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Larsen & Toubro Limited – Q4 FY12 Result Analysis

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  1. 1. EQUITY RESEARCH th 15 May 2012 RESULT UPDATE indushree@bmastock.com LARSEN & TOUBRO LIMITED 033 400001820 Result Highlights Key Market IndicatorsNet Sales Growth: Engineering and construction conglomerate Larsen & Toubro (L&T) Ltd, enthuse Price (14/05/12) 1159.4the streets with its Q4FY12 market beating results, even its failure to meet the FY12 order book Action NEUTRALguidance did not affect the market much. The company reported revenues of Rs 18460.9 crore for- fourth quarter ended March FY12 as against Rs 13983.61 crore, posting an increase of 32.02%the Face Value 2.00on Q-o-Q basis. Similarly on YoY basis, revenues rose by 20.97% from Rs 15261.17 crore of the 52 Week H/L 2212.7/1302.65corresponding year quarter. Further, for the year ended FY12, the total revenue of the companyjumped by 21.1% to Rs 53170.52 crore as against Rs 43905.9 crore last year. Book Value (Rs.) 411.87Operating Margin: For Q4FY12, the company reported a 412 bps sequential increase in operating P/BV 2.81profit margin to 13.87% from 9.75% of the previous quarter. This was due to the rise in the P/E 15.91operating profit by 87.73% to Rs 2560.76 crore from Rs 1364.07 crore of the previous quarter. BSE Code 500510However on YoY basis, operating profit margin dropped by 149 bps from 15.36% of thecorresponding year quarter. This was despite the increase in the operating profits by 9.27% from NSE Symbol L&TRs 2343.55 crore of the corresponding year quarter. Further, for the year ended FY12, the Bloomberg Code LT INoperating Profit of the company increased by 11.4% to Rs 6282.61 crore from Rs 5639.57 crore lastyear. Reuters Code LART.BOBottom-Line Growth: L&T’s net profit margin posted an increase of 331 bps to 10.4% from 7.09% of Share Outs (Cr.) 122.48the previous quarter. This was due to the rise in the bottom-line by 93.68% to Rs 1920.41 crore Mkt.Cap (Rs.Cr.) 71001.65from Rs 991.55 crore of the previous quarter. However on YoY basis, net profit margin posted adrop of 65 bps from 11.05% of the corresponding year quarter. This was again despite the rise in 467.net profit by 13.89% from Rs 1686.21 crore of the corresponding year quarter. Further, for the year Shareholding Pattern %ended FY12, the net profit of the company increased by 12.1% to Rs 4456.5 crore as against Rs3957.89 crore last year. Promoters 0.00Future Outlook: L&T is targeting a growth of 15-20% in its earnings for 2012-13 and its focus willbe on the West Asian markets in the current fiscal. FII 19.65Developments: L&T previously believed India was enough to offer growth, but currently they are DII 36.63looking to mitigate that risk to Saudi Arabia which alone can yield Rs 5370 crore in revenue. Others 43.72 Snapshot (Standalone) Price Performance Rs in Crore Q4FY12 Q4FY11 Y-o-Y % FY12 FY11 Y-o-Y % Net Sales 18460.9 15261.17 20.97 53170.52 43905.9 21.10 Total Expenditure 15900.14 12917.62 23.09 46887.91 38266.3 22.53 PBIDT 2929.96 2927.5 0.08 7675.89 7119.94 7.81 Profit After Tax 1920.41 1686.21 13.89 4456.5 3957.89 12.6 P/E(x)(TTM) 15.91 17.77 -10.48 15.90 17.75 -10.41 EPS (Unit Curr.) 31.37 27.7 13.25 72.92 65.33 11.62 BMA Wealth Creators Equity Research
  2. 2. Larsen & Toubro Limited OutlookPerformance Movers & Shakers:L&T’s March quarter performance mirrors its strong execution capabilities. Revenue growth was led by a 23% growth in itsEngineering and Construction (E&C) division, which accounts for the optimism on the street. But the company’s order inflows fell by asharp 30% to Rs 21000 crore during the March quarter from a year ago, whereas, annual order inflows for the fiscal 2012 dropped12% to Rs 70574 crore from the previous year, the first YoY drop since FY08. The rising costs and competitive pressures affectedprofitability across segments. Raw material & contracting costs rose YoY as a percentage to sales, but were lower than Decemberquarter. Further, the staff cost rose on account of restructuring in compensation and manpower build-up.Conclusion:L&T is banking on overseas markets to fuel growth as it braces tapering order inflows, deferment of capital expenditure and freshinvestment decisions in the domestic markets. Company is doing well in UAE and Oman. It is planning to improve its market share inQatar, Kuwait and Saudi Arabia, which are expected to have tremendous potential. The US investments in shale gas have led to anincreased production of natural gas liquids and this has opened up a greater demand for downstream facilities for the company. Thespillover of order inflows expected in earlier quarters and its edge in E&C projects both in domestic and international markets areexpected to uptick from the second half of FY13. However, given high inflation, sluggishness in the industrial activity and competitivepressures, a margin recovery seems unlikely in the medium term. The company