LT
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-46.95 (-2.17%)
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34.4L+
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L&T reported 5%/37% beat on our revenue/APAT estimates, supported by resilient performance in services business. Labor availability has recovered to near-normal level for monsoon season. Despite 39% YoY decline in order wins in 1QFY21, order book (OB) of Rs 3.05tn provides visibility for more than two years of revenue at FY20 level. We maintain BUY on Larsen & Toubro Ltd (LT) as it is well-placed to ride out the pandemic, given its (1) strong order book, (2) healthy balance sheet and (3) robust services business. Key risks: (1) delays in government infrastructure spending, (2) delayed pick-up in private sector spend and (3) stressed payment cycles for government projects. We cut our FY21/FY22 estimate by 7.6/2.5% to account for increase in finance cost. We raise TP to Rs 1,260 (1,235 earlier), increase primarily driven by services valuation.
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Despite a weak outlook on revenue and margins in FY21E, we do not see FCF for the core E&C business turning negative from hereon. This is because we expect the company to choose working capital management over revenue growth. L&T’s results suggest a tough macro environment for the Construction industry and likely survival challenges for debt-ridden companies. We expect L&T to emerge stronger in the post-COVID-19 era and further consolidate its market share in the Indian Construction industry. While challenges related to order inflows, execution, and working capital cannot be completely ruled out yet, L&T has demonstrated a good show in mitigating such risks thus far. Building in further conservatism, we cut our EPS estimates by 4–5% over FY21/FY22 and TP to INR1,080 (prior: INR1,120). Adj. for valuations of subsidiaries (we apply 20% holding company discount to market cap of 4- listed entities), the core business has underperformed Nifty by ~20% since the 4QFY20 results (June first week). In our view, current valuations provide limited downside risks from hereon. Maintain Buy.
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We expect L&T to face near-term challenges on account of pandemic and working capital stress but believe them to bounce back owing to multiple levers like strong business model, diversified order book and healthy balance sheet. The company continues to focus on its strategic plan of improving their return ratios. At CMP, the stock is currently trading at 19.5x/15.3x FY20E/FY21E. We maintain BUY with a revised SOTP based TP of Rs1,192.
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We maintain our earnings estimate and TP of INR1,200 with target multiple of 16x on the core business (25% discount to long-term average to capture near-term uncertainty). While FY21E looks challenging from growth perspective, we do expect a bounce-back in FY22E, helped by a lower base and stabilization of working capital. At CMP, the stock trades at FY21E/22E P/E of 14.8x/10.7x (adjusted for valuation of subsidiaries). Maintain Buy.
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We are positive on the prospects of the Company given the Government’s thrust on infrastructure with over Rs 100lakh cr. of investments lined up over the next 6 years. We maintain “Buy” on L&T with a SOTP based target price of Rs 1689.
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Maintain Buy with a revised PT of Rs. 1,614: L&T’s presence across verticals and geographies in its core E&C business supported order inflows in Q3FY2020 (despite a lull in the industry). We believe the resolution of issues in E&C execution and expected pick-up in domestic tendering activity in Q4FY2020 would help L&T achieve its FY2020 guidance. Further, the incumbent government’s sustained efforts to revive spending on infrastructure and private industrial capex bodes well for L&T in terms of order inflows in the medium to long term. Hence, we remain constructive on execution with unchanged earnings estimates and roll forward our valuation to FY2022. We retain Buy with a revised SOTP-based price target (PT) of Rs. 1,614
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We retain BUY on Larsen & Toubro (LT) despite Rev/EBIDTA miss (7.5/6%). Profit is inline, driven by lower tax rate. LT maintaining its growth/order inflow guidance vis-a-vis consensus expectation of a cut shall drive re-rating. Our SOTP of Rs 1,720 (vs Rs 1,703 earlier) is based on 22x Mar- 21E EPS. Minor adjustments in execution and Mindtree consolidation has resulted in FY20/21E EPS upgrade by 0.32/0.53%.
