February 1, 2018 Larsen & Toubro (LARTOU) |...

February 1, 2018

ICICI Securities Ltd | Retail Equity Research

Result Update

Strong show across the board…

Larsen & Toubro (L&T) reported a robust Q3FY18 performance, way

above our expectations in terms of profitability and order inflows.

Order inflows grew 38% YoY on a pick-up in tendering and ordering

activity in domestic markets. However, international market order

wins were sluggish. The key positive in terms of execution was the

11% YoY growth in infrastructure segment revenues. L&T has

maintained its order inflow and revenue growth guidance of 0% and

12% for FY18E, respectively

Standalone revenues for the quarter grew 11% YoY to | 17715 crore

vs. our estimate of | 17920 crore. On a consolidated basis, revenues

grew 10% YoY | 28700 crore. On the positive side, infrastructure

segment revenues were up 11% for Q3FY18 at | 13800 crore.

Consistent recovery continues in the hydrocarbon segment where

revenues grew 29% YoY to | 3080 crore coupled with strong growth

in the heavy engineering business revenues grew 19% YoY. On the

weaker side, with lower carry on the backlog, power revenues

declined 22% YoY while heavy engineering segment witnessed 3%

YoY revenue growth. Developmental projects segment revenues

increased 14% YoY

Standalone EBITDA margins came in at 9.4%, up 90 bps YoY and

above our estimate of 8.9%. On a consolidated basis, EBITDA

margins were at 9.1%. From a segmental perspective, infrastructure

segment recorded margins of 7.8% due to job mix and stage of

completion of projects. On the positive side, hydrocarbon and E&A

segment all saw margin expansion at 8% and 17.3%, respectively.

The company has maintained its margin guidance for FY18E

Domestic order wins surprise positively

For Q3FY18, domestic order inflows were up 71% YoY to | 39300 crore

on the back of finalisation of big ticket orders and rollover of order

awards stuck on account of GST. In 9MFY18, order inflows were up 8%

YoY, which provides enough cushion to L&T to meet its yearly guidance

given it will have to report order wins of | 40000 crore in Q4FY18. In

terms of segment, government ordering is strong while private capex is

still weak. Infrastructure segment inflows grew 25% YoY while

hydrocarbon and heavy engineering also witnessed significant orders on

a low base. Going ahead, we build in order inflow growth of 14.7% and

13.3% YoY in FY19E and FY20E, respectively.

Revenues to grow at 15.8% CAGR over FY18-20E

The key positive that emerged from the Q3FY18 execution trend was a

robust pick-up in infra segment revenues, which grew 11% YoY. The

management commentary suggests the trend may be a secular one,

going ahead. Given robust order wins and pick-up in execution

environment, L&T can deliver 15.8% revenue CAGR over FY18-20E.

Growth trajectory to get stronger; maintain BUY

L&T is in a set up wherein all variables like decent order wins, pick-up in

domestic execution, monetisation of assets and the strong performance

of key subsidiaries will only strengthen the growth trajectory ahead as

we expect 15.8% PAT CAGR couple with RoEs reaching 15% by FY20E.

To reflect the same, we up the P/E multiple from 21x to 23x and roll over

valuations to FY20E. We revise our target price from | 1430 to | 1700

and rate the stock as a must have in one’s portfolio.

Rating matrix

Rating : Buy

Target : | 1700

Target Period : 12 - 15 months

Potential Upside : 17%

What’s Changed?

