LT managed to register strong operating numbers led by strong execution in the infrastructure segment and some write back of warranty provisions and forex gains
Order inflow for the quarter was flat on a yoy basis at Rs267bn, but was higher by 15% for FY14 at Rs941bn. Order inflow for the consolidated entity stood at Rs1,270bn, up 23% yoy
The company has removed slow moving orders worth Rs150bn from the company’s order book
Standalone revenue of Rs200.8bn was higher than our estimate on the back of strong execution in the infrastructure segment
Operating margin for the company expanded by 267bps yoy on the back of improved performance by the infrastructure segment and gains from write-back of warranty provisions and currency movements
The company managed to meet its order inflow guidance during the year, but missed its revenue guidance due to slow execution in some of the projects
The company has guided for 15% yoy growth in consolidated revenue and 20% yoy growth in order inflows for FY15
Infrastructure segment to boost earnings; Maintain BUY rating with a price target of Rs1,790
|(Rs mn)||Q4 FY14||Q4 FY13||% yoy||Q3 FY14||% qoq|
|OPM (%)||14.4||11.8||267 bps||11.6||281 bps|
|Effective tax rate (%)||22.2||22.7||30.4|
|Adj. PAT margin (%)||11.2||8.8||235 bps||7.9||325 bps|
|Extra ordinary items||4,841||187||2,486.1||1,044||363.8|
|Ann. EPS (Rs)||96.8||103.5||(6.5)||49.1||97.1|
LT’s topline of Rs200.8bn was higher by 11.1% yoy and inline with our estimate of 11% yoy growth. The topline growth was largely due to higher than expected revenue from the infrastructure segment. Strong revenues from the infrastructure segment more than offset the decline in revenues from the power and metallurgical and material handling division. Infrastructure segment revenue grew by 17.7% yoy to Rs136bn, constituting for 66.9% of the company’s revenue during the quarter. Revenue from the power division continued to decline sharply by 29.2% yoy to Rs14.7bn and that of the metals division declined 11% yoy to Rs17.9bn. The growth in topline was boosted by higher revenue from exports. Exports for the quarter jumped 25% yoy against 8.7% yoy growth in domestic business. The hydrocarbon business has been demerged into a separate entity and hence the numbers are reclassified for the corresponding quarters. The company had indicated that it would be challenging to achieve its guidance of 15-17% growth in revenues in FY14. For FY14, the standalone entity was able to register a 10% yoy growth in topline as revenue was impacted due by clearance delays, deferment of award decisions and managing project execution under difficult conditions.
Margin expansion continues
LT managed to register an operating profit of Rs29bn, higher by 36.2% yoy and 73.2% yoy and was even quite higher than our estimate. The outperformance was largely due to expansion in margins in its infrastructure segment and some one-offs. The company gained from write-back of warranty provisions and currency movements. OPM expanded by 267bps yoy and 281bps qoq on the back of (1) lower raw material costs due to benign commodity prices and operational efficiencies (2) a sharp improvement in EBIT margins of power segment (3) Forex gains of Rs1.5bn (4) Write-back of provisions on large infrastructure projects, post the defect liability period (~Rs1bn). With the demerger of the hydrocarbon segment, the share of infrastructure segment jumped to 66% of total revenues. The company managed to register a 100bps expansion in infrastructure business segment. Margin expansion was also aided by due to lower losses of its other segments. Improvement in revenues from the real estate division in Powai, Mumbai led to a sharp jump in EBIT from others segment. EBIT margin for the heavy engineering division was higher by 247bps yoy. Employee costs were back to its normal run rate after declining sharply in Q3 FY14. We believed that the margin expansion witnessed during Q3 FY14 would not be replicated in Q4 FY14 due to the slowdown in execution in the domestic market. With the improvement in margins for the second consecutive quarter we have increased our margins for FY15 and FY16 on expectations of a faster recovery in infrastructure spending in the country. The management has guided that margins for the consolidated entity would be vulnerable by 50-100bps.
LT meets its order inflow guidance of 15% yoy growth
Adjusted for the demerger of the hydrocarbon business, LT managed to register a 15% yoy growth in order inflows to Rs941bn. Order inflow for the quarter was flat on a yoy basis at Rs267bn, but was higher by 15% for FY14 at Rs941bn. Considering the lacklustre market in Q4 FY14, we were quite satisfied with the order inflow during the quarter. The company has indicated that many large orders it received during the quarter were won in a consortium and hence the orders were booked in a subsidiary or JV company. As a result, growth in the order inflow for the consolidated entity was quite higher at 23% yoy to Rs1,270bn. The strong momentum growth in order inflows was led by the infrastructure segment and international orders. In FY14, international orders accounted for 30% of the order inflows against 17% it managed to register corresponding period last year. The company has cancelled projects worth Rs150bn from the order book and is in addition to the Rs170bn of projects cancelled in FY13. The cancelled orders were largely related to sectors like the road projects of L&T IDPL and Metals and Minerals segment. The management has guided for an order inflow growth of 20% yoy in FY15 for the consolidated entity on the back of huge opportunities from the Middle-East and on expectations of a revival in the domestic infrastructure spending. The company is expecting orders for the hydrocarbon segment to jump in FY15 largely due to huge capex in Kuwait.
|Q4 FY14||Q4 FY13||% yoy||Q4 FY14||Q4 FY13|
|Sales (Rs m)||Sales Contribution (%)|
|Electrical and automation||11,602||11,168||3.9||5.7||6.1|
|Machinery and Industrial products||4,563||7,445||(38.7)||2.3||4.1|
|EBIT (Rs m)||% yoy||EBIT contribution (%)|
|Electrical and automation||1,645||1,459||12.7||5.9||6.9|
|Machinery and Industrial products||444||1,049||(57.7)||1.6||4.9|
|EBIT margins (%)||bps yoy|
|Electrical and automation||14.2||13.1||111|
|Machinery and Industrial products||9.7||14.1||(436)|
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