17 may 2021 results review 4qfy21 larsen & toubro
TRANSCRIPT
17 May 2021 Results Review 4QFY21
Larsen & Toubro
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Growth returns
Larsen Toubro (LT) reported revenue/EBITDA/APAT of INR 481/64/34bn,
(5)/6/(5)% beat/(miss) to our estimate. Improvement in EBITDA margin and
strong cash collections were the key positives from the result. With improving
macro in international markets and government’s focus on infrastructure at
home, LT is hopeful of low to mid-teens growth in order inflow. We maintain
BUY on LT, given its (1) strong order book (INR 3.3tn, ~3xFY21 core EPC
revenue), (2) healthy balance sheet, and (3) robust services business. We cut
our FY22 estimates by 9% to account for near-term execution challenges. We
increase our SOTP-based target price to INR 1,800/sh (INR 1,657 earlier). Key
risks: delay in asset monetisation and tepid order inflows.
Near-normal execution recovery: LT reported revenue of INR 481bn
(+9%/+35% YoY/QoQ), 5% less than our estimates. Execution recovered to
normalcy as revenue from core EPC business grew by 8%/53% YoY/QoQ.
EBITDA came 6% ahead of our estimates. Increased productivity, improved
utilisation in IT/ITES, and better profitability in transportation projects led to
expansion of EBITDA margin by 171/126bps to 13.3% (vs 11.9% est.).
Higher-than-expected taxes led to 5% APAT miss. With order book of INR
3.3tn, LT is aiming low to mid-teens growth in execution. While 60% of the
OB is variable price, 40% fixed prices contracts have buffer to protect against
higher commodity prices. LT is targeting steady margins in FY22.
Ordering in international/domestic markets to pick up: LT registered 12%
YoY decline to INR 507bn in 4QFY21, as awarding was deferred. For FY21,
order inflow de-grew by 6% YoY to INR 1.76tn. OB now stands at INR 3.3tn,
providing three years of revenue visibility for the EPC business.
Management believes FY22 will witness healthy ordering in both domestic
and international markets. Total bottom up order pipeline stood at INR
9.6tn, of which 6.6tn is from domestic market. Infrastructure at 77%
constitutes major share of the pipeline, followed by hydrocarbon at 17%.
Order inflow guidance is also pegged at low to mid-teens. Recovery in key
international markets, continuous focus on infrastructure by the
government, and rebound in crude oil prices augur well for LT.
Balance sheet remains comfortable: Net debt reduced to INR 855bn (vs INR
998bn on Dec 20-end). Improvement in working capital led to robust
CFO/FCFF of INR 228/219bn. To guard against the uncertainty, LT has kept
cash reserves at elevated levels (INR 473bn). While IT business is generating
robust cash flow, the recent rights issue has provided enough growth capital
to LT Finance. E&C business would require capital to the extent of working
capital. Hyderabad Metro would require INR 10/20bn support till the
ridership picks up. With core business requiring limited investment, LT may
reward its shareholders with higher dividends.
Consolidated Financial summary
(INR mn) 4QFY21 4QFY20 YoY (%) 3QFY21 QoQ (%) FY20 FY21E FY22E FY23E
Revenues 4,80,879 4,42,453 8.7 3,55,964 35.1 14,54,524 13,59,790 15,63,639 18,17,093
EBITDA 63,889 51,210 24.8 42,800 49.3 1,63,290 1,56,241 1,77,404 2,12,954
APAT 34,173 30,647 11.5 22,574 51.4 95,490 69,010 88,374 1,12,101
EPS (Rs) 24.4 21.8 11.5 16.1 51.4 68.1 49.2 63.0 79.9
P/E (x)
20.8 28.8 22.5 17.7
EV/EBITDA(x)
19.1 18.2 16.1 13.3
RoE (%)
14.8 9.7 11.3 13.4
Source: Company, HSIE Research
BUY
CMP (as on 14 May 21) INR 1,415
