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SYNOPSIS

Larsen & Toubro is a USD 11.7 billion technology, engineering & construction group with global operations.

L&T bags Rs. 1366 cr electrical orders from Gulf for Major Transmission & Substation Projects.

L&T Infrastructure Development Projects Ltd. signed Rs 2600 cr as concession agreement with NHAI.

The company has bagged Rs 1610 cr in metallurgical & material handling from Tata Steel Ltd., India Bulls Power Ltd. & other customers during the first quarter of FY12.

Net Sales and Operating profit of the company are expected to grow at a CAGR of 14% and 6% over 2010 to 2013E respectively.

L&T bags Rs 4100 cr in Buildings & Factories during the first quarter of FY12.

Years Net sales EBITDA Net Profit EPS P/E

FY 11 439049.10 70795.00 39578.90 65.01 20.57

FY 12E 496125.48 77520.18 43823.18 71.98 18.58

FY 13E 545738.03 85817.93 48719.93 80.02 16.71

Stock Data:

Sector: Construction

Face Value Rs. 2.00

52 wk. High/Low (Rs.) 2212.00/1303.35

Volume (2 wk. Avg.) 515000

BSE Code 500510

Market Cap (Rs in mn) 814032.45

Share Holding Pattern

1 Year Comparative Graph

L&T Ltd. BSE SENSEX

C.M.P: Rs. 1337.00 Target Price: Rs. 1510.00 Date: Oct 4th 2011 BUY

Larsen & Toubro Ltd. Result Update: Q1 FY 12

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Peer Group Comparison

Name of the company CMP(Rs.) Market Cap. (Rs.mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

L&T Ltd. 1337.00 814032.45 65.01 20.24 3.81 725.00

Jaiprakash Associates 68.65 145979.60 3.56 19.28 1.55 40.00

IVRCL Ltd 35.05 9358.70 5.02 6.98 0.47 30.00

Gayatri Projects Ltd. 139.80 1676.10 52.21 2.68 0.50 50.00

Investment Highlights

� Q1 FY12 Results Update

L&T Ltd. has reported net profit of Rs 7461.50 million for the quarter ended on

June 30, 2011 as against Rs 6661.70 million in the same quarter last year, an

increase of 12.01%. It has reported net sales of Rs 94826.10 million for the quarter

ended on June 30, 2011 as against Rs 78853.10 million in the same quarter last

year, a rise of 20.26%. Total income grew by 20.55% to Rs 97787.90 million from

Rs. 81120.70 million in the same quarter last year. During the quarter, it reported

earnings of Rs 12.23 a share.

Quarterly Results - Standalone (Rs in mn)

As At June-11 June-10 %change

Net sales 94826.10 78853.10 20.26%

PAT 7461.50 6661.70 12.01%

Basic EPS 12.23 11.04 10.75%

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Break up of Expenditure

Segment Revenue

Particulars Q1 FY12

Engineering & Construction 80994.30

Electrical & Electronics 7461.90

Machinery & Industrial Products 6904.00

Others 1989.80

Total 97350.00

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Bags international orders in the Hydrocarbon Sector

L&T has bagged two orders worth USD 639 million from UAE. One order from Abu

Dhabi Gas Ltd. (GASCO) for its Gas line project valued at USD 189 mn. It involves

EPC installation & commissioning of 123 KM of pipeline to be commissioned in 24 to

26 months. The other is a USD 450 mn EPCI project awarded to L&T Hydrocarbon’s

Upstream Business Group from ADMA-OPCO.

Received orders from various material player in the sector

L&T’s Metallurgical & Material Handling Independent Company- part of its

Construction division- has secured new orders worth Rs 1610 cr from Tata Steel Ltd.,

India Bulls Power Ltd. & other customers during the first quarter of FY12. A major

portion of these orders pertain to the Kalinga Nagar Project of Tata Steel in Orissa.

L&T bags new orders worth Rs 4100 cr in Buildings & Factories IC

L&T’s Buildings & Factories Independent Company- part of its Construction Division-

has secured new orders worth Rs 4100 crore during first quarter of FY12 for

construction of airport expansion, hospital, commercial, residential buildings

including factories.

L&TIDPL signs concession agreement with NHAI

L&T BPP Tollway Pvt. Ltd., a SPV incorporated by L&T Infrastructure Development

Projects Ltd. (L&TIDPL) has signed the concession agreement with NHAI for four-

laning of 244 km stretch of NH14 between Beawar & Pindwara situated in Rajasthan.

The project would be executed on BOT BDFO (Design Build Finance & Operate) basis,

with a concession period of 23 years. The estimated project cost is of the order of

about Rs 2600 crores, and is to be completed within a period of 30 months.

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L&T bags Rs. 1366 cr electrical orders from Gulf for Major Transmission &

Substation Projects

The Power Transmission & Distribution IC, part of Larsen & Toubro’s Construction

Division has bagged major EPC orders from GCC countries aggregating to Rs. 1366

crore. The order includes construction of 225 km overhead transmission line, 66 km of

underground cabling including 8 substations and associated cabling works.

