Larsen & Toubro Ltd (Q4 FY14)

India Infoline News Service | Mumbai |

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.

CMP Rs1,545, Target Rs1,790, Upside 15.9% 
  • 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

Result table
(Rs mn) Q4 FY14 Q4 FY13 % yoy Q3 FY14 % qoq
Net sales 200,791 180,756 11.1 143,875 39.6
Material costs (102,655) (90,853) 13.0 (67,967) 51.0
Sub-contracting charges (43,494) (41,136) 5.7 (34,101) 27.5
Personnel costs (12,296) (9,792) 25.6 (10,682) 15.1
Other overheads (13,337) (17,684) (24.6) (14,378) (7.2)
Operating profit 29,010 21,292 36.2 16,748 73.2
OPM (%) 14.4 11.8 267 bps 11.6 281 bps
Depreciation (2,138) (1,969) 8.6 (1,992) 7.4
Interest (3,049) (2,634) 15.8 (2,909) 4.8
Other income 4,953 3,895 27.2 4,468 10.9
PBT 28,775 20,585 39.8 16,316 76.4
Tax (6,381) (4,673) 36.5 (4,953) 28.8
Effective tax rate (%) 22.2 22.7 30.4
Adjusted PAT 22,394 15,912 40.7 11,363 97.1
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
Reported PAT 27,235 16,099 69.2 12,407 119.5
Ann. EPS (Rs) 96.8 103.5 (6.5) 49.1 97.1
Source: Company, India Infoline Research
 

Infrastructure segment boosts revenue

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.


Segmental Results
  Q4 FY14 Q4 FY13 % yoy Q4 FY14 Q4 FY13
Sales (Rs m) Sales Contribution (%)
Infrastructure 135,395 115,058 17.7 66.9 63.0
Power 14,723 20,790 (29.2) 7.3 11.4
MMH 17,880 20,087 (11.0) 8.8 11.0
Heavy Engineering 13,573 9,589 41.5 6.7 5.2
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
Others 4,558 (1,476) - 2.3 (0.8)
Total 202,294 182,661 10.7
 
EBIT (Rs m) % yoy EBIT contribution (%)
Infrastructure 15,691 12,185 28.8 56.6 57.3
Power 2,081 1,333 56.0 7.5 6.3
MMH 3,040 3,780 (19.6) 11.0 17.8
Heavy Engineering 2,740 1,698 61.3 9.9 8.0
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
Others 2,091 (245) - 7.5 (1.2)
Total 27,731 21,259 30.4
 
EBIT margins (%) bps yoy
Infrastructure 11.6 10.6 100
Power 14.1 6.4 772
MMH 17.0 18.8 (181)
Heavy Engineering 20.2 17.7 247
Electrical and automation 14.2 13.1 111
Machinery and Industrial products 9.7 14.1 (436)
Others 45.9 16.6 2,926
Total 13.7 11.6 207
Source: Company, India Infoline Research

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