE (%) 13.1 13.0 11.4 12.6
EV / sales (x) 2.8 2.6 2.3 2.0
EV / EBITDA (x) 26.3 21.9 20.5 17.3
PE (x) 33.0 27.8 27.6 23.2
P / BV (x) 4.7 3.6 3.4 3.1
Net dividend yield (%) 0.8 1.0 1.0 1.2
Source: Company Data; PL Research

2.
October 09, 2014 2
Larsen & Toubro
Exhibit 1: SOTP
Fair Value (Rs) Basis
L&T Core business 1,358 21x March'16 EPS
L&T Hydrocarbon business 30 10x March '16EPS
L&T IDPL 146 2x P/B
L&T InfoTech 88 11x PE FY15E
L&T Finance Holding 87 83% stake; 20% Hold co discount on current market cap
L&T's equity investment in BTG 4 2x equity investment
Other businesses 70 Manufacturing, urban Infra,
Target price 1,783
Source: PL Research
Exhibit 2: One year forward Price / Earnings
Source: Company Data, Bloomberg, PL Research
24.7
51.2
24.1
23.0
11.9
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Mar‐06
Sep‐06
Mar‐07
Sep‐07
Mar‐08
Sep‐08
Mar‐09
Sep‐09
Mar‐10
Sep‐10
Mar‐11
Sep‐11
Mar‐12
Sep‐12
Mar‐13
Sep‐13
Mar‐14
Sep‐14
P/E (x) Peak(x) Avg(x) Median(x) Min(x)

3.
October 09, 2014 3
Larsen & Toubro
Income Statement (Rs m)
Y/e March 2013 2014 2015E 2016E
Net Revenue 516,110 565,989 634,937 730,228
Raw Material Expenses 440,658 480,088 545,960 628,468
Gross Profit 75,452 85,901 88,977 101,760
Employee Cost — — — —
Other Expenses 20,721 19,231 18,269 19,183
EBITDA 54,731 66,670 70,708 82,577
Depr. & Amortization 7,277 7,924 10,239 10,759
Net Interest 9,548 10,761 10,959 9,959
Other Income 18,873 18,809 19,313 20,069
Profit before Tax 56,779 66,794 68,823 81,928
Total Tax 15,413 17,748 19,270 22,940
Profit after Tax 41,366 49,047 49,553 58,988
Ex‐Od items / Min. Int. 4,957 11,770 — —
Adj. PAT 41,366 49,047 49,553 58,988
Avg. Shares O/S (m) 918.5 918.5 918.5 918.5
EPS (Rs.) 45.0 53.4 53.9 64.2
Cash Flow Abstract (Rs m)
Y/e March 2013 2014 2015E 2016E
C/F from Operations 14,955 10,526 25,929 32,214
C/F from Investing 3,285 (15,851) 6,313 7,069
C/F from Financing (20,854) 3,604 (23,352) (25,893)
Inc. / Dec. in Cash (2,614) (1,721) 8,890 13,390
Opening Cash 17,561 14,947 13,227 22,117
Closing Cash 14,947 13,227 22,117 35,506
FCFF 4,307 (74,474) 42,355 44,284
FCFE (6,308) (48,227) 32,355 34,285
Key Financial Metrics
Y/e March 2013 2014 2015E 2016E
Growth
Revenue (%) (2.9) 9.7 12.2 15.0
EBITDA (%) (12.7) 21.8 6.1 16.8
PAT (%) (5.7) 18.6 1.0 19.0
EPS (%) (6.1) 18.6 1.0 19.0
Profitability
EBITDA Margin (%) 10.6 11.8 11.1 11.3
PAT Margin (%) 8.0 8.7 7.8 8.1
RoCE (%) 13.1 13.0 11.4 12.6
RoE (%) 15.2 14.7 12.8 14.0
Balance Sheet
Net Debt : Equity 0.3 0.3 0.2 0.1
Net Wrkng Cap. (days) 13 (58) 7 5
Valuation
PER (x) 33.0 27.8 27.6 23.2
P / B (x) 4.7 3.6 3.4 3.1
EV / EBITDA (x) 26.3 21.9 20.5 17.3
EV / Sales (x) 2.8 2.6 2.3 2.0
Earnings Quality
Eff. Tax Rate 27.1 26.6 28.0 28.0
Other Inc / PBT 33.2 28.2 28.1 24.5
Eff. Depr. Rate (%) 6.1 5.2 6.3 6.3
FCFE / PAT (15.3) (98.3) 65.3 58.1
Source: Company Data, PL Research.
Balance Sheet Abstract (Rs m)
Y/e March 2013 2014 2015E 2016E
Shareholder's Funds 291,427 374,455 400,941 444,035
Total Debt 88,342 114,589 104,589 94,590
Other Liabilities 2,422 4,099 4,099 4,099
Total Liabilities 382,191 493,143 509,629 542,724
Net Fixed Assets 89,020 115,096 112,857 110,098
Goodwill — — — —
Investments 207,687 192,146 197,146 202,146
Net Current Assets 85,485 185,901 199,625 230,479
Cash & Equivalents 14,947 17,829 22,117 35,506
Other Current Assets 410,089 490,698 548,509 620,825
Current Liabilities 339,551 322,626 371,000 425,853
Other Assets — — — —
Total Assets 382,191 493,143 509,629 542,724
Quarterly Financials (Rs m)
Y/e March Q3FY14 Q4FY14 Q1FY15 Q2FY15E
Net Revenue 143,875 200,791 103,376 132,931
EBITDA 16,748 29,010 10,873 14,220
% of revenue 11.6 14.4 10.5 10.7
Depr. & Amortization 1,992 2,138 2,609 2,615
Net Interest 2,909 3,049 2,719 2,698
Other Income 4,468 4,953 4,880 4,678
Profit before Tax 16,316 28,775 10,425 13,585
Total Tax 4,953 6,381 3,204 4,075
Profit after Tax 12,407 27,235 8,962 9,509
Adj. PAT 12,407 27,235 8,962 9,509
Source: Company Data, PL Research.

4.
October 09, 2014 4
Larsen & Toubro
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3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai‐400 018, India
Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209
Rating Distribution of Research Coverage
31.3%
50.4%
18.3%
0.0%
0%
10%
20%
30%
40%
50%
60%
BUY Accumulate Reduce Sell
% of Total Coverage
PL’s Recommendation Nomenclature
BUY : Over 15% Outperformance to Sensex over 12‐months Accumulate : Outperformance to Sensex over 12‐months
Reduce : Underperformance to Sensex over 12‐months Sell : Over 15% underperformance to Sensex over 12‐months
Trading Buy : Over 10% absolute upside in 1‐month Trading Sell : Over 10% absolute decline in 1‐month
Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly
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