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L&T has announced the sale of its E&A business to Schneider and expects the deal to conclude by end-4QFY20 or in 1QFY21. Gross proceeds of the deal are expected to be INR140b. With no major capex and aversion to capital allocation in the asset business, there is a high likelihood that L&T may announce special dividend to return excess cash to shareholders, especially as the new tax rules for buyback have made it redundant for the company to choose between the two options. Any such announcement can be a re-rating catalyst for the stock. Additionally, any improvement in the macro environment would be beneficial for the stock. We largely maintain our consol. earnings estimates. At CMP, the stock trades attractively at FY21/22E P/E of 16.8x/14.1x (adjusted for valuation of non-core businesses). Maintain Buy with TP of INR1,680.
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L&T has consistently been delivering in terms of bagging orders while also maintaining its strong position through preservation of working capital levels despite slowdown, which helps control the situation on the balance sheet front. We expect it to deliver 12.1% revenue CAGR (ex-E&A business) and 15.7% PAT CAGR on a standalone basis over FY19-21E. This is likely to improve return ratios. We value L&T on SoTP (with base business at 19.5x FY21E EPS) with a target price of Rs 1740 and maintain BUY on L&T.
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Absolute EBITDA grew 10% YoY at Rs41bn. PBT declined by 10.9% YoY to Rs32.2bn on back of rise in depreciation expense (up 47.1% YoY) and higher interest cost (up 32.6% YoY). Other income decreased by 19.6% YoY.Eff. Tax rate came in at 22% (PLe 25%). Recurring PAT was up 15.8% YoY at Rs23.5bn (PLe Rs25bn). During 3QFY20, the company maintained its NWC at 23.5% (as % of sales) despite challenging environment and payment issues from central, state and some PSU’s. The company indicated of opportunity pipeline of ~Rs3trn and maintained order inflow/revenue growth/EBITDA margin (ex-services) guidance at 10-12%/12-15%/10-10.5% for FY20E. The company continues to focus on its strategic plan of achieving profitable growth and improving RoE to 18% by FY21. At CMP, the stock is currently trading at 16.7x/14.3x FY20E/FY21E.We maintain BUY with SOTP based TP of Rs1800.
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We cut our core E&C EPS estimate by 1.5%/3.4% for FY20/FY21, incorporating lower order inflow/revenue growth assumption. Consol. EPS has been cut by 1.3%/2.6% for FY20/FY21. We have also lowered our target P/E multiple on core business to 20x from 22x on account of macro uncertainties. Accounting for the current market price of listed subsidiaries, our TP stands at INR1,680 (prior: INR1,830). Adjusted for the valuation of subsidiaries, the stock trades at FY20/FY21E P/E multiple of 19x/15.6x v/s its long-term trading average P/E multiple of 23x. Maintain Buy.
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Maintain Buy with a revised PT of Rs. 1,700: We believe Maharashtra’s CM’s recent clarification related to stoppage of work on projects awarded by the previous government sends out clear signal of continued thrust on infrastructure building. We expect central government’s spending on infrastructure to pick up as early as from Q4FY2020, as it remains the key priority for the incumbent government. Further, L&T’s strong order backlog is expected to aid execution for FY2020-FY2021, while project tendering picks up. We have introduced FY2022E earnings in this note. Wehave lowered our valuation multiple for the standalone business, factoring near-term challenges in the sector, leading to revision of our SOTP-basedPT to Rs. 1,700. We continue to maintain our Buy rating, owing to attractive valuation (P/E of 15x/13x its FY2021E/FY2022E earnings) post the recent correction in the stock.
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Valuation - Maintain Buy with a unchanged PT of Rs. 1,765: L&T’s strong order backlog along with its presence across verticals and geographies in itscore E&C business has lend support in healthy order inflow during H1FY2020 (despite lull in the industry). The incumbent government’s sustained efforts inreviving spending on infrastructure and private industrial capex bodes wellfor L&T in terms of order inflows in the medium to long term. Additionally, L&T has benefited from its geographical diversification especially during the time period when the domestic environment remained muted. We have fine tuned our estimates for FY2020-FY2021. We maintain our Buy rating on the stockwith an unchanged SOTP-based price target (PT) of Rs. 1,765.