Target Price INR 1,800
NIFTY 14,678
KEY
CHANGES OLD NEW
Rating BUY BUY
Price Target INR 1,657 INR 1,800
EPS % FY22E FY23E
-9.1 -0.7
KEY STOCK DATA
Bloomberg code LT IN
No. of Shares (mn) 1,405
MCap (INR bn) / ($ mn) 1,988/26,717
6m avg traded value (INR mn) 6,171
52 Week high / low INR 1,593/777
STOCK PERFORMANCE (%)
3M 6M 12M
Absolute (%) (7.0) 33.6 65.5
Relative (%) (1.2) 22.8 8.8
SHAREHOLDING PATTERN (%)
Dec-20 Mar-21
Promoters 0.0 0.0
FIs & Local MFs 32.96 32.75
FPIs 21.11 22.02
Public & Others 45.93 45.23
Pledged Shares 0.0 0.0
Source : BSE
Parikshit D Kandpal, CFA
+91-22-6171-7317
Chintan Parikh
+91-22-6171-7358
Page | 2
Larsen & Toubro: Results Review 4QFY21
Quarterly Financials Snapshot - Consolidated
(INR mn) 4QFY21 4QFY20 YoY (%) 3QFY21 QoQ (%) FY21 FY20 YoY%
Net Sales 4,80,879 4,42,453 8.7 3,55,964 35.1 13,59,790 14,54,524 (6.5)
Material Expenses 3,30,020 3,06,031 7.8 2,28,670 44.3 8,67,009 9,73,628 (11.0)
Employee Expenses 63,539 62,884 1.0 61,702 3.0 2,47,620 2,31,140 7.1
SG&A Expenses 23,430 22,328 4.9 22,792 2.8 88,920 83,961 5.9
EBITDA 63,889 51,210 24.8 42,800 49.3 1,56,241 1,65,795 (5.8)
Interest Cost 8,531 8,208 3.9 9,620 (11.3) 39,134 28,026 39.6
Depreciation 8,168 7,109 14.9 7,021 16.3 29,042 24,623 17.9
Other Income (Incl. EO) 10,283 6,605 55.7 10,647 (3.4) 34,294 20,227 69.5
PBT 57,474 42,497 35.2 36,805 56.2 1,22,358 1,33,373 (8.3)
Tax 20,867 9,663 116.0 10,408 100.5 40,108 32,632 22.9
Minority Interest 4,029 3,654 10.3 3,910 3.1 13,384 13,453 (0.5)
Associate Profits 1,595 1,467 8.8 86 1,759.1 144 1,655 (91.3)
PAT from discontinued
operations (1,245) 1,324
2,093
46,819 6,546
Reported PAT 32,928 31,971 3.0 24,667 33.5 1,15,829 95,490 21.3
E/o + PAT from disc.
Operations (1,245) 1,324
2,093
46,819
APAT 34,173 30,647 11.50 22,574 51.4 69,010 95,490 (27.7)
Source: Company, HSIE Research
Margin Analysis
4QFY21 4QFY20
YoY
(bps) 3QFY21
QoQ
(bps) FY21 FY20
YoY
(bps)
Material Expenses as % of Net Sales 68.6 69.2 (53.8) 64.2 438.9 63.8 66.9 (317.7)
Employee Expenses as % of Net Sales 13.2 14.2 (99.9) 17.3 (412.1) 18.2 15.9 231.9
Other operating expenses as % of Net
Sales 4.9 5.0 (17.4) 6.4 (153.1) 6.5 5.8 76.7
EBITDA Margin (%) 13.3 11.6 171.2 12.0 126.2 11.5 11.4 9.2
Tax Rate (%) 36.3 22.7 1,357.0 28.3 803.0 32.8 24.5 831.3
Net Profit Margin (%) 7.1 6.9 18.0 6.3 76.5 5.1 6.2 (110.4)
Source: Company, HSIE Research
Revenue – INR 480bn
(+8.7%/35.1% YoY/QoQ, 5%
miss)
EBITDA – INR 63.9bn
(+24.8%/49.3% YoY/QoQ,
beat of 6%)
EBITDA margin: 13.3%
(+171/+126bps YoY/QoQ, est.
11.9%)
Finance cost: INR 8.5bn
(+4%/-11% YoY/QoQ)
Other income: INR 10.3bn
(+56%/-3% YoY/QoQ)
PBT: INR 57.4bn
(+35%/+56% YoY/QoQ, 10%
ahead of our estimates)
Associate profit: INR 1,595
mn vs INR 1,467mn/ 86 mn
YoY/QoQ
Loss from discontinued
operations: INR 1.2bn (INR
1.3/2.1bn 4QFY20/3QFY21)
RPAT inc. discontinued
operations: INR 32.9bn
(3%/33.5% YoY/QoQ)
APAT: INR 34.1bn
(+11.5%/+51%); Higher
effective tax rate (36.3%) led
to 5% miss on APAT
Page | 3
Larsen & Toubro: Results Review 4QFY21
Key call takeaways
Execution had recovered to near normalcy in 4QFY21 but second wave of the
pandemic put a spanner into that. At the end of Mar-21, company had labor force
of 240,000 and LT was looking to ramp it up to 275,000 given strong backlog. The
2nd wave has led to reduction of 20% in the work force. However, LT was able to
retain remaining work force at the labor camps at the construction sites.
Order book stood at INR 3.3tn at the end of Mar-21. INR 1tn of the order book is
funded by multi lateral agencies. International constituted 21% of the OB.
