[ Larsen & Toubro Limited ] Qualitative and Quantitative Analysis

Report on L&T

2012

LARSEN & TOUBRO LIMITED

Submitted from :

Amritesh (05)Anshul Pandey (07)Madhu Vinita (40)Pankaj Kumar Bothra (53)Prachi Agarwal (55)Rajnish Kumar (65)

Submitted to:

Prof. T. Vishwanathan

[05/12/2012] [ ]

ACKNOWLEDGEMENT The satisfaction that the successful completion of the task would be incomplete without mentioning all those guidance and encouragements which crown the efforts with success.

First and foremost we would thank the lord Almighty for His grace, mercy without which nothing would have been possible.

We sincerely bow with reverence to the sanctum of KIAMS for giving us an opportunity to pursue our PGDM course.

We are indebted to the Director, Dr. Gopal Iyengar, for facilitating a congenial academic environment in the college.

We will be obliged to Mr.T.Viswanthan who has given us the opportunity to make a report on “Report on Larsen & Toubro-A Quantitative & Qualitative Analysis based on Crisil Framework”.

We would like to say thanks to each other for being patient while doing the group activity and avoiding any type of plagiarism.

Last but not the least we would like to thank our parents and friends.

2 | KIAMS

FROM:

Amritesh (05)Anshul Pandey (07)Madhu Vinita (40)Pankaj Kumar Bothra (53)Prachi Agarwal (55)Rajnish Kumar (65)

[05/12/2012] [ ]

CONTENTS

SUBJECT PAGE No.

1. Company Overview………........................................................ 04

2. Business Risk Analysis of Larsen & Toubro......................... 06

3. PESTAL Analysis....................................................................... 10

4. SWOT Analysis……………..…………………...…………...... 13

5. Company Overview………....................................................... 14

6. Ratio Analysis of Larsen & Toubro....................................... 15

A. Profitability Ratios............................................................... 05

B. Liquidity Ratios.................................................................... 06

C. Gearing/ Solvency Ratios.................................................... 08

Conclusion for Ratio Analysis .....................................................10

7.

3 | KIAMS

[05/12/2012] [ ]

COMPANY OVERVIEW

Larsen & Toubro Limited (L&T) is a technology, engineering, construction and manufacturing company. It is one of the largest and most respected companies in India's private sector

L&T has an international presence, with a global spread of offices. A thrust on international business has seen overseas earnings grow significantly. It continues to grow its overseas manufacturing footprint, with facilities in China and the Gulf region.

The company's businesses are supported by a wide marketing and distribution network, and have established a reputation for strong customer support. A commitment to community welfare and environmental protection are an integral part of the corporate vision.

2. HISTORY OF LARSEN & TOUBRO

The evolution of L&T into the country's largest engineering and construction organization is among the most remarkable success stories in Indian industry. L&T was founded in Bombay (Mumbai) in 1938 by two Danish engineers, Henning Holck-Larsen and Soren Kristian Toubro. Both of them were strongly committed to developing India's engineering capabilities to meet the demands of industry. Beginning with the import of machinery from Europe, L&T rapidly took on engineering and construction assignments of increasing sophistication. Today, the company sets global engineering benchmarks in terms of scale and complexity. In 1938, the two friends decided to forgo the comforts of working in Europe, and started their own operation in India. All they had was a dream and the courage to dare. Their first office in Mumbai (Bombay) was so small that only one of the partners could use the office at a time! In the early years, they represented Danish manufacturers of dairy equipment for a modest retainer. But with the start of the Second World War in 1939, imports were restricted, compelling them to start a small work-shop to undertake jobs and provide service facilities. Germany's invasion of Denmark in 1940 stopped supplies of Danish products. This crisis forced the partners to stand on their own feet and innovate. They started manufacturing dairy equipment indigenously. These products proved to be a success, and L&T came to be recognised as a reliable fabricator with high standards. The war-time need to repair and refit ships offered L&T an opportunity, and led to the formation of a new company, Hilda Ltd., to handle these operations. L&T also started two repair and fabrication shops - the Company had begun to expand. Again, the internment of German engineers (because of the War) who were to put up a soda ash plant for the Tatas, gave L&T a chance to enter the field of installation - an area where their capability became well respected.In 1944, ECC was incorporated. Around then, L&T decided to build a portfolio of foreign collaborations. By 1945, the Company represented British manufacturers of equipment used to manufacture products such as hydrogenated oils, biscuits, soaps and glass. By 1964, L&T

4 | KIAMS

[05/12/2012] [ ]

had widened its capabilities to include some of the best technologies in the world. In the decade that followed, the company grew rapidly, and by 1973 had become one of the Top-25 Indian companies. Today, L&T is one of India's biggest and best known industrial organisations with a reputation for technological excellence, high quality of products and services, and strong customer orientation. It is also taking steps to grow its international presence. The L&T vision reflects the collective goal of the company. It was drafted through a large scale interactive process which engaged employees at every level, worldwide. L&T has a global presence. A thrust on international business over the years has seen overseas revenues growing steadily. The company has manufacturing facilities in India, China, Oman and Saudi Arabia. It has a global supply network with offices in 10 locations worldwide, including Houston, London, Milan, Shanghai, and Seoul. Customers include global majors in over 30 countries.

Achievements of L&T

Built India's first indigenous hydrocracker reactor.

Built the world's largest continuous catalyst regeneration reactor.

Built the world's biggest fluid catalytic cracking regenerator.

Built the world's longest product splitter.

Built Asia's highest viaduct - Panvalnadi for the Konkan Railway.

Built the world's longest LPG pipeline.

Built the world’s longest cross country conveyor.

Key Products of L&T:

Turnkey projects

Hydrocarbon, Power, Cement and allied machineries, Engineering services, Railway projects,

Construction

Construction services, Building products, Infrastructure concessions, Engineering services, International products .

5 | KIAMS

[05/12/2012] [ ]

Engineered products and systems

Refinery, Oil and gas, Petrochemicals, Fertiliser, Coal gasification, Aerospace, Thermal power plant, Nuclear power plant, Defence, Cement

Electrical and electronic product and systems

Switchgears, Electrical solutions, Metering systems and relays, Medical equipment , Control and automation , Petroleum dispensers and systems , Tooling solutions

IT and engineering services

IT services, Engineering services, Embedded systems.