expects to maintain its profit margins of 11.8% inFY13, with 50 bps volatility. But in the current dried up order inflow situation, the guidance for FY13 seems to be aggressive. Theguidance on order inflows seems steep and the company is expected to come under pressure on multiple fronts. Even if it manages toexecute well, maintaining this kind of growth in revenues and profit will be a challenge. Its lack of pricing power and rising rawmaterial costs are affecting the margins. Meanwhile, the long positive track record, the huge correction in its price and ambitiousFY13 guidance gives out positive signals, but the dropping order inflows and cautious market conditions cannot be overtly ruled out.Thus, we recommend a NEUTRAL opinion on the stock of Larsen & Toubro Ltd.The macro Overview (Standalone) Financial environment affects capital goods and construction companies the most because steel, power and other bigmanufacturing industries slow down their capital expenditure plans and, therefore, cut back on giving big orders to engineering andconstruction companies. So, when the going is good, capital goods players ride piggy, back on the overall boom. But today’s Rs in Crore reality ofhigh interest burdens and order backlogs is ensuring that most Q4FY11 Q4FY12 Q3FY12 companies Q-o-Q % take a knock Y-o-Y % turnover and growth. One needs % on their FY12 FY11 Y-o-Y tostay a little cautious on this sector because the cycle still remains weak. As long31.86 cycle21.11 53737.78 Gross Sales 18645.77 14140.49 15395.52 as the remains weak, serious performance 21.31 44296.1 won’tcome in. If inflationary pressures continue, the ability to maintain margins will be difficult. L&T is banking upon its robust backlog of Excise Duty 184.87 156.88 134.35 17.84 37.60 567.26 390.24 45.36orders worth Rs 142,185 crore to deliver a 25% revenue growth. The company firmly expects to report a growth of 20 per cent inrevenue and 10 per cent in profits in the current financial year. Further, the current headwinds are reflected in 43905.9 which has Net Sales 18460.9 13983.61 15261.17 32.02 20.97 53170.52 the stock, 21.10underperformed the Sensex since the start of September. Thus, 583.95 of all-13.56 Other Income 369.2 427.14 inspite the negativity prevailing in the market, we do not see -36.78 1393.28 1480.37 -5.88much need to change the company’s growth expectations for 15845.12 significant manner. We recommend a neutral opinion on the Total Income 18830.1 14410.75 FY12 in a 30.67 18.84 54563.8 45386.2 20.22stock of Larsen & Toubro Ltd until any further developments are noticed. Total Expenditure 15900.14 12619.54 12917.62 26.00 23.09 46887.91 38266.3 22.53 PBIDT 2929.96 1791.21 2927.5 63.57 0.08 7675.89 7119.94 7.81 Interest 121.09 190.71 126.25 -36.51 -4.09 666.1 619.25 7.57 PBDT 2808.87 1600.5 2801.25 75.50 0.27 7009.79 6500.69 7.83 Depreciation 180.36 180.33 235.77 0.02 -23.50 699.46 599.22 16.73 Tax 720.2 392.22 731.87 83.62 -1.59 1814.13 1776.58 2.11 Deferred Tax -12.1 36.4 147.4 -133.24 -108.21 39.7 167 -76.23 Profit After Tax 1920.41 991.55 1686.21 93.68 13.89 4456.5 3957.89 12.60 Extra-ordinary Items 39.93 - 149.05 - -73.21 38.84 223.27 -82.60 Adj Profit After EO Item 1880.48 991.55 1537.16 89.65 22.33 4417.66 3734.62 18.29 PBIDTM(%) 15.87 12.81 19.18 - - 14.44 16.22 - PBDTM(%) 15.22 11.45 18.36 - - 13.18 14.81 - PATM(%) 10.4 7.09 11.05 - - 8.38 9.01 - P/E(x)(TTM) 15.91 16.75 17.77 -5.03 -10.48 15.90 17.75 -10.41 EPS (Unit Curr.) 31.37 16.21 27.7 93.52 13.25 72.92 65.33 11.62 BMA Wealth Creators Equity Research
  3. 3. Larsen & Toubro Limited www.facebook.com/bmawealth | www.twitter.com/bmawealthDisclaimer: This document is for private circulation only. Neither the information nor any opinion expressed constitutes an offer, or any invitation to make an offer, tobuy or sell any securities or any options, future or other derivatives related to such securities. BMA Wealth Creators Ltd. Or any of its associates or employees doesn’texcept any liability whatsoever direct or indirect that may arise from the use of the information herein. BMA Wealth Creators Ltd. and its affiliates may trade for theirown accounts as market maker, block positional, specialist and/or arbitrageur in any securities of this issuer (s) or in related investments, may be on the opposite side ofpublic orders. BMA Wealth Creators Ltd. and its affiliates, directors, officers, employees, employee benefit programs may have a long or short position in any securitiesof this issuer (s) or in related investments no matter content herein may be reproduced without prior concern of BMA. While there report has been prepared on thebasis of published/other publicly available information considered reliable, we are unable to accept any liability for the accuracy of its contents. BMA Wealth Creators Limited 29-5A Dr. Ambedkar Sarani, Viswakarma II Topsia Road, Kolkata-700046, Tel (033) 40110099, research@bmastock.com, www.bmawc.com BMA Wealth Creators Equity Research