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L&T has delivered yet another resilient quarterly performance with earnings growth of ~31% yoy amid challenging environment. Order inflow grew 20% yoy to Rs482bn driven by core international orders (+77% yoy to Rs108bn), hydrocarbon (+269% yoy to Rs149bn) & power (+212% yoy to Rs43bn). L&T has maintained its execution and inflow guidance at 12-15% and 10-12% for FY20. An order backlog worth Rs3trn (2.3x TTM sales) and healthy pipeline worth ~Rs5tn in H2FY20 will help maintain L&T’s execution momentum through the near-term
uncertainties around weak macro, fiscal deficit and liquidity challenges. Order book diversification ,global competence, technology BSE code: 500510 FII +DII 57.9% differentiation, proven track record and cost efficiencies bode well in this regard. We broadly retain our estimates & BUY rating with SOTP based price target of Rs1,655.
uncertainties around weak macro, fiscal deficit and liquidity challenges. Order book diversification ,global competence, technology BSE code: 500510 FII +DII 57.9% differentiation, proven track record and cost efficiencies bode well in this regard. We broadly retain our estimates & BUY rating with SOTP based price target of Rs1,655.
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While the recent acquisition of Mindtree could pave the way for consolidation of IT services under L&T’s umbrella over the long run, we believe its core E&C business (currently at a cyclically low OPM and peak working capital level) is poised to improve reasonably over two–three years. Maintain ‘BUY/SO’. Gradual industrial pickup remains a key monitorable.
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We retain BUY on Larsen & Toubro (LT) with in-line revenues and PAT beating our estimates. LT maintained its growth/order inflow guidance driven by robust 1HFY20 inflows and a large bid pipeline. Our SOTP of Rs 1,703 (vs Rs 1,720 earlier) is based on 22x Mar-21E EPS. Tax re-calibration has resulted in FY20/21E EPS upgrade by 8.5/11%.
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L&T has consistently been delivering in terms of bagging orders, strong order execution, though with some temporary concerns on working capital management owing to tight liquidity scenario. Given the strong backlog, L&T is well placed to deliver 12.6% revenue CAGR (Ex-E&A business) and 15.7% PAT CAGR on a standalone basis over FY19-21E which is likely to improve return ratios. We value L&T on SoTP (with base business at 20x FY21E EPS) with a target price of rs 1740 and maintain BUY on L&T.
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The company indicated of opportunity pipeline of Rs5.2 trn and maintained order inflow/revenue growth/EBITDA margin (ex-services) guidance at 10-12%/12-15%/10-10.5% for FY20. The company continues to focus on its strategic plan of achieving profitable growth and improving RoE to 18% by FY21. We maintain our BUY recommendation on L&T on the back of its strong business model with robust order book, diverse skill sets, strong execution capabilities and increased focus on improving return ratios by exiting non-core assets. We maintain BUY with revised SOTP based TP of Rs1800 (Rs1767) on account of addition of Mindtree valuation.
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Govt. announced significant push in infra and sub-sectors including roads, railways, port, airports, and urban infrastructure. The capex outlook for these segments remain strong for the next 3-5 years. With 16% market share in the last five years, L&T has been able to maintain leadership position in the infra space. Apart from infra, Hydrocarbon order inflows in FY19 has been strong and therefore expected to show major contribution in FY20 and FY21. We reiterate BUY on Larsen & Toubro India with a target price of Rs. 1,487
BUY
Any announcement to increase payout by dividends or buyback may be a re-rating catalyst for the stock. At CMP, the stock trades at FY20/FY21E P/E multiple of 18x/15x for core E&C business, which is at discount to its long-term trading average multiple of 23x. L&T is our top pick in the capital goods space. We maintain our Buy rating with unchanged TP of INR1,800.