Machinery valves and industry consumables

Financial services

1. Infrastructure finance

2. Equipment finance

Shipbuilding

Mission of L&T:

To compete and grow in a globalised business environment, L&T is implementing a strategic plan (Lakshya) for 2010-15. The plan has been drawn up in consulation with a leading international strategy consultant. It has set ambitious growth target for each business. Create long term value for the customers through superior product structuring by capitalizing on our knowledge pool.

Congruency between Vision, Mission and Core Values:

There is clear accord & harmony among Vision, Mission & Core Values.

6 | KIAMS

[05/12/2012] [ ]

Core Value: Performance Driven

Vision: Attaining global benchmarks, constantly creating value, meeting

expectations of employees, stakeholder’s and society, total customer

satisfaction, enhancing shareholder value.

Mission: To compete and grow, ambitious target setting for each sector

Core value: Innovation & Excellence

Vision: Indian Multinational, professionally managed, Entrepreneurial and

empowered team, L&T-ites shall be innovative, shall foster a culture of

caring, continous learning, high corporate governance standards &

constantaly creating value.

Mission: Included are the opportunity of diversifaction, creat long term value by setting new standard & through superior product structuring, capitalizing, on our knowledge pool & consulation with the leading international strategy consultant

Core Value: Integrity

Vision : Enterpreneurial and empowered team, proffessionaly managed and

committed, foster a culture of caring, trust (show uprightness and honesty

as an important part of integrity).

Mission: Capitalizing on our knowledge

Core value : Customer Focus & Mutual Respect

Vision: Customer satisfaction, enhancing shareholder value, fostering a culture of

7 | KIAMS

[05/12/2012] [ ]

caring, trust, meeting expectation of society, employees and shareholders

Mission: Create long term value for our customer through superior product

structuring, partnering our customer by offering solutions, deep

understanding of Indian sector and full range of financial products.

SECTORS SERVEDED:

Hydrocarbon

Heavy Engineering

L&T Construction

Power

Electrical & Automation

Machinery & Industrial Products

Information Technology

Financial Services

Shipbuilding

Railway Projects

8 | KIAMS

[05/12/2012] [ ]

 

9 | KIAMS

[05/12/2012] [ ]

10 | KIAMS

[05/12/2012] [ ]

2. BUSINESS RISK ANALYSIS

It is formulated on following parameters:

INDUSTRY RISK:

Recovery in construction and infrastructure Industry has been slower than expected due to tighter bank lending, Increased fiscal, Financial uncertainty and moderation in demand. the construction sector grew at 4.8 per cent in 2011-12, compared to 8 per cent growth in 2010-11. The constraints for the construction industry included slowdown in real estate, shortage of skilled labour, high interest rates, slow environmental clearances and so on. However, L&T have adequate order book for next 5-6 years .but, industry risk is at vulnerable level. This project flow should sustain the construction industry over the next five years at the least, unless the current slowdown persists for an unprecedented period. However, the historic growth rate for the construction industry is around 9 per cent CAGR and it underperformed GDP in the past three fiscals. To fully capitalise on the opportunities, growth would have to accelerate till around 15 per cent CAGR. That implies construction growing at almost twice the GDP rate.

It probably cannot ramp up to those levels of efficiency. The structural problems won’t sort out easily though financial liquidity should ease as the business cycle turns. However, an investor with a long timeframe should see acceptable growth rates

LEGISLATION REGARDING POLLUTION CONTROL MEASURES:

To create an environmental friendly and pollution free environment , the L&T Foundation builds model villages by developing rural infrastructure complete with roads and drainage system. To improve living standards, it creates sanitary facilities for providing effective disposal of solid waste. The Foundation also sensitizes rural eco-friendliness through enhanced tree planting.

The Foundation builds libraries and has also build an art centre for accelerating rural socio-cultural development. To create garbage-free villages, the Foundation sets up garbage management units using proper garbage handling mechanism. It takes utmost care to create rural awareness on the importance of hygiene and the crucial role people can play to make that a reality. To minimize waste produced the Foundation has introduced scientific recycling and reusing technologies.

OPERATING PERFORMANCE:

L&T has taken several steps to improve operational efficiency, to preserve margin in spite of disproportionate increase in raw material costs. They are also focusing on enhancing the backward integration in order to reduce cost. L&T registered strong net sales growth of

11 | KIAMS

[05/12/2012] [ ]

17.1% on a YoY basis as net sales increased to Rs 13,196.2 cr, on back of growth in E&C segment. Operating margins increased by 22 bps to 10.7% on account of lower SGA expenses. Interest cost increased in line with our expectation to Rs 235.0 cr as net working capital requirement increase to 16.5% of sales. L&T registered extra ordinary items of Rs 214.2 cr and 52.89 cr on account of gain on divestment of stake in subsidiary company and reversal of provision respectively. Adjusted PAT increased by 11% to Rs 915 cr. Order inflows during the quarter increased by 30% YoY to Rs 20,967 cr. Order backlog at the end of the Q2FY13 stands at Rs.158,528 cr, 2.75x TTM sales. Order inflow increased by 30% to Rs. 20,967 cr vs Rs. 160,960 cr in Q2FY12.Building & Factories followed by Hydrocarbons, Power, Railways, Road and nuclear sectors supported order inflow. Consequently current order backlog stands robust at Rs. 158,528 cr vs Rs. 142,185 cr in Q2FY12. Management maintained its FY13 order inflow guidance.

Robust order execution lead by E&C segment

Net Sales increased by 17.3% YoY, led by strong order execution in E&C segment. Revenues from E&C segment increased by 20.2% to Rs 11,583 cr from Rs 10,388 cr in Q2FY12. For FY13E, the company maintained its 15% to 20% sales growth guidance.

Positive surprise in operating margins

The company registered operating margins of 10.7%, which was above expectation. A 22 bps YoY growth in OPM margins was on back of lower sales and admin expense. Sales and admin exp declined by 130 bps to 4% of sales, which offset a 100 bps increase in raw-material cost. Lower sales and admin expense was on account of lower non linear provision, lower forex loss (Rs30 cr vs Rs 100 cr in Q2FY12) and expense control.

L&T's competitive strength vis-à-vis peers has widened to the extent that it is unlikely to reverse (at least in the near term). Average NWC/sales of peers are 40% v/s L&T at 15-18%, making it virtually impossible for peers to participate in new orders. 2) A management communiqué on value unlocking such as the Dhamra port could have dual benefits: a) raise

12 | KIAMS

[05/12/2012] [ ]

consensus earnings by 7-8% and b) allow L&T IDPL to be valued higher than 1x P/B. 3) There are rising hopes of a railway capex kick start as the rail ministry is led by the ruling party for first time in 15 years.