Domestic OB stood at INR 2.6tn, with state govt., central govt., PSUs and Pvt.
forming 31%, 9%, 44% and 16% respectively. With strong and diversified order
book of INR 3.3tn, LT has guided for low to mid-teen growth in execution.
Concentration of OB in public sectors mitigates the risk of default. INR 3.3tn OB
is net of slow moving orders and entirely executable.
Management believes FY22 will witness healthy ordering in both domestic and
international markets and sees 8-10% more prospects than in FY21. Total bottom
up order pipeline stood at INR 9.6tn, of which 6.6tn is from domestic market.
Infrastructure at 77% constitutes major share of the pipeline, followed by
hydrocarbon at 17%. Order inflow guidance is also pegged at low to mid-teens.
There are also opportunities in building data centers as more and more data is
being consumed.
At home, government policies are directed towards creating infrastructure and
govt. has provided enough fiscal resources to continue with the ordering. Even,
international money is focusing on India to fund water, transmission and metro
projects. Given that govt. resources are directed towards fighting the pandemic
currently, ordering would be lumpy in 2HFY22. INR 8-10tn capex happen in the
system and LT has 15-20% share in the ordering.
Internationally, some of the countries did better than India in fighting the COVID
and they are also doing the infra spending to kick start the economy. Crude
prices are now back in the USD 60-80/barrel range, which entails significant
capital expenditure in the Middle East. Bottom up pipeline for the hydrocarbon
sector is at INR 1.4tn, with domestic at INR 600bn and international at INR
800bn. FY22 could see return of ordering due to muted ordering in last 1-1.5
years. Also, increase in commodity prices could bring the private capex, which
has been subdued for a while.
At group level, customer collections stood at INR 1.26tn, of which INR 760bn
were at the parent level. Strong collection helped in reducing the working capital
from 23.7% to 22.3% of sales. OCF and FCFF of INR 228/219bn during FY21.
EBITDA margin improved to 11.5% vs 11.2% in 4QFY20 despite the challenges in
execution and higher commodity prices. Management stated that there was no
one-off and attributed it to improved efficiencies. Also some of the transportation
projects were back in black which contributed in the margin. L&T is one of the
biggest buyers of raw materials so it works in favor to procure at reasonable
prices.
Management has guided for the steady margins in FY22. 60% of the contracts are
variable price contracts so it would protect against higher commodity prices. For
the rest 40% fixed price contract, management believes there is enough cushion to
protect the margin against sustained higher commodity prices.
Discussions with clients over under recoveries are ongoing. Normally all these
conversations go through till completions. Clients are generally sympathetic to
Page | 4
Larsen & Toubro: Results Review 4QFY21
the cause as they do realize the issues. LT is focusing on the project completion
with the desired quality. Most of the clients are repeat clients so LT is reasonably
confident of getting the COVID-19 under recovery claims from the clients.
LT sees headwinds in the power sector as an opportunity. It believes it is much
ahead in transition compared to competition. The way fuel is used will change
dramatically. Management sees lot of opportunity in clean energy space. It
recently won one of the largest solar power projects in Saudi Arabia.
Hyderabad Metro is a top class asset and has 60 year concession period left. But
it’s unfortunate that the ridership is next to nothing given the pandemic
situation. All the options are being explored from restructuring debt to getting
under recovery claims and monetization of TOD. Currently govt is focused on
health care. In this year’s budget, Telangana govt. has budgeted Rs 10bn towards
metro, and LT hopes it finds its way to Hyderabad Metro.
Cash reserves build up to guard against any uncertainty. LT has declared final
dividend of INR 18/sh. Earlier it had approached SEBI for the buyback. But, as
per SEBI guidelines, debt of financial business would also be considered. So it
looks challenging to do buyback unless rules changes. So to reward investors, LT
may go through the dividend route.
LT will definitely come out of the power development business. It does not
envisage running a power utility business. So, all utility assets will be divested in
near future. Services businesses other than financial business are generating
enough cash flow for them, so no further allocation required. E&C business does
not require much investment apart from working capital. Financial business
recently did a rights issue, so has enough capital. Hyderabad Metro will require
INR 10-20bn in till ridership picks up.
L&T Finance is well positioned to grow after the rights issue. LT believe there is a
space for NBFC to grow in India’s credit delivery system. It has been doing well
and will continue in the services business.
As far as LT Realty is concern, the business is limited to select markets. Much of
the projects LT is doing are on the land provided by the parent when it moved its
manufacturing to the other places. Given the owned land, LT has flexibility to
time the project and match demand with supply. Given the stamp duty cut, it did
reasonable business in Maharashtra. As it grows in size, LT Realty could also
look at other land parcels.