Target Changed from |1430 to |1700

EPS FY19E Changed from |42 to |45.9

EPS FY20E Introduced at |53.5

Rating Unchanged

Quarterly Performance

Q3FY18 Q3FY17 YoY (%) Q2Y18 QoQ (%)

Revenue 17,715.7 12,150.0 45.8 15,859.8 11.7

EBITDA 1,674.1 964.2 73.6 1,308.6 27.9

EBITDA (%) 9.4 7.9 151 bps 8.3 120 bps

PAT 36,653.4 550.1 6,562.5 1,161.9 3,054.6

Key Financials

| Crore FY17 FY18E FY19E FY20E

Net Sales 66,301.4 72,032.5 83,278.3 96,610.3

EBITDA 6,425.2 7,552.6 8,685.7 10,172.5

Net Profit 4,708.2 5,535.1 6,372.5 7,428.5

EPS (|) 33.9 39.9 45.9 53.5

Valuation summary

es

FY17 FY18E FY19E FY20E

P/E 42.1 35.8 31.1 26.7

Target P/E 42.1 35.8 31.1 26.7

EV / EBITDA 31.4 26.9 23.7 20.4

P/BV 4.8 4.6 4.3 4.0

RoNW (%) 11.4 12.7 13.8 14.9

RoCE (%) 10.2 11.6 12.8 14.1

Stock data

Particular Amount

Market Capitalization | 197380 crore

Total Debt (FY17) |10500 Crore

Cash and Investments (FY17) |3000 Crore

EV |207380 crore

52 week H/L |1435/ | 716

Equity capital | 277.5 Crore

Face value | 2

Price performance (%)

1M 3M 6M 12M

Larsen & Toubro Ltd 4.8 (4.9) 9.0 59.8

BHEL 1.5 3.8 17.0 66.0

Thermax Ltd 5.0 10.5 30.5 75.4

Crompton Greaves (14.7) (13.5) (16.0) 37.1

Larsen & Toubro (LARTOU) | 1450

Research Analyst

Chirag Shah

[email protected]

ICICI Securities Ltd | Retail Equity Research Page 2

Variance analysis

Q3FY18 Q3Y18E Q3FY17YoY (Chg %) Q2Y18QoQ (Chg %) Comments

Revenue 17,715.7 17,919.9 12,150.0 45.8 15,859.8 11.7 Revenues were in line with estimates. In terms of segment,

infrastructure and heavy engineering segment was robust

Other Income 446.2 537.5 482.6 -7.5 660.9 -32.5

Employee Expenses 1,428.8 1,460.2 1,289.8 10.8 1,420.1 0.6

Raw Material Expenses 12,278.2 14,046.8 9,244.1 32.8 12,632.9 -45.9

Other Operating Expenses 642.9 824.2 652.0 -1.4 498.3 29.0

EBITDA 1,674.1 1,588.6 964.2 73.6 1,308.6 27.9

EBITDA Margin (%) 9.4 8.9 7.9 151 bps 8.3 120 bps Margins were higher than estimates

Depreciation 264.9 277.3 279.3 -5.2 259.4 2.1

Interest 332.2 363.2 331.1 0.3 367.2 -9.5 Interest costs were lower than estimates

PBT 1,523.3 1,485.6 836.3 82.1 1,342.9 13.4

Total Tax 358.2 418.2 286.2 25.2 355.9 0.6

PAT 36,653.4 1,067.3 550.1 6,562.5 1,161.9 3,054.6 PAT was higher than estimates on account of better-than-expected

margins and lower interest costs

Key Metrics

Order inflows 48,300.0 40,000.0 35,000.0 38.0 28,700.0 68.3 Order inflow was higher on account of robust ordering and finalisation

in domestic markets

Order backlog 271,000.0 265,000.0 258,000.0 5.0 257,500.0 5.2 Backlog provides strong visibility for next two to three years