Among infrastructure players, L&T has typically been the most opportunistic company in unlocking value. In its latest communiqué, the company stated its intention to sell the 50% stake held in Dhamra port. This, if and when it materializes, could unlock value as well as improve consolidated earnings (please note that the Dhamra port pulled FY12 consolidated EPS down by 5%).

We believe the guidance of 15-20% YoY growth in order inflow for FY13E is unlikely to be revised. As per Deustche estimate, L&T would be able to secure INR342bn worth of orders by H2FY13E, implying achievement of 46% of the target/guidance for the fiscal year. To recap, with the diversified capabilities of Larsen across segments, it has ensured that order inflows are maintained at USD14-16bn per year despite of weak macro environment.

Engineering & Construction (E&C) Segment

The E&C Segment achieved Gross Revenue of Rs 8018 crore for the quarter ended June 30, 2011 registering a y-o-y growth of 23%. Execution of several jobs on hand is on schedule. Despite the sluggish pace of investments seen in the various key sectors of the economy, the segment succeeded in bagging orders totaling to Rs 14416 crore during the quarter.The Order Book of the Segment stood at ` 133739 crore as at June 30, 2011. Execution efficiencies and tight cost monitoring strategies have enabled the segment achieve an Operating Margin of 11.9% during the quarter ended June 30, 2011. Certain high value jobs are yet to reach the threshold level for margin recognition and hence, could not contribute to the operating margin during the quarter.

Electrical & Electronics (E&E) Segment

Sluggish growth in exports and low demand from domestic market constrained the revenue growth of the segment during the quarter. Gross Revenue was Rs 695 crore for the quarter ended d June 30, 2011. The Segment margin at 10.8% during the quarter was under pressure with steep increase in input prices, heightened competitive pressures restricting the avenues for price increase and lower volumes.

Machinery & Industrial Products (MIP) Segment

The Segment recorded Gross Revenue of Rs 666 crore during the quarter ended June 30,

13 | KIAMS

[05/12/2012] [ ]

2011, registering a growth of 25% over the corresponding quarter of the previous year. The Segment earned Operating Margin of 20.1% during the quarter even on a higher sales volume.

OutlookGlobal economic concerns, spiraling inflation and hardening interest rates are likely to impact the growth prospects in the economy. Indian economy, however, has withstood such cycles in the past and emerged resilient with its strong fundamentals. Speedy implementation of various initiatives by the Government for industrial and infrastructure development holds the key to an accelerated growth momentum. On the global front, the GCC countries of the Middle East hold opportunities in the areas of Hydrocarbon, Power Transmission & Distribution, and infrastructure development. With expanded capacities, new organisation structure and presence in diverse sectors, the Company is in a good position to harness the available opportunities. The large order book of the Company, besides providing good revenue visibility, underscores its leadership position. The Company is confident of sustaining the growth momentum in the medium term with its proven track record, strong order book and execution excellence.

What can be potential surprises?

Can the company maintain margins – A lot of investors and analysts, including Deutsche Bank, are not factoring this in line with the company guidance. Any move on this can be a big positive.

Selling IDPL stake – Management guides for this in the next six months. Attempts of de-leveraging are likely to be perceived positively by investors.

The oil & gas segment is an area in which L&T has lost market share in the last 18-24 months to local and Korean competition. However, they have bagged a few orders in this quarter. Any further market share gains in this segment and visibility on margins from cost reduction initiatives is an important trigger to watch for.

Start of railway ordering – The first of the orders in this space have already come in 2Q. Big ticket orders in this segment could start in Q4FY13E or Q1FY14E.

Any orders from the upcoming USD6bn capex from Reliance Industries could also be a positive.

What are the potential pitfalls?

A tight credit scenario for more than one year could result in the delay of reversal in the NWC/sales ratio for L&T as it might be needed to maintain support to vendors.

14 | KIAMS

[05/12/2012] [ ]

Order inflows in 2H are below that of 1H by more than 10-15%. That could be taken as a sign of a serious economic slowdown for the next two to three years.

Issues wherein slow moving orders (like the order from Visa power) result in damage claims from L&T. Recent news articles (DNA, dated 27 August 2012) suggest that Visa power has encased guarantees amounting to INR2.5bn against L&T. While L&T has taken this to arbitration, these developments are typical of a downcycle.

Would passing the mantle of rail ministry to ruling party make a difference to ordering in the segment?

The recent resignation of the railway minister Mukul Roy following political developments has resulted in the railways ministry portfolio coming back to the ruling party – congress. While Mr. C.P. Joshi is temporarily in charge, press reports (Indian Express, dated 24 September 2012) suggest that the ministry is likely to remain with a member from the ruling party for the first time in the last 15 years.

Good news: rail revenues growing at a fast pace

With railways now generating strong cashflows as a result of the steep 25% increase in freight rates, the operating cash ratio is likely to improve upwards of 15% (vs 5% in FY12). This could propel Indian railways to move faster on the much needed infrastructure investments in the sector.

Peers in the construction industry have elevated levels of NWC/Sales (50% on average) vs 18% for L&T at the parent company level (and 15% of sales for the E&C division).While part of this rise in working capital requirements is attributable to these players growing their development business disproportionately, even the core EPC business working capital ratios at 40% are very high. Essentially, this is likely to play to the advantage of L&T. The parameter to evaluate L&T and its peers is a matrix of order book to net worth as well as EBITDA/interest. The latter is self explanatory, while the former is very critical for project qualification purposes. When any EPC players get an award, 10% of the project value is assigned as risk for contingent liability of the project. Accordingly, a b/s of INR100 – the EPC company would not be able to take orders worth INR800 to INR1000 – suggests an upper cap of 8x-10x of order book to net worth. With most of the EPC companies operating at order book to net worth ratios of 8x to 10x, there are significant risks of either dilution or the inability of the EPC players to take new orders.

15 | KIAMS

[05/12/2012] [ ]

L&T-IDPL has been asked to fund its own growth through Asset Churn

In the recent AGM, the company indicated that it will not bid for any further build-operate-transfer road and Metro rail projects over the next few months. Also, the company made it clear that it will not bid for projects on a BOT basis as it already has 44 projects worth INR844bn in its kitty (L&T infra) and wants to contain equity funding from parent to subsidiaries. It noted that it was “watchful for attractive exit opportunities to ensure availability of capital to meet our growth requirements.” L&T has a track record of exiting from infrastructure projects when they reach the operational stage (to date, it has exited two highway projects, one port project and an airport redevelopment project).