Shipyard is very precious assets. It is next to impossible to get waterfront area in
a metropolis area. Apart from the shipyard building, fabrication work is carried
out for the hydrocarbon projects. Govt. policies are also looking at a naval
program to enhance India’s maritime capabilities. India requirement is well
documented. PSUs are swarmed with orders and deliveries are largely delayed.
LT has demonstrated its capability in the past by delivering much ahead of the
time. However govt. has been little slow to opening up to the private
shipbuilders. But LT hopes things would change and benefit LT.
In defense, there are no hard assets or space locked up for business. Its all
engineering skill, which are utilized in the other works. Currently, it forms 2-3%
of LT’s revenue but potential is much greater.
RoE target is still 18%. Sans pandemic, LT was well on track to achieve the target.
Asset monetization, re-orienting the businesses earning less than the cost of
capital, growing in core and services business, cost optimization are some
measures that LT will deploy to achieve the target.
Page | 5
Larsen & Toubro: Results Review 4QFY21
Consolidated Segmental Revenue
INR mn 4QFY21 4QFY20 YoY (%) 3QFY21 QoQ (%) FY21 FY20 YoY%
Segmental Revenues
-Infrastructure 2,64,367 2,55,597 3.4 1,59,732 65.5 6,19,616 7,37,773 (16.0)
-Power 12,202 5,653 115.9 9,037 35.0 31,926 23,185 37.7
-Heavy engineering 10,819 7,016 54.2 8,034 34.7 30,185 32,050 (5.8)
-Defence 11,408 9,281 22.9 10,240 11.4 34,101 39,792 (14.3)
-Hydrocarbon 54,217 49,792 8.9 44,224 22.6 1,69,638 1,74,455 (2.8)
E&C business 3,53,014 3,27,339 7.8 2,31,267 52.6 8,85,467 10,07,254 (12.1)
-E&A - 12,391 (100.0) 48 (100.0) 16,057 55,670 (71.2)
-IT and TS 68,454 64,613 5.9 65,301 4.8 2,56,188 2,23,352 14.7
-Financial Services 33,767 33,657 0.3 34,007 (0.7) 1,34,036 1,38,224 (3.0)
-Dev. projects 11,138 9,815 13.5 8,138 36.9 36,214 48,503 (25.3)
-Others 19,065 12,066 58.0 20,507 (7.0) 60,928 53,087 14.8
-Intersegment revenue (4,559) (5,037) (9.5) (3,256) 40.0 (13,041) (16,995) (23.3)
-Discontinued Operations - (12,391) (100.0) (48) (100.0) (16,057) (55,670)
Total 4,80,879 4,42,453 8.7 3,55,964 35.1 13,59,790 14,53,426 (6.4)
EBIT
-Infrastructure 27,955 26,266 6.4 8,226 239.8 45,215 52,073 (13.2)
-Power 949 2,032 (53.3) 88 980.0 1,112 2,361 (52.9)
-Heavy engineering 2,806 1,057 165.6 1,347 108.3 4,883 5,660 (13.7)
-Defence 3,028 1,236 144.9 1,384 118.9 6,170 5,758 7.1
-Hydrocarbon 6,583 5,023 31.1 4,932 33.5 15,683 17,462 (10.2)
E&C business 41,322 35,613 16.0 15,977 158.6 73,064 83,315 (12.3)
-E&A - 1,877 (100.0) (32) (100.0) 844 8,881 (90.5)
-IT and TS 13,660 10,230 33.5 13,595 0.5 48,232 36,932 30.6
-Financial Services 7,308 4,467 63.6 3,520 107.6 12,858 26,787 (52.0)
-Dev. projects (652) (96) 580.4 (760) (14.2) (1,966) 3,873 (150.8)
-Others 2,333 1,505 55.0 6,553 (64.4) 11,230 9,694 15.8
-Disc. Operations - (1,877) (100.0) 32 (100.0) (844) (8,881) (90.5)
Total 63,972 51,720 23.7 38,885 64.5 1,43,418 1,60,601 (10.7)
Source: Company, HSIE Research
Segmental Margin (EBITDA): Consolidated Trend
(in %) 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21