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L&T’s Q1 FY20 sales grew 10% y/y. Its EBITDA margin expanded 100bps to 11.2%. Adj. PAT grew 21% y/y to `13.6bn. Despite sluggish capex investment, order inflows grew 11% y/y to `387bn. Working capital deteriorated 200bps largely helping vendor liquidity. We believe that the forthcoming capex in select private sectors and in the Railways will lead to healthy inflows for the company. Adjusting for its discontinued operations, we reduce our FY20e and FY21e earnings respectively 4% and 6%. Considering the strong prospects, we maintain a Buy, with a revised TP of `1,720 (a sum-of-parts valuation, based on FY21).
BUY
L&T has consistently been delivering in terms of bagging orders, strong order execution, though with some temporary concerns on working capital management owing to tight liquidity scenario. However, we believe revenue, PAT CAGR of 12.2%, 12.6% in FY19-21, respectively, coupled with improvement in return ratios should be value accretive for the stock. We value L&T on SoTP (with base business at 20x FY21E EPS) with a target price of | 1675 and maintain BUY on L&T.
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Valuation & Outlook: L&T has consistently been delivering in terms of bagging orders, strong order execution, though with some temporary concerns on working capital management owing to tight liquidity scenario. However, we believe revenue, PAT CAGR of 12.2%, 12.6% in FY19-21, respectively, coupled with improvement in return ratios should be value accretive for the stock. We value L&T on SoTP (with base business at 20x FY21E EPS) with a target price of | 1675 and maintain BUY on L&T.
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Valuation and view: We cut our core E&C EPS estimate by 7%/5% for FY20/21 on account of lower EBITDA margin assumption and reduced other income in the light of the MindTree acquisition. Consolidated EPS cut is limited to 2%/1.6%. We include MindTree stake in our SOTP valuation (20% discount to current market cap, in line with our methodology for other listed subsidiaries). We continue valuing LT’s core E&C business at FY21E target multiple of 22x. Accounting for the current market price of listed subsidiaries, our TP stands at INR1,790 (prior: INR1,850). Maintain Buy.
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The Q1FY20 was a better-than-expected quarter operationally and the marginal drop in infrastructure margins were due to project mix. The company has retained its guidance for FY20, in terms of inflows, revenues, and margins, while the upwards RoE trajectory continues. It remains the best proxy for the capex story. We continue to maintain our Buy, with an unchanged TP of Rs 1600 based on SOTP.
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Maintain Buy with a revised PT of Rs. 1,765:
L&T posted in- line results for Q1FY2020, showing healthy execution and improvement in OPM on a y-o-y basis. Further, L&T’s strong order backlog and healthy bidding pipeline provide comfort on achieving a 14% CAGR in consolidated net earnings over FY2019-FY2020. Despite inorganic acquisition, L&T’s consolidated gross debt/equity is expected to remain at manageable level of ~2x. We believe L&T, being a quasi-domesticinfrastructure play, is expected to benefit over the next five years, asthe incumbent government envisages Rs. 100 lakh crore investments ininfrastructure till 2024. We have fine tuned our estimates for FY2020-FY2021, factoring Mindtree’s acquisition from Q2FY2020 along withrevised valuation for its listed financial subsidiaries. Hence, we maintainour Buy rating on the stock with a revised SOTP-based price target (PT) of Rs. 1,765.
L&T posted in- line results for Q1FY2020, showing healthy execution and improvement in OPM on a y-o-y basis. Further, L&T’s strong order backlog and healthy bidding pipeline provide comfort on achieving a 14% CAGR in consolidated net earnings over FY2019-FY2020. Despite inorganic acquisition, L&T’s consolidated gross debt/equity is expected to remain at manageable level of ~2x. We believe L&T, being a quasi-domesticinfrastructure play, is expected to benefit over the next five years, asthe incumbent government envisages Rs. 100 lakh crore investments ininfrastructure till 2024. We have fine tuned our estimates for FY2020-FY2021, factoring Mindtree’s acquisition from Q2FY2020 along withrevised valuation for its listed financial subsidiaries. Hence, we maintainour Buy rating on the stock with a revised SOTP-based price target (PT) of Rs. 1,765.