Risk is largely from serious execution slowdown

Key downside risks stem from poor order inflows and margin pressure resulting in quarterly earnings disappointment. Based on our earnings model, if revenue from engineering projects is 10% above/below our expectations, standalone EPS could shift by 15% and 16% in FY13 and FY14, respectively. Likewise, if E&C margins are 1% below our estimates, earnings could be lower by 10% for FY13 and 10% for FY14.

The company maintained Order inflows guidance in the range of Rs. 80,000 cr to Rs. 84,000 cr. For H1 L&T declared orders worth Rs 40,561 cr. In second half the company expects orders from hydrocarbon (Middle East), infrastructure, Power to contribute to order inflow.

16 | KIAMS

[05/12/2012] [ ]

International orders are intensely bid, margins in these orders in which L&T is bidding are ~1 to 2% below threshold margins. Orders from Middle-east are fixed price orders. Current margin guidance factors in these margins.

Building & factories segment constitute significant portion of orders received (30% to 35%). L&T charges a premium of ~10% to developers. These are not margins dilutive orders. Balance sheets of competition have become stretched in the current environment and there is lack of presence of foreign players in this segment which has worked well for L&T in this segment. L&T operates on negative working capital in real-estate orders.

Current Average execution cycle of the order backlog is 24 months vs 27 months earlier. Cost of borrowing stands at 8% to 8.5% account of higher interest rate regime.

From current order backlog of Rs. 158,528 crore, approx 10% are slow moving orders. Company plans to restrict capex to Rs. 1,000 to 1,500 cr for FY13.During the quarter L&T registered extra ordinary items of Rs 214.2 cr and 52.89 cr on account of gain on divestment of stake in subsidiary company and reversal of provision respectively.L&T’s BTG facility would be under utilized as early as in FY14, if company does not receive orders in this segment.

L&T: Gearing up the overseas Juggernaut

We expect FY13/FY14 to be an inflexion point in L&T's attempt to diversify geographically and thus reduce the concentration risk of depending on the domestic economy. We estimate the overseas business shall contribute ~28%/32% of profits in FY13/FY14 respectively, up from ~21% in FY12. This would be driven by: i) increased contribution of overseas service business from 10% of consolidated profits in FY12 to 14% in FY14 and ii) incremental growth from new geographies (Middle East, Australia, SE Asia)/new segments (hydrocarbons, large-sized projects).

17 | KIAMS

[05/12/2012] [ ]

Subdued growth in   Order Book

The order book of L&T has grown at a CAGR of 28 per cent over the last 3 years to Rs 1,457 billion in 2011-12. However, order book grew by only 12 per cent y-o-y in 2011-12 because of muted order inflows. L&T's order inflows fell 12 percent y-o-y to Rs 705 billion in 2011-12 . L&T's order inflows primarily included orders from roads and power segment. 

Overall execution of projects continues to be healthy with revenue growth of 21 per cent y-o-y in 2011-12.

The company's order inflow during the first quarter Q1 of 2012-13 increased by 21 per cent y-o-y  to Rs.196 billion. Also, revenue for the period increased 26 per cent y-o-y to Rs.119 billion.

Order book to turnover

18 | KIAMS

[05/12/2012] [ ]

 Comparative Analysis of Order Book, ROE, PAT ,EBITDA , Revenue with Nearest Competitor BHEL :-

19 | KIAMS

[05/12/2012] [ ]

20 | KIAMS

[05/12/2012] [ ]

21 | KIAMS

[05/12/2012] [ ]

Diversification in order book de-risks the business

The company's order book is well diversified, with projects ranging from complex turnkey engineering, procurement and commissioning (EPC) to simple construction activities. The orders are also diversified across industries like power, infrastructure (ports, roads, rail, urban infrastructure), process industries like refineries and chemical complexes and oil & gas. This diversification ensures that slowdown in one sector does not affect the company's performance. Also, the company has a good mix of Public (35%), Private (48%)and Developmental projects (17%), which immunizes it against sector specific laggardness.

Trends in Order Book Mix

22 | KIAMS

[05/12/2012] [ ]

MAJOR COMPETITORS:

Oil & Gas Power Construction Electrical & Electronics

HHI BHEL HCC Schneider

Samsung GB Engg-Ansaldo Gammon Siemens

NPCC JSW-Toshiba GMR ABB

JR Mcdermott Bharat Forge - Alstom IVRCL -

Other competitors:

1. DLF

2. Tata Projects

3. Sobha Developers Ltd

4. Shapoorji Pallonji & Co

5. Unitech

6. Nagarjuna Construction Company

7. Punj Lloyd

Technology:

In every sphere of L&T's operations, technology is the key enabler, reinforcing its leadership position, and sustaining its competitive strengths. While for some, technology is a means to an end, for L&T, technology represents endless possibilities.

 

Engineering & Construction

23 | KIAMS

[05/12/2012] [ ]

In engineering and construction, L&T's technology capabilities include a strategic mix of in-house strengths and the expertise of its joint venture partners. Engineering Centres at Mumbai, Vadodara and Delhi carry out process design and simulation, analysis of computational fluid dynamics, mechanical design, failure analysis and trouble shooting.

L&T has set up an engineering and project management centre in Abu Dhabi, to undertake oil and gas related projects as well as engineering and consultancy services.

An engineering centre in Sharjah is an extended arm in the Gulf. This is supplemented through collaborations with key partners: L&T-Valdel for engineering services in the upstream hydrocarbon sector, L&T-Chiyoda for the mid and downstream sectors, and L&T Sargent & Lundy for the power sector.

The engineering services provided by L&T's Engineering Design Research Centres at Chennai and Kolkatta include feasibility studies, project reports, system engineering, architectural, structural and civil design for infrastructure development projects.

L&T-Ramboll Consulting Engineers provides civil engineering and consultancy services for a wide range of projects in the transportation sector - ports, airports, highways and bridges.

Manufacturing

L&T's design & engineering capabilities in manufacturing enable it to set new benchmarks in terms of scale, sophistication and speed. The Company has dedicated engineering centres at the manufacturing locations. Two 'Technology Development Centres' have been set up to develop new products and manufacturing technologies. L&T also collaborates with the organisations like ISRO to bolster its capabilities in the strategic sectors of aerospace, defence and nuclear power.