Infra 6.4 7.1 6.1 11.1 6.2 6.3 6.1 11.4
Power 3.3 4.2 3.4 37.6 1.1 3.0 2.0 8.5
Heavy Engineering 19.5 24.9 23.5 23.5 15.5 4.4 18.2 27.1
Defence 16.5 17.9 20.5 17.5 12.8 24.3 16.8 29.3
Hydrocarbons 7.6 12.5 12.1 11.0 5.3 8.5 12.2 13.0
Others 24.1 21.8 21.9 21.9 6.2 17.4 33.3 13.5
IT & services 23.2 19.5 21.0 21.0 20.6 23.0 25.4 24.2
Financial Services 22.0 22.5 21.3 13.8 3.6 3.8 11.0 22.3
Development projects 10.0 10.2 17.3 6.1 7.0 5.3 0.1 8.4
Source: Company, HSIE Research
Revenue from core EPC
business grew by 8% YoY
Labour availability had
improved to near-normal
level, but second wave led
to some labour migration
Services business remained
resilient with IT & ITES
registering growth of 6%
and finance clocking
flattish revenue
Power segment revenue
reported 116% YoY growth
on large opening order
book
Higher PLF in Nabha
Power led to 13.5% YoY
growth in Developmental
Projects
Others segment reported
58% YoY growth led by
Smart World &
Communications,
Construction & Mining
Equipment, Rubber
Processing Machinery and
Industrial Valves
Page | 6
Larsen & Toubro: Results Review 4QFY21
4QFY21 Segmental EBITDA breakup
Source: Company, HSIE Research
4QFY21 Segmental Net Assets Employed
Source: Company, HSIE Research
Order Book Break-up (4QFY21-INR 3.3tn)
Source: Company, HSIE Research
EBITDA margin of infra
segment improved 30bps
YoY to 11.4%
Margins of IT business
improved from 21% to
24.2%YoY on improved
utilization of manpower
and cost rationalisation
Margins in developmental
business largely
attributable to pick-up in
power demand at Nabha
Power
EBITDA of power, defence
and heavy engineering
reflective of job mix
Net capital employed
stood at INR 879bn at the
end of 4QFY21
LT reported order book at
INR 3.31tn
Share of infra in order
book increased by 1% YoY
on relatively better order
wins for the segment in
FY21
International orders
constitute 21% of the
order book
30.2
16.6
7.5
2.6 7.0
2.9 3.3
0.9 1.0 -
5.0
10.0
15.0
20.0
25.0
30.0
35.0
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
Infr
a
IT S
erv
ices
Fin
. Ser
vic
es
Oth
ers
Hy
dro
carb
on
Hea
vy
En
g.
Def
ence
Dev
. Pro
ject
s
Po
wer
EBITDA (Rs bn) - LHS Margins (%) - RHS
Infra
252
Power
20 Heavy Eng.
17
Defence
21
Hydrocarbon
30 E&A
-
IT Services
234
Fin. Services
174
Dev. Projects
214
Others
77 Rs bn
Infra
75%
Power
4%
Heavy Eng.
1%
Defence
2%
Hydrocarbon
14%
Services
0%
Others
4%
Page | 7
Larsen & Toubro: Results Review 4QFY21
Order Inflow Breakup (4QFY21-INR 507bn)
Source: Company, HSIE Research
Infra Segment Order Inflow Trend
Source: Company, HSIE Research
Ex-Services (Ex-Infra)- Order Inflow Trend
Source: Company, HSIE Research
Order inflow for the
quarter stood at INR
507bn, a decline of 12%
YoY
Of the total order wins in
the quarter, 64% of the
orders came from domestic
clients
Infrastructure segment
registered 24% YoY decline
in order inflow
Order wins were largely in
Health and Urban Water
Management;
International orders
constituted 34% of the
order inflow
Order inflow ex-services
and ex-infra came in at
INR 81bn (vs INR 119bn in
4QFY20)
Infra
62%
Power
2%
Heavy Eng.