Source: Company, ICICIdirect.com Research

Change in estimates

(| Crore) Old New % Change Old New % Change

Revenue 84,056.3 83,278.3 -0.9 - 96,610.3 -

EBITDA 8,936.7 8,685.7 -2.8 - 10,172.5 -

EBITDA Margin (%) 10.6 10.4 -20 bps - 10.5 -

PAT 6,548.2 6,372.5 -2.7 - 7,428.5 -

EPS (|) 47.2 45.9 -2.7 - 53.5 -

FY18E FY19E


Assumptions

Comments

FY17 FY18E FY19E FY20E FY19E FY20E

Order Inflow growth -3.7 0.7 14.7 - 15.3 13.7 Order award deferrals and slowdown in international markets have led us to revise

down the order inflow growth for FY18E

Order Backlog growth 1.2 0.6 25.2 - 29.7 13.8

Revenue growth 10.9 8.6 15.6 - 15.5 17.1

EBITDA Margins 9.7 10.5 10.4 - 10.6 10.5

Current Earlier



Key results and conference call highlights

Order inflows were the key highlight of the result as they grew 38%

YoY to the tune of | 48100 crore. The key highlight was an increase in

share of domestic orders to 82% in Q3FY18 vs. 66% in Q3FY17,

implying growth of 71%. Growth was mainly led by rollover of orders

delayed on account of GST and a pick-up in big ticket orders across

the infra and hydrocarbon space. On the flip side, international

inflows were down 25% YoY. Given that in previous quarter L&T had

won a major hydrocarbon order ($1 billion). The company has

maintained its order inflow guidance of 0% YoY growth in FY18E

The consolidated orderbook was at | 271000 crore with no slow

moving orders in the backlog. We believe this will ensure a gradual

pick-up in execution in FY18-20E. The infrastructure segment

constitutes a lion’s share of the backlog at 74%. The hydrocarbon and

heavy engineering segment share was at 11% and 5%, respectively.

The share of the power segment is stagnant at 4% over the past

many quarters as the situation in the BTG equipment is not

improving. The share of the international segment in orders wins and

backlog in 9MFY18 was at 25% and 20%, respectively

In terms of segment revenues, infrastructure segment revenues were

up 11% for Q3FY18. Consistent recovery continues in the

hydrocarbon segment where revenues grew 29% YoY coupled with

Heavy engineering business as revenues grew 15% YoY. The key

highlight was 55% YoY growth in heavy engineering revenues on

account of a pick-up in defence jobs

On a consolidated basis, EBITDA margins came in at 11.3%, up 210

bps YoY. Standalone margins came in at 8.3%, flattish YoY. The key

positive was positive EBIDTA margins across all operating segments.

Infrastructure segment reported flattish margins 7.5% on account of

muted execution. Power segment bounced back into the black at

2.1%. Hydrocarbon, heavy engineering all witnessed margin

expansion at 8% and 17.3%, respectively. L&T has maintained its

margin guidance for FY18E

Despite GST led transition issues, the company managed to maintain

its working capital to sales ratio to 21.5%


Company Analysis

Domestic order wins surprise positively

For Q3FY18, domestic order inflows were up 71% YoY to | 39300 crore

on the back of finalisation of big ticket orders and rollover of order awards

stuck on account of GST. In 9MFY18, order inflows were up 8% YoY,

providing enough cushion to L&T to meet its yearly guidance given it will

need to report order wins of | 40000 crore in Q4FY18. In terms of

segment, government ordering is strong while private capex is still weak.

Infrastructure segment inflows grew 25% YoY growth in inflows while

hydrocarbon and heavy engineering also witnessed significant orders on

a low base. Going ahead we build in order inflow growth of 14.7% and

13.3% YoY in FY19E and FY20E, respectively.

Over the next three to five years, we expect L&T’s revenue growth to be

propelled by the infrastructure division as over 75% of the backlog and

50% of new order wins are coming from these segments. We have noted

that L&T has been able to meet most of its yearly guidance across order

inflow growth, revenue growth and margins.

