Larsen & Toubro Ltd (Q4 FY13)

LT registered a 9.9% yoy growth in topline to Rs203bn, which was lower than our estimate of Rs210bn.

January 01, 1970 5:30 IST | India Infoline News Service
CMP Rs1,520, Target Rs1,510, Downside 0.7%

  • Q4 FY13 order inflow of Rs279.3bn was higher by 32% yoy and quite higher than our estimate
  • Standalone revenue of Rs203bn was lower than our estimate of Rs210bn due to slow execution at some of its projects
  • Margins for the Engineering and Construction (E&C) division shrunk sharply by 233bps due to pricing pressure
  • Electrical & Electronics (E&E) and Machinery & Industrial (MIP) divisions registered a decline both in revenue and EBIT
  • Management has guided for 15-17% yoy growth in revenue and 20% growth in order inflow for FY14
  • Margin pressure and execution risks to keep earnings in check; Initiate with a Market Performer rating with a 9-month price target of Rs1,510
Result table (Standalone)
(Rs mn) Q4 FY13 Q4 FY12 % yoy Q3 FY13 % qoq
Net sales 202,938 184,609 9.9 154,294 31.5
Material costs (99,225) (90,173) 10.0 (69,824) 42.1
Sub-contracting charges (48,365) (39,207) 23.4 (41,384) 16.9
Personnel costs (11,344) (9,754) 16.3 (10,485) 8.2
Other overheads (19,495) (19,867) (1.9) (17,851) 9.2
Operating profit 24,509 25,608 (4.3) 14,749 66.2
OPM (%) 12.1 13.9 (179) bps 9.6 252 bps
Depreciation (2,222) (1,804) 23.2 (2,004) 10.9
Interest (2,810) (1,211) 132.1 (2,380) 18.1
Other income 3,744 3,142 19.2 5,302 (29.4)
PBT 23,220 25,735 (9.8) 15,668 48.2
Tax (5,528) (7,081) (21.9) (4,450) 24.2
Effective tax rate (%) 23.8 27.5   28.4  
Adjusted PAT 17,692 18,654 (5.2) 11,218 57.7
Adj. PAT margin (%) 8.7 10.1 (139) bps 7.3 145 bps
Extra ordinary items 187 550 (66.0) - -
Reported PAT 17,879 19,204 (6.9) 11,218 59.4
Ann. EPS (Rs) 115.1 121.8 (5.5) 73.0 57.7
Source: Company, India Infoline Research

Topline of Rs203bn was lower than estimate

LT registered a 9.9% yoy growth in topline to Rs203bn, which was lower than our estimate of Rs210bn. The slower than expected revenue was due to slower execution at some of its domestic projects. The E&C segment grew only 10.1% yoy in Q4 FY13, as execution was marred by uncertainties in the roads and power segment, impacting dispatches. The growth in this segment was largely due to a jump in export revenues (2x yoy) while the domestic revenues grew just by 4% yoy. The disappointment was more at the other two divisions, which reported de-growth on a yoy basis. The E&E division reported a decline of 2.3% yoy and that at the MIP division reported a decline of 8.9% yoy. On a yearly basis the MIP business reported a decline of 16% yoy in topline.  The company has guided for a 15-17% growth in revenues in FY14 against the 14.5% achieved in FY13. LT has missed its FY13 guidance of 15% only by 50bps.

Margins shrink sharply 179bps yoy due to pricing pressure

LT reported an OPM contraction of 179 bps yoy to 12.1%, below our estimate, primarily on the back of decline in contribution margin. Operating profit of Rs24.5bn fell by 4% on a yoy basis, below our estimate of Rs27bn. For the full year FY13, margins have fallen by 130 bps to 10.5% from 11.8% in FY12 as against initial guidance of a 50 bps cut (revised to 80-100 bps during the year). The decline in margins has been the worse during the year.

The company now expects to maintain its EBITDA margin in FY2014 at current levels. The decline in margins was highest for the E&C division at 233bps to 11.2%, followed by the MIP division at 224bps yoy and E&E division at 88bps. The management was quite confident of maintaining its FY14 margins at current levels.

Q4 FY13 order inflows surprises on the positive side

Order inflows in Q4 FY13 stood at Rs249bn (up 29% YoY), quite higher than market expectations. The growth in order inflows were driven by power segment - 2X660 MW TPP and infra segment (residential and commercial development) of Rs44.4bn. However, LT removed slow-moving orders of Rs170bn in the quarter, which led to lower order-book growth. In-house projects contributed Rs53bn of orders inflows during the quarter. International order recorded a strong up-tick and contributed 17% of the full-year inflows at Rs150bn. This is against average international orders of only 5% in FY10 and 10% in FY11 (18% in FY2012). For FY13, order inflows stood at Rs880bn, higher by 25% yoy and above the management guidance of 20%. The management has guided for 20% growth in order inflows and is more than confident to achieve 15% growth in revenues for FY14. Growth in order inflows will be driven by a) large order wins in the international market b) finalization of orders in pipeline c) continued momentum in real estate segment and d) robust growth in order inflows from hydro carbon sector. However, the company mentioned the challenges amidst the tough macro environment coupled with election year on the corner.

Segmental Results

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  Q4 FY13 Q4 FY12 % yoy Q4 FY13 Q4 FY12
Sales (Rs m)       Sales Contribution (%)
Engineering and Construction 183,923 167,085 10.1 89.8 89.6
Electrical and Electronics 11,169 11,435 (2.3) 5.5 6.1
Machinery & Industrials 7,445 8,169 (8.9) 3.6 4.4
Others 2,309 (231) - 1.1 (0.1)
Total 204,845 186,458 9.9    
EBIT (Rs m)     % yoy EBIT contribution (%)
Engineering and Construction