3%
Defence
1%
Hydrocarbon
7%
Services
22%
Others
3%
122%
26%
-42%
21%
-6%
41%
-43%
-10%
79%
47%
-72%
28%
213%
-31%
-100%
-50%
0%
50%
100%
150%
200%
250%
-
100
200
300
400
500
3QF
Y18
4QF
Y18
1QF
Y19
2QF
Y19
3QF
Y19
4QF
Y19
1QF
Y20
2QF
Y20
3QF
Y20
4QF
Y20
1QF
Y21
2QF
Y21
3QF
Y21
4QF
Y21
Inflows (Rs bn) - LHS % Change (QoQ) - RHS
71%
-44% -1
%
18% 19
%
54%
-21%
72%
-91%
524%
-81% 19
%
514%
-52%
-200%
-100%
0%
100%
200%
300%
400%
500%
600%
-
50
100
150
200
250
3QF
Y18
4QF
Y18
1QF
Y19
2QF
Y19
3QF
Y19
4QF
Y19
1QF
Y20
2QF
Y20
3QF
Y20
4QF
Y20
1QF
Y21
2QF
Y21
3QF
Y21
4QF
Y21
Inflows (Rs bn) - LHS % Change (QoQ) - RHS
Page | 8
Larsen & Toubro: Results Review 4QFY21
Segmental Order inflow Trend
Order Inflows (INR bn) 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21
Infrastructure 175 157 281 412 113 145 454 314
Power 67 43 8 12 - - - 10
Heavy Engineering* 2 7 5 5 5 3 7 15
Defence 4 6 2 7 1 13 7 5
Subtotal 6 13 7 12 6 17 15 20
Hydrocarbons 34 149 - 22 12 - 132 35
Others 20 15 4 73 5 11 22 15
Ex Services Inflows 302 375 300 532 137 173 622 395
Services 85 107 116 47 99 107 110 112
Total Inflow 387 482 416 579 236 280 732 507
Source: Company, HSIE Research
Segmental Order Book Trend
INR bn 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21
Infrastructure 2,187 2,153 2,236 2,249 2,197 2,212 2,450 2,456
Power 129 152 184 152 153 149 132 131
Heavy Engineering* 41 30 31 30 31 30 33 33
Defense 112 121 92 91 92 90 99 65
Subtotal 153 152 123 122 122 120 132 98
Hydrocarbons 403 515 459 456 427 389 464 458
Others 68 61 61 61 153 120 132 131
Total Order Book 2,940 3,032 3,063 3,039 3,051 2,989 3,311 3,274
Source: Company, HSIE Research
Change in Estimates
INR mn FY22E FY23E
New Old % diff New Old % diff
Net Revenues 15,63,639 16,59,776 (5.79) 18,17,093 18,38,588 (1.17)
EBITDA 1,77,404 1,91,479 (7.35) 2,12,954 2,14,168 (0.57)
Margins (%) 11.3 11.5 (19.1) 11.7 11.6 7.1
APAT 88,374 97,204 (9.1) 1,12,101 1,12,904 (0.7)
Source: Company, HSIE Research
Valuation Summary
Business Valuation methodology INR bn INR/sh
L&T E&C business 21x Mar-23 E&C Earnings 1,636 1,166
L&T Infotech HSIE TP with 25% holdco disc. 410 293
L&T Tech services HSIE TP with 25% holdco disc. 136 97
Mindtree HSIE TP with 25% holdco disc. 166 118
L&T Finance Mcap with 25% holdco disc 100 71
Other Subs, Associates and
Developmental Portfolio 0.5x P/BV of Invested Equity 75 54
Target price (TP)
2,524 1,800
Source: HSIE Research
While L&T reported order
wins of INR 314bn for
infra segment in the
quarter, ordering in power,
heavy engineering and
defence was muted
International ordering
picked up sharply,
particularly in the Middle
East as crude prices inched
up higher
Reported order book of
INR 3.3tn is well
diversified and is net of
slow moving orders which
gives revenue visibility of
~3 years for core EPC
business
We reduce our FY22
estimates by 9% to
account for challenges in
execution in 1HFY22 and
tweak FY23 estimates
marginally
We maintain our BUY on
L&T with an increased TP
of INR 1,800/sh (INR 1,657
earlier) as we roll forward
to Mar-23 EPS of E&C
business and update
valuation of services
business
Page | 9
Larsen & Toubro: Results Review 4QFY21
Financials Consolidated Income Statement Year ending March (INR mn) FY18 FY19 FY20 FY21 FY22E FY23E
Net Revenues (including E&A) 11,96,831 13,52,203 14,54,524 13,59,790 15,63,639 18,17,093
Growth (%) 9.5 13.0 7.6 (6.5) 15.0 16.2