Exhibit 1: Trend in revenue growth

333.7369.7

438.5

531.9

608.3568.4586.7

617.0675.6

720.3

832.8

966.1

0

200

400

600

800

1000

1200

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E

(|

billion)

-10

0

10

20

30

40

(%

)

Revenue YoY Growth

Source: Company, ICICIdirect.com, Research

Exhibit 2: How has L&T fared vis-à-vis its cycles across business cycles

Guidance Achievement Guidance Achievement

FY08 30 40 30-35 45

FY09 30 28 30.00 47

FY10 25-35 41 15-20 14

FY11 25 14 20.00 19

FY12 5 -12 25 21

FY13 15-20 25 15-20 15

FY14 15-20 15 15 10

FY15 20 22 15 3

FY16 0 -13 15 12

FY17 15 10.9 15 10

FY18E 0 12

Inflow Growth (%) Revenue Growth (%)

Source: Company, ICICIdirect.com, Research

Diversity: L&T’s biggest USP both during up/down turns in capex cycle

L&T’s current order backlog of | 257500 crore (Q2FY18, excluding

hydrocarbon & services) is highly diversified across segments and

geographies. Out of the current backlog, the infrastructure segment

(roads, buildings & factories, urban infra, airports) comprises 74% of the

backlog whereas power (generation and T&D) and process (metals &

material handling) segments share is at 4% and 5%, respectively. Others

(defence, shipbuilding and electronic products), on the other hand,

constitute 9% of the backlog. However, with the focus of the government

on reforming the power sector and opening of the defence sector and

L&T’s vigorous efforts to scale up international hydrocarbon business

(vision of $5 billion in revenues), share of these segments can rise sharply

in the next five years.

Going ahead, we build in order inflows of | 117350 crore and | 132900

crore in FY19E and FY20E, respectively. We expect L&T to end with a

standalone order backlog of | 334780 crore by FY20E end.


Exhibit 3: Break-up of backlog… infrastructure segment to command lion’s share

70%

68%

71%

71%

75%

75%

74%

75%

74%

75%

74%

74%

9%

11%

10%

10%

8%

8%

7%

6%

5%

5%

4%

4%

7%

7%

7%

6%

5%

6%

8%

8%

10%

9%

10%

11%

4%

5%

5%

5%

5%

4%

3%

3%

5%

4%

5%

5%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Q1FY15

Q2FY15

Q3FY15

Q4FY15

Q3FY16

Q4FY16

H1FY17

9MFY1

FY17

Q1FY18

Q2FY18

Q3FY18

Infrastructure Power Hydrocarbons Process Others


Margins to improve gradually to 10.4- 10.5% over FY19- FY20E

Standalone EBITDA margins came in at 9.4%, up 90 bps YoY and

above our estimate of 8.9%. This was on account of all the

businesses reporting positive margins in Q3FY18. On a consolidated

basis, EBITDA margins were at 9.1%. From a segmental perspective,

infrastructure segment recorded margins of 7.8% on account of job

mix and stage of completion of projects. On the positive side,

hydrocarbon and E&A segment all witnessed margin expansion at

8% and 17.3%, respectively. The company has maintained its margin

guidance for FY18E. Going ahead, we build in margins of 10.4% and

10.5% for the standalone business for FY19E and FY20E, respectively

Exhibit 4: Trend in EBITDA margins

9.9

11.4 11.5

12.8 12.8

11.7

10.5

11.811.4

10.3

9.7

10.5 10.4 10.5

5

7

9

11

13

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

(%

)


Exhibit 5: Trend in segmental EBITDA margins

Q3FY18 Q3FY17 Q2FY18 FY17

Infrastructure 7.8 8.3 7.5 10.2

Power 2.5 1.4 5.4 3.5

Heavy Engineering 18.8 20.3 15.4 19.9

Hydrocarbon 8 7.1 10.9 5.8

E&A 17.3 15.6 15.3 15.1

Others 15.3 15.7 13.1 10.9



PAT CAGR of 15.8% in FY18-20 owing to pick-up in execution cycle and

gradual uptick in EBITDA margins in FY18E-20E

We expect revenues CAGR of 15.8% in FY18-20E while EBITDA CAGR

over the same period is expected at 16.1%. Our PAT CAGR in FY17-19E is

at ~15.8% as we have assumed moderate rise in other income

component in FY18-20E while depreciation is expected to exhibit a CAGR

of ~6.7%. Hence, we expect PAT at | 7428.5 crore in FY20E vs. | 5528

crore in FY17.