24 | KIAMS

[05/12/2012] [ ]

L&T's Electrical & Electronics Division, is a pioneer in the design of switchgear and switchboards that are engineered for tropical conditions. It has built further on this experience, and has leveraged its R&D strengths to develop a host of new products and features.

In 2008-09, the division filed applications for over 100 patents, improving its previous years score of 101 patents. Cumulatively, L&T's Electrical & Electronics Division has applied for and secured 409 patents - a landmark for an Indian company. Patent applications cover innovations made on a variety of low voltage indigenously developed switchgear products like the air circuit breakers (ACBs) and moulded case circuit breakers (MCCBs), medical products, petroleum dispensing pumps, tooling solutions and switchboards.

Technology Services

L&T provides its global clients with the winning edge through the development of optimal solutions. L&T's e-engineering services leverage the Company's own engineering heritage and experience. The Embedded Systems unit provides technological assistance across a broad spectrum - design, maintenance, re-engineering, testing, prototyping and industrial design.

Supercritical technology In L&T power

The term "supercritical" refers to main steam operating conditions, being above the critical pressure of water (221.5 bar). The significance of the critical point is the difference in density between steam and water. Above the critical pressure there is no distinction between steam and water, i.e. above 221.5 bar, water is a fluid.

25 | KIAMS

[05/12/2012] [ ]

Supercritical steam cycle with one reheat. a − b : Condensate cycle up to Deaerator       c : Boiler feed pump discharge c − d : Feed water heating d − e : Main steam generation e − f  : Expansion in turbine f − g  : Reheat steam generation g − h : Expansion in turbine

Technology partnerships  

L&T intends to continuously scan the opportunities and proactively enter strategic pre-bid tie-ups with global players having the best mix of technology and competitiveness. Customer-centric marketing offering 'total solutions' in water business focusing on large projects backed by tie-up with major pipe/pump/equipment suppliers is expected to result in better competitiveness. In the bulk material handling sector it intends to introduce some new product lines for mines and special conveyors with technology tie-ups with global majors. The company's focus on providing EPC solutions for cross-country pipelines would get a further boost with technology upgradation and automation in pipeline operations.Partnering with financial institutions for funding future PPP projects, sourcing long-term finances from IFC, ADB, infrastructure funds and developing domain expertise in ports, airports, hydel and water supply projects are some aspects that would be pursued actively.

Human Resources:

26 | KIAMS

[05/12/2012] [ ]

All the process of a successful Human Resource policy is followed by L&T like Mentoring Young Trainees, Prudent mix of Energy and Experience of the Employees, Rewards & Recognitions, Effective financial Communication, etc.

An effective structure of Communication followed in the Company is shown below:

Research & Development:

At L&T, innovation is driven by its skilled R& D team. It works to redefine national and Global benchmarks in Iron & Steel manufacture. The result has improved productivity and has consistently decline costs. The R&D team comprises 44 Qualifies members who work along with shop- floor teams to design and implement shop-floor processes; its efforts are facilitated by a full-fledged R&D centre equipped with contemporary infrastructure, Pilot Testing and Simulation facilities. R&D activities are focused on Plant performance improvement, new process development, Product and Grade development, to strengthen its infrastructure.Energy conservation and Waste management. The innovation-centric mindset at the company is reflected in its investment in R&D – The company invested Rs 320 Crores in 2010-2011

Corporate Social Responsibilities:

Environment:

To create an environmental friendly environment, the Foundation builds model villages by developing rural infrastructure complete with roads and drainage system. To improve living standards, it creates sanitary facilities for providing effective disposal of solid waste. The Foundation also sensitizes rural eco-friendliness through enhanced tree planting.

The Foundation builds libraries and has also build an art centre for accelerating rural socio-cultural development. To create garbage-free villages, the Foundation sets up garbage management units using proper garbage handling mechanism. It takes utmost care to create rural awareness on the importance of hygiene and the crucial role people can play to make that a reality. To minimize waste produced the Foundation has introduced scientific recycling and reusing technologies.

Livelihood:

To create livelihoods for rural women by providing revolving fund, skill training and other linkage services to empower rural women to reduce gender-based discrimination.

For Ex: To provide more earning options by breaking the barrier of gender division of jobs, women are being trained and placed in other unorthodox jobs like power-tiller operation, pump operation, mechanical & electrical maintenance, driving job etc.

27 | KIAMS

[05/12/2012] [ ]

3. PESTAL Analysis

Political Factors:

(i) SEZ Act to Boost infrastructural Development

SEZ is the new destination for real investor. Currently 150 SEZs are approved out of 85 SEZs are in the IT/ITES area and the 10-15 SEZs in the electronics area. 130 SEZs are developed by real estate developers which constitute of about 50% of the total SEZ area. IT SEZ should be developed and made operational within the period of six months from the date of notification. Thus, 130 approved SEZ would result in investment of US$ 12bn immediately.

(ii) Cement Prices Reduced for State Infrastructure Projects:

The continued thrust on the infrastructure development will provide impetus to the healthy growth in demand, protecting the bottom-line of cement companies to an extent. The reduction in the CST and in Freight rates on diesel and limestone will be marginally positive for some companies.

(iii) FDI Liberalization to Augment Industry Growth:

Recent amendments by the government have made accessibility to the required capital much easier. Opening of FDI in construction and allowing developers to raise capital in international market has led to development of larger projects benchmarked against international standard.

(iv) REITs (Real Estate investment trusts) to Positively affect real Estate Business

The proposed introduction of REMF(Real Estate Mutual Fund) and REIT will boost real estate investment from the small investor’s point of view. This will allow small investors to enter real estate market with the contribution as less than Rs 10,000. The concept of REIT is on the verge of entering India and would be structured as company dedicated to owing and in most cases operating income producing real estate such apartments, shopping centre’s, offices & warehouses.

ECONOMIC FACTORS:

Growth in Construction Activity Stimulating GDP Growth:

India is witnessing tremendous growth & expansion of construction activities and construction is largest component of GDP. It has been growing at a rate over 10% in the past few years when GDP growth is around 8%. Within construction; sector such as roads, railways, housing and power have been keen drivers.

28 | KIAMS

[05/12/2012] [ ]

(i) Rate Hikes Unlikely to Slow down Growth:

It has been analyzed that the residential prices has been increased by about 15-20% on average in the last one year. There has been strong growth in demand supported by rising disposable incomes, low interest rates, and fiscal incentives on both interest and principal payment and increasing urbanization.