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We maintain our BUY recommendation on L&T on the back of its strong business model with robust order book, diverse skill sets, strong execution capabilities and increased focus on improving return ratios by exiting non- core assets.The company continues to focus on its strategic plan of achieving profitable growth and improving RoE in medium term. We maintain BUY with revised SOTP based TP of Rs1710 (Rs1744) on account of change in listed services entities.
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Revenues in FY19 have clocked in at Rs 141,007 crore registering a resurgent growth of 18% over FY18. PAT touched an all-time high of Rs 8,905 crore in FY19 representing a substantial growth of 21% over FY18. Margins stood at 12.5% against 13.3 % in the year-ago period and were dragged down by decline in Infra segment margins to 8.5%. Infrastructure margin was impacted due to increase in commodity prices, job mix and one time provisions. We expect margins to normalize led by signs of capex revival in H2FY20. L&T has maintained its revenue growth and order inflow guidance at 12-15% and 10-12% for FY20.We maintain a BUY with a target of Rs. 1,553
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Maintain Buy with a revised PT of Rs. 1,820:
L&T re-jigged its investments by taking impairment in key subsidiaries, stake divestmentof financial subsidiaries, transfer of road assets in InvIT and acquisition of Mindtree. Further, fructification of sale of the electrical and automation business worth Rs. 14,000 crore would materially improve its liquidity and cash surplus. We believe L&T, being a quasi-domestic infrastructure play, is expected to benefit over the next five years, as the incumbent governmentenvisages Rs. 100 lakh crore investments in infrastructure till 2024. Weexpect L&T to be a key beneficiary from the expected big-ticket size project awards domestically. Further, L&T’s geographical diversificationwould aid it to reduce its risk from volatility in crude prices. Hence, at this stage, we maintain our Buy rating on the stock with an unchanged SOTP- based price target (PT) of Rs. 1,820.
L&T re-jigged its investments by taking impairment in key subsidiaries, stake divestmentof financial subsidiaries, transfer of road assets in InvIT and acquisition of Mindtree. Further, fructification of sale of the electrical and automation business worth Rs. 14,000 crore would materially improve its liquidity and cash surplus. We believe L&T, being a quasi-domestic infrastructure play, is expected to benefit over the next five years, as the incumbent governmentenvisages Rs. 100 lakh crore investments in infrastructure till 2024. Weexpect L&T to be a key beneficiary from the expected big-ticket size project awards domestically. Further, L&T’s geographical diversificationwould aid it to reduce its risk from volatility in crude prices. Hence, at this stage, we maintain our Buy rating on the stock with an unchanged SOTP- based price target (PT) of Rs. 1,820.
BUY
The company’s order inflow and revenue guidance for FY20 was strong, and we believe the improving margins and robust order book of Rs 2.9trn give us clear visibility of achieving the revenue growth and target RoEs. We continue to maintain a Buy rating for the stock, with a TP of Rs 1600.
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The company is on track to achieve its 5-year plan (RoE improved from 12.5% in FY17 to 15.3% in FY19) and remains confident on achieving its goal (RoE 18%) by FY21. Further, L&T is developing its next strategic idea (to launch by FY22) and has already announced aggressive plans on digitalization (L&T- NxT) across products and project business. The company has guided a revenue growth of 12-15%, EBITDA margin (ex-services) of 10.5% and expects similar numbers in FY21E. We maintain BUY with revised SOTP based TP of Rs1744 per share.
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L&T maintained its revenue growth and order inflow guidance at 12-15% and 10-12% for FY20. The momentum set on infrastructure building, coupled with incremental tax revenues, the emphasis on investments in areas such as airports, railroads, water supply and distribution, expressway programs, power availability, Oil & Gas production and mass rapid transit system is expected to continue. Further revival of stressed businesses and recovery of NPAs are expected to ease the concerns on liquidity and perk-up the business sentiment. Improved credit growth is also expected to aid an uptick in private capex in areas of transportation infrastructure, green energy, commercial real estate, digital technology & services. We maintain a BUY with a target of Rs. 1,498.