Material Expenses 7,71,067 8,82,474 8,93,208 8,67,009 9,92,905 11,51,979
Employee Expenses 1,52,925 1,74,664 2,31,140 2,47,620 2,63,537 2,92,151
Other Operating Expenses 1,37,127 1,41,768 1,66,886 88,920 1,29,793 1,60,009
EBIDTA 1,35,713 1,53,296 1,63,290 1,56,241 1,77,404 2,12,954
EBIDTA (%) 11.3 11.3 11.2 11.5 11.3 11.7
EBIDTA Growth (%) 22.5 13.0 6.5 (4.3) 13.5 20.0
Depreciation 19,287 19,230 24,623 29,042 31,077 32,572
EBIT 1,16,426 1,34,066 1,38,667 1,27,199 1,46,327 1,80,381
Other Income (Incl. EO Items) 15,350 21,313 23,609 81,113 30,500 32,025
Interest 15,385 18,026 27,967 39,134 36,191 36,937
PBT 1,16,391 1,37,353 1,34,310 1,69,177 1,40,635 1,75,469
Tax 31,989 40,671 32,632 40,108 37,268 46,499
Minority Interest 6,346 7,421 6,907 13,384 15,505 17,540
Share of Associate profits (4,359) (210) 720 144 512 671
RPAT 73,698 89,051 95,490 1,15,829 88,374 1,12,101
EO items (net of tax) (1,230) (2,948) - (46,819)
APAT 72,468 86,104 95,490 69,010 88,374 1,12,101
APAT Growth (%) 22.4 18.8 10.9 (27.7) 28.1 26.8
EPS 51.7 61.4 68.1 49.2 63.0 79.9
EPS Growth (%) 22.4 18.8 10.9 (27.7) 28.1 26.8
Consolidated Balance Sheet As at March (INR mn) FY18 FY19 FY20 FY21 FY22E FY23E
SOURCES OF FUNDS
Share Capital 2,803 2,806 2,808 2,809 2,809 2,809
Reserves 5,53,767 6,20,943 6,64,424 7,55,876 7,99,362 8,62,086
Total Shareholders Funds 5,56,570 6,23,748 6,67,232 7,58,685 8,02,171 8,64,895
Minority Interest 56,250 68,261 95,208 1,20,515 1,36,020 1,53,560
Long Term Debt 8,81,922 9,63,313 10,59,861 10,48,394 10,38,394 10,28,394
Short Term Debt 1,93,319 2,92,238 3,50,210 2,77,658 2,67,658 2,57,658
Total Debt 10,75,241 12,55,552 14,10,071 13,26,052 13,06,052 12,86,052
Other Non Current Liabilities 9,455 9,122 33,825 26,469 26,469 26,469
Deferred Taxes 6,379 3,111 14,530 11,787 11,787 11,787
TOTAL SOURCES OF FUNDS 17,03,895 19,59,794 22,20,867 22,43,509 22,82,500 23,42,764
APPLICATION OF FUNDS
Net Block 1,26,726 1,51,125 2,97,008 3,05,841 2,98,266 2,86,196
CWIP 1,34,434 1,39,195 33,111 5,004 6,004 7,004
Goodwill 15,618 18,269 80,114 80,670 80,670 80,670
Investments 1,01,929 1,14,287 1,32,889 1,42,837 1,57,120 1,72,833
Other Non Current Assets 9,04,470 10,37,460 10,85,266 9,67,139 9,85,942 10,05,120
Total Non-current Assets 12,83,177 14,60,336 16,28,388 15,01,490 15,28,001 15,51,822
Inventories 48,478 64,139 57,467 58,205 59,846 69,434
Debtors 3,46,541 3,70,382 4,07,315 4,22,298 4,88,424 5,68,195
Cash & bank balances 1,74,968 2,56,724 2,78,176 4,72,527 4,43,264 4,38,710
ST Loans & Advances 23,536 24,890 22,383 11,312 16,968 19,514
Other Assets 5,59,215 6,14,870 6,87,673 6,46,904 6,72,780 7,53,514
Total Current Assets 11,52,737 13,31,005 14,53,014 16,11,247 16,81,283 18,49,367
Creditors 3,15,714 4,29,948 4,36,439 4,55,046 4,89,652 5,68,099
Other Current Liabilities & Provns 4,16,305 4,01,598 4,24,095 4,14,182 4,37,133 4,90,326
Total Current Liabilities 7,32,019 8,31,546 8,60,534 8,69,228 9,26,785 10,58,425
Net Current Assets 4,20,718 4,99,459 5,92,479 7,42,019 7,54,499 7,90,942
Misc Expenses & Others - - -
TOTAL APPLICATION OF FUNDS 17,03,895 19,59,794 22,20,867 22,43,509 22,82,500 23,42,764
Source: Company, HSIE Research
Page | 10
Larsen & Toubro: Results Review 4QFY21
Consolidated Cash Flow Year ending March (INR mn) FY18 FY19 FY20 FY21 FY22E FY23E
PBT 1,15,162 1,42,862 1,43,142 2,30,263 1,41,147 1,76,140
Non-operating & EO items (10,696) (9,992) (2,192) (1,21,213) (30,500) (32,025)