SOCIAL FACTORS :

(i) Shifting Consumption Pattern to Fuel industry Growth

The consumption pattern of Indian households is undergoing a gradual, but steady change. The share of food and beverages, which used to constitute almost 50% of household spend until 2003 is fall to 45% by FY08. We expect the share of discretionary items to consistently rise given the rising affordability and changing aspiration levels. Increased exposure to western lifestyle has altered the consumption pattern of Indian people.

(ii) Rising Urbanization to Boost Industrial Growth:

Urban infrastructure consist of drinking water, sanitation, sewage systems, electricity and gas distribution, urban transport, primary health services, and environmental regulation. Many of these services are in the nature of local public goods with the benefits from improved urban infrastructure. The urban population in India will grow by 85 million over the next 10years.

(iii) Green Building in India:

The green building movement has gained tremendous momentum during 3 to 4 years, ever since the Green Business centre embarked on achieving the prestigious LEED rating for their own centre at Hyderabad. The Platinum rating for green building has sensitized the stakeholders of construction industry. There is tremendous potential for construction of green building in India. The estimated market potential for green building will be about $ 400 million in 2010.

TECHNOLOGICAL FACTORS:

(i) Low Technology Adoption to Hinder Growth:

The poor state of technology adopted by the construction sector adversely affects its performance. Upgrading of technology is required both in the manufacturing of construction material and in construction activities. As a large number of

29 | KIAMS

[05/12/2012] [ ]

construction materials are manufactured in the unorganised sector, effective monitoring and regulation of the production of these material to ensure proper quality become difficult. Use of low grade technology in the construction sector lead to low value addition and low productivity, apart from poor or substandard quality of construction and time overruns in projects.

(ii) Construction As Per Indian Requirements:

The construction needs to be done as per Indian standards and requirements which will demand considerable changes from the international requirements. The Infrastructure requirements of India are much different as the population spread, increasing urbanization, increasing slums, the small space for roads, the water problems are more.

(iii) Ready-Mix-Concrete being Experienced With:

The Ready mix concrete business in India is in its infancy. For example, 70% of cement produced in a developed country like Japan is used ready mix concrete business there. Here in India, Ready Mix concrete business uses around 2% of total cement production. The increasing use of ready mix not only saves time but also improves quality.

ENVIORMENTAL FACTORS:

Technological solutions helps in integrating the supply chain, hence reduce losses and increase profitability

With the entry of global companies into the Indian market, advanced technologies, are used in engineering & Construction.

With the development or evolution of infrastructure sector, many of the MNC enter into Indian market

Environmental situation affect the infrastructure sector.

Infrastructure such as roads and bridges affect the many sector such as automobile sector etc.

LEGAL FACTORS

Ensure a balanced transition to open trade at minimal risk to the Indian economy and local industry.

30 | KIAMS

[05/12/2012] [ ]

Indian government infrastructure policy aimed at promoting an integrated, phased and conductive growth of the Indian infrastructure sector.

Confirms the government’s intention on harmonizing the regulatory standards with the rest of the world

Establish an international hub for engineering & construction companies so that new technology can be used.

Legal provisions relating to safety measures

SWOT ANALYSIS

Strengths

Larsen and Toubro (L&T) is India's largest engineering and construction company.

It has created international presence by operating supply network offices in 10 locations worldwide, including Houston, London, Milan, Shanghai and Seoul.

L&T has created a strong brand name by building worlds largest Tubular Reactor for a petrochemical plant and has also built world's longest Product Splitter and longest LPG pipeline.

Larsen and Toubro's order book has reported continuous growth. The company has a strong pipeline of projects in domestic as well as international markets, which is likely to ensure a steady revenue growth

Weaknesses

In spite of having a diversified expertise, the revenues of the company are highly concentrated

Opportunities

The company has acquired the switchgear business of TAMCO Corporate Holdings of Malaysia in April 2008

With TAMCO the company will be able to offer a comprehensive range of MV switchgear and become a significant player in the MV segment in India

31 | KIAMS

[05/12/2012] [ ]

L&T has also entered into various joint ventures in the recent past. L&T has joint venture agreement with Tamil Nadu Industrial Development Corporation Limited, Mitsubishi Heavy Industries and A.A. Turki Contracting & Trading Corporation (ATCO) of the Kingdom of Saudi Arabia.

These joint ventures boost and strengthen the operational efficiency of the company, as well as provide it with avenues to generate additional revenues and also leverage its strong presence in order to exploit the growing capital goods and infrastructure industry

Growing Indian capital goods and infrastructure industry as the government has planned a series of measures to encourage private sector participation and increase spending on infrastructure. Capacities are being ramped up in Railways, Roads, Ports, Airports and Urban infrastructure to sustain the momentum of double digit growth in the industrial sector.

Threats

Larsen & Toubro faces stiff competition in the international market with construction majors in the Middle East including ABB of Sweden and Bechtel of the US. Stiff competition could erode the company's market share and reduce its profitability.

Engineering and construction companies such as Larsen & Toubro (L&T) are facing pressure on their earnings due to the high interest rates on working capital. L&T's interest costs increased more than three-fold in the first six months of FY2009, which would impact its profit before tax (PBT). Rising interest rates would put pressure on the margins of the company

Strengths

Strong Economic growth of country

L&T’s experience in India

Order book of over 100,000 crores

Brand name of Larsen & Toubro

An experienced employee base

Diversified business group

Weakness

Slowdown in middle east

Average experience

employee age nearing retirement

Huge attrition rate

Low employee satisfaction

Week Global Reach

32 | KIAMS

[05/12/2012] [ ]

Strong financial results Lack of Innovation

Opportunities

Major Infrastructure projects

coming up (govt.)

India’s growth rate above 10%

Opportunities from Other

south Asian Countries (less dev)

Global economic recovery

Investment in Defense sector

Threats

Inflationary and cost pressures

Threat of a second

Global Financial Turmoil

Vendor issues

Government policies

Competitors

Taxation policies

RATIO ANALYSIS

A . PROFITABILITY RATIOS:

1) Profit Margin

Profit Margin = Profit after Tax/ Sales

March 2010 March 2011 March 201211.6 9.0 8.40

33 | KIAMS

[05/12/2012] [ ]

Interpretation:

Profit margin Ratio for the year 2012 was 8.40 because of the reason of low volume of order execution & also increase in prices of raw material cost in the current year thereby impacting Net Profit Margin i.e. Rs 44562 mn. The net sales in the corresponding year amounted to Rs. 531,057 mn, but for the year ending march 2010 as well as 2011 the ratio was 9.0 and 11.6 respectively as the Profit after tax has increased at faster rate & also during this period raw material cost or COGS was lower there by reflecting good PAT . The reason for the same was due to the tremendous increase in operating profit of the company. While for year 2011 the ratio decreased to 9.0 because of the bad market scenario as due to recession the new contracts where even after allotment were put on hold for execution. The fall in the profit margin suggests that the company should keep a check on its increasing expenditure as well as try to convert Order Book realization as sales in current year.