Receipts the orders worth 1340 cr and 797 cr

L&T construction has secured new orders worth 1340 crore in the Building &

Factories segment during the second quarter of FY12 for the construction of

commercial & residential buildings including add-on orders from ongoing projects.

L&T construction has secured another major order worth Rs 797 cr from a leading

developer for the mixed use construction comprising predominantly of residential,

including retail and commercial developments at Mumbai.

Company Profile

Larsen & Toubro Limited (L&T) is a technology, engineering, construction and

manufacturing company. L&T is a technology-driven USD 11.7 billion company that

infuses engineering with imagination. It is considered as one of the largest and most

respected companies in India's private sector.

Larsen & Toubro Limited is the biggest legacy of two Danish Engineers, Henning

Holck-Larsen and S.K. Toubro who built a world-class organization that is

professionally managed and a leader in India's engineering and construction industry.

Holck-Larsen and Toubro founded the partnership firm of L&T in 1938, which was

converted into a limited company on February 7, 1946. Today, this has

metamorphosed into one of India's biggest success stories. The company has grown to

a large conglomerate spanning engineering and construction. ECC was conceived as

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Engineering Construction Corporation Limited in April 1944 and was incorporated as

wholly owned subsidiary of Larsen & Toubro Limited. L&T's founders Holck - Larsen

and Toubro laid the foundation for ECC.

Today, L&T is one of India's biggest and best known industrial organizations 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.

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.

Business area of the company includes:

• Turnkey Projects

• Construction

• Engineered Products & Systems

• Electrical & Electronic Products & Systems

• IT & Engineering Services

• Machinery Valves & Industrial Consumables

• Financial Services

• Shipbuilding

• Power projects

Divisions:

• Engineering & Construction Projects (E&C)

• Heavy Engineering (HED)

• Engineering Construction & Contracts (ECC)

• Electrical & Electronics (EBG)

• Machinery & Industrial Products (MIPD)

• Information Technology & Engineering Services

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Construction

• Infrastructure Projects

• Buildings & Factories

• Power Trans. & Dist. Projects

• Metallurgical & Matl. Handling Projects

• Realty Projects

Engineered Products & Systems

• Refinery

• Refinery

• Oil & Gas

• Petrochemicals

• Fertiliser

• Coal Gasification

• Aerospace

• Thermal Power Plant

• Nuclear Power Plant

• Defence

Financial Services

• Equipment Finance

• Equipment Finance

• Infrastructure Finance

• General Insurance

• Mutual Fund

• Portfolio Management Services

Power projects

• Hydro Nuclear

• Power Development

• Plant Automation

• Power Transmission & Distribution

• Thermal

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Financial Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) FY10 FY11 FY12E FY13E

Description 12m 12m 12m 12m

Net Sales 370348.00 439049.10 496125.48 545738.03

Other Income 9102.50 11948.50 13023.87 14326.25

Total Income 379450.50 450997.60 509149.35 560064.28

Expenditure -311444.70 -380202.60 -431629.17 -474246.35

Operating Profit 68005.80 70795.00 77520.18 85817.93

Interest -5053.10 -6473.70 -6797.39 -7137.25

Gross profit 62952.70 64321.30 70722.79 78680.68

Depreciation -4146.00 -5992.20 -6891.03 -7649.04

Profit Before Tax 58806.70 58329.10 63831.76 71031.64

Tax -16408.70 -19458.60 -20745.32 -23085.28

Profit After Tax 42398.00 38870.50 43086.44 47946.35

Extraordinary Items 1357.20 708.40 736.74 773.57

Net Profit 43755.20 39578.90 43823.18 48719.93

Equity capital 1204.40 1217.70 1217.70 1217.70

Reserves 181428.20 217023.60 260110.04 308056.39

Face value 2.00 2.00 2.00 2.00

EPS 72.66 65.01 71.98 80.02

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 31-Dec-10 31-Mar-11 31-Jun-11 30-Sep-11E

Description 3m 3m 3m 3m

Net sales 114130.80 153842.10 94826.10 105256.97

Other income 2471.80 3698.20 2961.80 3257.98

Total Income 116602.60 157540.30 97787.90 108514.95

Expenditure -101398.90 -128165.80 -83561.40 -92099.85

Operating profit 15203.70 29374.50 14226.50 16415.10

Interest -1757.10 -1361.70 -1612.60 -1660.98

Gross profit 13446.60 28012.80 12613.90 14754.12

Depreciation -1280.90 -2357.70 -1678.50 -1779.21

Profit Before Tax 12165.70 25655.10 10935.40 12974.91

Tax -3760.40 -8793.00 -3473.90 -4281.72

Profit After Tax 8405.30 16862.10 7461.50 8693.19

Extraordinary Items 0.00 0.00 0.00 0.00

Net Profit 8405.30 16862.10 7461.50 8693.19

Equity capital 1215.60 1217.70 1220.00 1220.00

Face value 2.00 2.00 2.00 2.00

EPS 13.83 27.69 12.23 14.25

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Key Ratios

Particulars FY10 FY11 FY12E FY13E

No. of Shares(in mn) 602.20 608.85 608.85 608.85

EBITDA Margin (%) 18.36% 16.12% 15.63% 15.73%

PBT Margin (%) 15.88% 13.29% 12.87% 13.02%

PAT Margin (%) 11.45% 8.85% 8.68% 8.79%

P/E Ratio (x) 23.12 25.84 23.34 20.99

ROE (%) 23.21% 17.81% 16.49% 15.50%

ROCE (%) 28.79% 26.49% 25.08% 24.08%

Debt Equity Ratio 0.37 0.33 0.29 0.26

EV/EBITDA (x) 14.88 14.45 13.19 11.92

Book Value (Rs.) 303.28 358.45 429.22 507.96

P/BV 5.54 4.69 3.91 3.31

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Charts:

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Outlook and Conclusion

At the current market price of Rs.1337.00, the stock is trading at 18.58 x

FY12E and 16.71 x FY13E respectively.

Earning per share (EPS) of the company for the earnings for FY12E and FY13E

is seen at Rs.71.98 and Rs.80.02 respectively.

Net Sales and Operating profit of the company are expected to grow at a CAGR

of 14% and 6% over 2010 to 2013E respectively.

On the basis of EV/EBITDA, the stock trades at 10.50 x for FY12E and 9.49 x

for FY13E.

Price to Book Value of the stock is expected to be at 3.11 x and 2.63 x

respectively for FY12E and FY13E.

We expect that the company will keep its growth story in the coming quarters

also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.1510.00 for Long term investment.

Industry Overview

The Indian construction industry is an integral part of the economy and a conduit for

a substantial part of its development investment, is poised for growth on account of

industrialization, urbanization, economic development and people's rising expectations

for improved quality of living. In India, construction is the second largest economic

activity after agriculture. Construction accounts for nearly 65 per cent of the

total investment in infrastructure and is expected to be the biggest beneficiary of the

surge in infrastructure investment over the next five years. Investment in construction

accounts for nearly 11 per cent of India’s Gross Domestic Product (GDP). €239.68

billion is likely to be invested in the infrastructure sector over the next five to 10

years -in power, roads, bridges, city infrastructure, ports, airports,

telecommunications, which would provide a huge boost to the construction

industry as a whole. With such bullish prospects in infrastructure, affiliated industries

such as cement are on a high. Cement consumption, for the first time, is set to exceed

the 150-million tonne mark. Reflecting the demand for the commodity, capacity

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utilization rose to over 100 per cent to touch 102 per cent in January 2007 with

dispatches touching 14.10 million tonnes as against the production of 14 million

tonnes. As opportunities in the sector continue to come to the fore, foreign

direct investment has been moving upwards.

The real estate and construction sectors received FDI of €216.53 million in the first

half of the current fiscal year.

Indian Infrastructure – Size and Growth

The investment in infrastructure is expected to increase to 8.37 per cent in the final

year of the 11th Plan and likely to touch 10 per cent of GDP in the 12th Five Year Plan

(2012-2017). With the increasing investment, the share of private sector in the total

investment on infrastructure has increased rapidly. The contribution of private sector

in total infrastructure investment in each of the first two years of 11th Plan (2007-

2012) was around 34 per cent. This is higher than the 11th Plan target of 30 per cent

and 25 per cent achieved in 10th Plan period. It is expected to rise to 36 per cent by

the end of 11th Plan and 50 per cent during the 12th Plan (2012-2017).

The government has played a pivotal role in making Indian infrastructure sector an

attractive investment destination for both domestic and foreign players. Steps taken

by the government such as - opening up the sector to private players, liberalising

foreign investment norms and huge spending on projects like National Highway

Development Project (NHDP), National Maritime Development Programme (NMDP) et

all- have given a stupendous impetus to the sector in the past few years.

Future Challenges:

The Indian economy has witnessed considerable progress in the past few decades.

Most of the infrastructure development sectors moved forward, but not to the required

extent of increasing growth rate up to the tune of 8 to 10 per cent. The Union

Government has underlined the requirements of the construction industry.

With the present emphasis on creating physical infrastructure, massive investment is

planned in this sector. The Planning Commission has estimated

that investment requirement in infrastructure to the tune of about 14,50,000 crore or

US$320 billion during the 11th Five Year Plan period.

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New Materials, Equipment and Technologies:

New mega-project undertaken, involvement of international consultants, and

participation of Indian consultants/contractors in international projects has led to

infusion of new materials, equipment and technologies in the construction practices in

India. While manufacturing of new materials is going on at a more aggressive pace, the

manufacturing of new equipment is constrained by large capital investments and the

uncertain markets. However, the growing market for such advanced equipment will

eventually push the entrepreneurs to manufacture these also. On the technological

front, the picture is abysmally low. The country has not invested adequately into

making technical human resources capable of addressing the professional services

needs of the construction industry like litigation, training of artisans, cost indices,

contracting, insurance, finance, banking and taxation. On the engineering

design front, the college education of the practicing engineers has not been adequately

augmented from time to time with in-house or distance education modules. Thus,

senior engineers are often found oblivious to new technologies and tools. As a

consequence, the country is faced with a dire need for qualified technical manpower.

______________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

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