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We have marginally increased our FY19/20 sales/EBDITA/PAT estimates by 4%/6%/6% and believe LT is the best way to play across the capex cycles in India. We maintain Buy with an unchanged TP of Rs 1600.
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We recommend a BUY on Larsen & Toubro (LT) with SoTP of Rs 1,794/sh. Reduction in subsidiaries losses, majorly provided transportation project overruns, order pick up in Domestic/International markets and strong cash flow make L&T an anchor play on infra investment and capex recovery. Higher services share in the mix will improve RoEs further. Working capital is at optimal levels. A tight lid on asset capex will only help further re-rating.
BUY
L&T has consistently been delivering in terms of bagging orders, strong order execution while, at the same time, strong cash flows from operations and efficient working capital management are aiding to improve quality of its balance sheet. We believe revenue, PAT CAGR of 11.9%, 12.7% in FY19- 21, respectively, coupled with improvement in return ratios should be value accretive for the stock. We value L&T on SoTP (with base business at 20x FY21E EPS) with a revised target price of | 1680 and maintain BUY on L&T.
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Maintain Buy with unchanged PT of Rs. 1,655: Management reiterates its order inflow and topline guidance of 10-12%/12-15%, respectively, with stable margin on a consolidated level. However, there is scope of margin improvement through better operating margin in the infra segment (FY2019 net profit was affected due to Rs 300 crore provisioning in the infra segment). Based on continued strong growth momentum in subsidiaries and improved outlook on standalone basis, we maintain our Buy rating with an unchanged price target (PT) of Rs. 1,655.
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We raise our FY20 earnings estimate by 7% to factor in strong order backlog-led revenue growth. Our TP now increases to INR1,850. Adjusted for valuation of the services business, the core E&C business is available at FY20E/21E P/E of 18x/15x. Maintain Buy.
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The overall order inflow for FY19 was up 16% YoY with domestic order inflow up 11% YoY and international up 30% YoY. NWC reduced by 200bps YoY at 18% in FY19 over FY18 and management has to remain between 15-18% going ahead. RoE at the end of FY19 came in at 15.3% compared to 14.1% in FY18. The company has guided for revenue growth of 12-15%, EBITDA margin (ex-services) 10.5% and similar number in FY21. Order inflow guidance of 10-12% which will be mainly driven by Infrastructure and Hydrocarbon mainly in the overseas markets. It expects strong ordering momentum to start from 2QFY20 onwards. The company continues to focus on its strategic plan of achieving profitable growth and improving RoE in medium term. We maintain BUY with revised SOTP based TP of Rs1744 per share.
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MTCL acquisition may be marginally EPS accretive and neutral from the valuation perspective. However, it is too early to incorporate the same in our estimates as it may be a long-drawn process. For now, we maintain our Buy rating and target price of INR1,610.
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Maintain Buy with unchanged PT of Rs. 1,655: L&T delivered yet another quarter of strong overall performance in Q3FY2019. Moreover, management sees traction in order inflow across geographies, especially from the domestic market, led by public capex. Some green shoots are visible from some private players, but it expects to see acceleration in the medium term. Hence, the management reiterates its order inflow and topline guidance of 10-12%/12-15%, respectively, with 25 BPS margin improvements on a consolidated level (excluding service business). L&T is the best play on the domestic capex cycle recovery and management’s focus on the strategic plan of achieving profitable growth and increased RoE in the medium term and superior capital allocation augur well for earnings to report an 18% CAGR over FY2018-FY2020E. Hence, we maintain our Buy rating with an unchanged price target (PT) of Rs. 1,655.
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About
Larsen & Toubro Ltd.
NSE: LT | BSE: 500510 | ISIN: INE018A01030 | Sector: Miscellaneous
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