Interest expenses 8,729 9,020 19,676 25,358 36,191 36,937
Depreciation 19,287 19,230 24,623 29,042 31,077 32,572
Working Capital Change (1,98,757) (1,62,472) (77,845) 99,702 (60,545) (60,175)
Tax paid (34,034) (45,816) (40,465) (34,710) (37,268) (46,499)
OPERATING CASH FLOW ( a ) -1,00,310 -47,168 66,939 2,28,441 80,102 1,06,950
Capex (20,150) (34,746) (32,994) (9,223) (24,502) (21,503)
Free cash flow (FCF) -1,20,461 -81,914 33,945 2,19,218 55,600 85,447
Investments 19,025 (82,801) 37,827 (1,77,111) (14,284) (15,712)
Non operating income 40,270 7,553 (87,395) 1,32,046 30,500 32,025
INVESTING CASH FLOW ( b ) 39,145 -1,09,994 -82,563 -54,288 -8,286 -5,190
Share capital Issuance 495 113 176 159 - -
Debt Issuance 1,26,190 1,78,653 1,38,176 (87,325) (20,000) (20,000)
Dividend Payment (23,898) (26,471) (45,513) (36,509) (44,888) (49,377)
Interest expenses (24,707) (29,824) (27,397) (33,880) (36,191) (36,937)
Others 15,624 31,938 (1,726) 4,811 - -
FINANCING CASH FLOW ( c ) 93,705 1,54,410 63,716 (1,52,744) (1,01,079) (1,06,314)
NET CASH FLOW (a+b+c) 32,539 -2,752 48,092 21,409 -29,263 -4,554
Opening Cash & Equivalents 1,96,062 1,74,968 2,56,724 2,78,176 4,72,527 4,43,264
Closing Cash & Equivalents 1,74,968 2,56,724 2,78,176 4,72,527 4,43,264 4,38,710
Key Ratios
FY18 FY19 FY20 FY21 FY22E FY23E
PROFITABILITY (%)
GPM 35.6 34.7 38.6 36.2 36.5 36.6
EBITDA Margin 11.3 11.3 11.2 11.5 11.3 11.7
EBIT Margin 9.7 9.9 9.5 9.4 9.4 9.9
APAT Margin 6.1 6.4 6.6 5.1 5.7 6.2
RoE 13.7 14.6 14.8 9.7 11.3 13.4
Core RoCE 6.4 6.3 6.2 5.6 6.6 7.9
RoCE 5.3 5.4 5.7 4.5 5.2 6.1
EFFICIENCY
Tax Rate (%) 27.5 29.6 24.3 23.7 26.5 26.5
Asset Turnover (x) 3.8 6.0 3.7 3.2 3.5 3.8
Inventory (days) 15 17 14 16 14 14
Debtors (days) 106 100 102 113 114 114
Other Current Assets (days) 178 173 178 177 161 155
Payables (days) 96 116 110 122 114 114
Other Current Liab (days) 127 108 106 111 102 98
Net Working Capital Cycle (Days) 75 66 79 72 73 71
Debt/EBITDA (x) 7.9 8.2 8.6 8.5 7.4 6.0
Net D/E 1.6 1.6 1.7 1.1 1.1 1.0
Interest Coverage 7.6 7.4 5.0 3.3 4.0 4.9
PER SHARE DATA
EPS (Rs/sh) 51.7 61.4 68.1 49.2 63.0 79.9
CEPS (Rs/sh) 65.4 75.1 85.6 69.9 85.2 103.1
DPS (Rs/sh) 17 19 32 26 32 35
BV (Rs/sh) 397 445 476 541 572 617
VALUATION
P/E 27.4 23.1 20.8 28.8 22.5 17.7
P/BV 3.6 3.2 3.0 2.6 2.5 2.3
EV/EBITDA 21.3 19.5 19.1 18.2 16.1 13.3
OCF/EV (%) (3.5) (1.6) 2.1 8.0 2.8 3.8
FCF/EV (%) (4.2) (2.7) 1.1 7.7 2.0 3.0
FCFE/Market Cap (%) (1.0) 3.4 7.3 4.9 (0.0) 1.4
Dividend Yield (%) 1.2 1.3 2.3 1.8 2.3 2.5
Source: Company, HSIE Research
Page | 11
Larsen & Toubro: Results Review 4QFY21
Rating Criteria
BUY: >+15% return potential
ADD: +5% to +15% return potential
REDUCE: -10% to +5% return potential
SELL: > 10% Downside return potential
Date CMP Reco Target
7-Jun-20 957 BUY 1,236
15-Jul-20 913 BUY 1,235
24-Jul-20 916 BUY 1,260
12-Oct-20 906 BUY 1,260
29-Oct-20 935 BUY 1,260
12-Jan-21 1,350 BUY 1,260
21-Jan-21 1,383 BUY 1,602
27-Jan-21 1,361 BUY 1,657
23-Feb-21 1,452 BUY 1,657
13-Apr-21 1,374 BUY 1,657
17-May-21 1,415 BUY 1,800
From 2nd March 2020, we have moved to new rating system
RECOMMENDATION HISTORY
700
900
1,100
1,300
1,500
1,700
1,900
Ma
y-2
0
Jun
-20
Jul-
20
Au
g-2
0
Sep
-20
Oct
-20
No
v-2
0
Dec
-20
Jan
-21
Feb
-21
Ma
r-2
1
Ap
r-2
1
Ma
y-2
1
L&T TP
Page | 12
Larsen & Toubro: Results Review 4QFY21
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