2) Asset Turnover Ratio

Asset Turnover Ratio = Net sales / Total Assets

March 2010 March 2011 March 20126.0 5.5 5.6

Interpretation:

The Asset turnover Ratio is the measure of efficiency with which the assets are utilized. There was an increase in net sales of the company from the year 2010 after which it had fallen not very much but still same should be the matter of concern for the company. while the total assets has been continuously increasing from Rs. 25501.74 Crore to Rs.67692.96 Crore This shows that the company has been able to utilize its assets but not in same proportion as previously maintained there was a

34 | KIAMS

[05/12/2012] [ ]

minute decrease in 2011 as well as 2012 compared to 2010.The reason for lower Asset Turnover Ratio for current period can be attributed to Market Scenario which is passing thru recession currently impacting sales & new order flows.

3) Return on Equity

Return on Equity = Profit after Tax / Shareholder’s Equity

March 2010 March 2011 March 201223.89 18.12 17.67

Interpretation:

The shareholder’s fund for the year ended March 2010 was Rs. 18311.64 Crore whereas the value for the year ended march 2011 was Rs.21846.26. The profit after tax value decreased from Rs.4375.52Crore to Rs.3957.89Crore over the same period. This implies that the shareholder’s funds has been utilised more efficiently even though profit has gone down during the same period. But, mainly the reason for such enormous increase in the ROE ratio in earlier year rather than current year is that profit after tax has not increased in samse rate as was growing earlier . Also, the total Reserves of the company has increased from Rs.17882.22Crore to Rs.25100.54Crore over the same period. This indicates that the company’s ability to withstand the emergency shocks has also improved.

Also, there has been decrease in the ROE value from the FY 2009-2010 to FY 2010-2011 & 2011-12. This is because of the fact that the PAT value of the company has decreased in compare to the Shareholder’s Fund.

B. LIQUIDITY RATIOS

1) Debtor Turnover Ratio

Debtor turnover = Net sales / Total Debtors

March 2010 March 2011 March 20123.29 3.53 2.84

35 | KIAMS

[05/12/2012] [ ]

Interpretation:

The Debtor Turnover Ratio shows the number of times each year the company’s debtors turns into cash. In the year 2011 the debtor turnover ratio for the company was highest as compared to 2010 and 2012. This implies that the portfolio of debtors was good in year 2011. But the significant decline in the year 2012 indicates that the management of receivables in the company has deteriorated over the period.

2) Inventory turnover Ratio

Inventory Turnover = Cost of goods sold / Total inventories

March 2010 March 2011 March 201221.14 20.11 22.06

Interpretation:

This ratio indicates that the inventory holding period for L&T has decreased in 2011 but in 2012 it is increased. This implies that the company started dispatching the order as soon as possible. The operating cycle time increased over the year implying that the company’s funds were struck in receivables and inventories for a longer period.

3) Fixed assets turnover ratio

Fixed Assets Turnover = Net sales/total fixed assets

March 2010 March 2011 March 20126.4 6.4 6.8

Interpretation:

The Net sales has increased for the year ending March 2010 to March 2012, at the same time fixed asset is also increased. The above ratio implies that the company has been able to utilize its fixed assets almost similarly from 2010-2012. The net sales over the years have grown to a larger extent as compared to the increase in the Average fixed assets in 2012.

36 | KIAMS

[05/12/2012] [ ]

4) Current Ratio:

Current Ratio= Current Assets/Current Liabilities

March 2010 March 2011 March 20121.24 1.33 1.27

Interpretation:

It is a widely used indicator of a company’s ability to pay its debts in the short-term. For L&T current ratio is around 1.24-1.27 for the year 2010-2012. The reason for an increase in 2011 has been due to increase in the Current Assets during this period. Also, there has been a considerable increase in the “Cash and Bank Balances “of the company. But L&T keeps its current ratio around 1.2-1.3 which is a good sign for the company ability to pay its debt.

5) Quick Ratio:

Quick Ratio= QUICK Assets/ Current Liabilities

March 2010 March 2011 March 20121.17 1.28 1.22

Interpretation:

The Quick Assets (Current Assets- Inventories) represents the assets that can be readily convertible to cash. The Liquid Ratio for this company is almost same and while comparing with the current ratio it has the difference of 0.05 which suggests that its inventory is less.

This suggests that the firm’s short-term debt paying capacity has almost same over the year.

C. GEARING RATIOS/SOLVENCY RATIOS:

1) DEBT-TO-EQUITY RATIO:

37 | KIAMS

[05/12/2012] [ ]

Debt- to- Equity Ratio= (Short-term Debt+ Long-term Debt)/ Shareholder’s Equity.

March 2010 March 2011 March 20120.39 0.33 0.37

Interpretation:

This ratio measures the relationship of the Capital provided by the creditors to the amount provided by the shareholders. The Debt-to-Equity ratio of any company must be less than 1.

This ratio for Larsen & Toubro was 0.37 for the year ending Mar’12.This was because the Total Debts of the co. for that year was Rs.8266.78Crores whereas the Total Shareholder’s Equity amounted to Rs.25223.40Crores. Debt financing is used very appropriately, instead they have enough scope to leverage themselves still if required or if they wish to plan for any inorganic growth.

Whereas, the ratio improved to 0.33 for the financial year ending Mar’11 as the total Debts of the co. shown a minor increase to Rs.6332.12Crores whereas the Total Shareholder’s Equity amounted to Rs.21846.26Crores. The company was able to increase the Shareholder’s Equity due to the increase in the Reserve & Surplus from Rs.17882.22Crores to Rs.21846.26Crores.

2) INTEREST COVERAGE RATIO:

Interest Coverage ratio= Profit before Interest and Tax/Interest Expenses

March 2010 March 2011 March 201210.5 9.99 10.390

Interpretation:

There has been a stagnancy in terms of Interest Coverage ratio from 10.5 for FY 2010 –FY 2012 to 10.390. The Interest Coverage ratio in 2010 is much higher as compared to the other years and the company is in a much favourable position to pay its interest obligations. A too high Interest coverage ratio is because of using a small dose of debt in the Capital structure. Thus, the company’s has turned out to be in a more favourable position of raising a Bank Loan than ever.

38 | KIAMS

[05/12/2012] [ ]

3) Dividend per share:

March 2010 March 2011 March 201212.50 14.50 16.50

Interpretation:

It basically indicates the dividend per share value declared by the company to its shareholders. The fluctuation and dividend depends upon the profits of the company. , declaration of dividend is optional for the company and they can use these dividends for the diversification of their business. But the dividend per share is an important tool to inform the shareholders that the company is doing well in the market. The Dividend per share for the year ending March 2011 & March 2012 has increased over its previous financial year despite of the fact that the PAT value has not grown at similar rate as compared to previous year growth . Company has also been increasing amount of “RESERVES AND SURPLUS” of the company.

CONCLUSION FOR RATIO ANALYSIS

The company over the years have given dividends to its shareholders at an increased rate. Also, the consistent increase in the company’s Liquidity ratios indicates that the firm’s ability to pay its short term liabilities have also improved. Also, the firm’s credit standing has also improved over the years. This has let the company able to take Loans from the financial institutions for its Development works. The decrease in the value of Debtor Turnover and Inventory Turnover is a cause of worry for the Management. Thus, the Management should work on its effective ways to control the inventory and the receivables.

39 | KIAMS

[05/12/2012] [ ]

COST OF CAPITAL OF L&T LTD.

What is Cost of Capital?

Cost of Capital is the rate of return that a firm must earn on its project investments to

maintain its Market value and attract funds.

COMPONENTS OF CAPITAL:

a) DEBENTURES

b) PREFERENCE SHARES

c) EQUITY SHARES

d) RETAINED EARNINGS

Cost of capital is the cost at which the company acquires its funds for different

operations. It is taken from the investor’s point of view. It is the expected return of the

investors on their different type of investments in different portfolios. The cost of capital

helps the company to evaluate the financial feasibility of a venture or project

40 | KIAMS

[05/12/2012] [ ]

CAPITAL STRUCTURE OF LARSEN & TOUBRO LTD.

PARTICULARS AMOUNT (In crores)

Equity Share Capital 122.48

Reserves and Surplus 25100.54

Debentures 1700.00.

FCCB 1017.50

ECB 2557.85

Total 30553.08

COMPUTATION OF OVERALL COST OF CAPITAL

1. COST OF DEBT

FORMULA:

COST OF IRREDEMABLE DEBT = INTEREST (1-TAX RATE)

COST OF REDEEMABLE DEBT = [I (I-t) + (RV-SV)/n] / (RV+SV)/2

Here, In the annual report of the Larsen & Toubro Ltd. 2011-2012, Under the Schedule

“C” “Secured Loans”, is the amount of Debentures that the co. has raised.

In the annual report, it has been clearly mentioned that the given Debentures are Redeemable

and the other long term borrowings raising by the firm in the form of ECB’s , FCCB’s are

also redeemable in nature but except for debentures issued in home country for whose

redeemable & sale value both are given while for foreign debt same was not provided ,thus

we have taken total finance cost as our basis to calculate the Cost of Debt . The amount of

debentures is as follows:

Cost of Debt = I (I-t) + (RV-SV)/n] / (RV+SV)/2

41 | KIAMS

[05/12/2012] [ ]

Here, Kd = 604.11(1-.30)/5330.06 = 7.93% (Secured & Unsecured Redeemable Non-

Convertible Debenture,ECB,FCCB,etc)

Hence, Cost of Debt ( Before Tax) , Ki Thus, After Tax Cost of Debt , Kd = Ki(1-t) =.

[Note: The Debentures,ECB,FCCB are redeemable in nature.]

2. COST OF EQUITY CAPITAL

The cost of equity capital can be calculated by two methods

A) DIVIDEND APPROACH

CALCULATION OF COST OF EQUITY CAPITAL (Dividend Approach Method)

FORMULA:

Ke = ( D1 / P) + g

Where, Ke = Cost of Equity

D1 = Expected Dividend for the Upcoming year ending 31st March 2013.(Assumed that

co. had been paying the dividends with increment of Rs.2 each year thus Expected

Dividend is assumed to be Rs.18.50

P = Current Market Price, as on 31st March 2012

g = Expected Growth Rate.

Year Dividend(Rs.) % Change

2005-2006 5.50 Nil

2006-2007 6.50 18.18

2007-2008 8.50 30.77

2008-2009 10.50 23.53

2009-2010 12.50 19.05

42 | KIAMS

[05/12/2012] [ ]

2010-2011 14.50 16.00

2011-2012 16.50 12.12

Thus, Expected Growth Rate, g = (18.18+30.77+23.53+19.05+16.00+12.12)/6 % =

19.94%

Now, Ke = (D1/P) + g = [18.50/1309] + 19.94% = 21.35%

So, we will calculate it using the other method i.e.

B) CAPITAL ASSET PRICING MODEL (CAPM)

FORMULA:

Ke = Rf + ß (Km-Rf) ,where

Ke – cost of capital.

Rf – risk free return on equity which is 8.28.%.(as adopted by Larsen & Toubro)

ß – Beta of the stock which is 1.53

Km – market return (Calculated from average returns indicated by SENSEX index of last

6 years, which has been taken from the Excel Sheet), which is 5.09

Hence, Ke = Rf + ß (Km-Rf)

= 8.28 + 1.53 (5.09-8.28)

= 8.28-4.8807 = 3.393

3. COST OF RETAINED EARNINGS

43 | KIAMS

[05/12/2012] [ ]

Since cost of capital for retained earnings is also the opportunity cost hence it is

equivalent to fully subscribed issue or additional shares, which is measured from cost of

equity shares.

COMPUTATION OF OVERALL COST OF CAPITAL OF LARSEN & TOUBRO LTD. BY WEIGHTED AVERAGE METHOD

Particulars Amount (in

crores)

Weights Specific Cost Weighted Cost

Equity Share

Capital

122.48 0.40 19.95 7.98

Retained

Earnings

25100.54 82.15 19.95 16.39

Debentures 5330.06 17.45 7.93 1.38

Total 30553.08 100 25.75

Hence, the Overall Cost of Capital for LARSEN & TOUBRO LTD. is 25.75%.

44 | KIAMS