Exhibit 6: Trend in profitability…

0

1000

2000

3000

4000

5000

6000

7000

8000

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18EFY19EFY20E

(|

crore)

-20

-10

0

10

20

30

40

50

60

70

(%

)

PAT YoY growth


RoEs: Likely to inch up to 15% in FY20E from 11.4% in FY17

The RoEs of the standalone base business used to average between 24%

and 27% in FY08-10 but the same has declined to 11.4% in FY17 as L&T’s

investments in BOT assets (road, power, urban infra) rose from | 5740

crore in FY10 to | 15168 crore in FY14.

The management’s decision on significantly slowing down new BOT

assets investment coupled with divesture of non-strategic

subsidiaries/JVs and possible monetisation of L&T IDPL will reduce

pressure on standalone RoEs.

The key impediment in the medium term would be the low utilisation of

facilities at the shipbuilding business and the NPCIL JV, which are making

losses at this juncture. Going ahead, as per the management, shipbuilding

business would be limited to | 100 crore.

Out of the above, a few service oriented subsidiaries are cash flow

generators (L&T Infotech and L&T Finance holdings) and will not burden

parent’s balance sheet for growth. Going ahead, the management expects

to hive off Nabha Power and restructure L&T IDPL in FY17-19E, in order to

ease pressure on the parent’s cash flows and meet funding requirements

in developmental assets.


Exhibit 7: Trend in RoEs

23.6

18.117.4

16.3

15.0

13.712.8

11.4

12.713.8

14.9

0

5

10

15

20

25

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E


Going ahead, L&T’s management has clearly shifted its focus on reducing

the equity funding stress on base business balance sheet and

simultaneously monetising non-strategic subsidiaries to raise future

equity requirement for the subsidiary.

Going ahead, we expect L&T to report RoEs in the range of 13-14% for

the standalone business in FY17-19E. However, the scenario may

drastically change in FY19-20, as 1) L&T has already divested its entire

stake in Dhamra port, which will free up equity required in developmental

portfolio, 2) L&T has signalled the possible stake sale of 20-25% stake in

IDPL wherein it has already roped in a strategic investor to the tune of

| 2000 crore of equity, 3) Losses of shipbuilding business will reduce

significantly if the capex cycle recovers in time with the opening up of the

defence sector. These subsidiaries will turn into black and 4) The

company is close to selling its Nabha power plant and general insurance

business and also restructuring L&T IDPL. These actions, in our view, will

be RoE accretive from FY18E onwards.


Outlook and Valuation

L&T is placed in a set-up wherein all variables like decent order wins,

pick-up in domestic execution, monetisation of assets and strong

performance of key subsidiaries will only strengthen the growth

trajectory ahead as we anticipate 15.8% PAT CAGR coupled with RoEs

reaching 15% by FY20E. To reflect the same, we up the P/E multiple

from 21x to 23x and roll over valuations to FY20E. We revise our target

price from | 1430 to | 1700 and rate the stock as a must have in one’s

portfolio.

Exhibit 8: SOTP valuation for L&T

Company (|per share) Bull case % of total Base Case % of total Bear Case % of total

Base Business 1343 67.6 1235.1 72.4 805.5 68.3

L&T Finance Holdings 148 7.5 119 7.0 104 8.8

L&T Infotech 230 11.6 184 10.8 172.7 14.6

L&T Power Development 18 0.9 11.5 0.7 7.7 0.6

L&T MHI JV 13 0.7 7.6 0.4 5.7 0.5

L&T IDPL 176 8.8 105.4 6.2 56.2 4.8

Other E&C, MIP & E&E Subs 29 1.5 20.4 1.2 15.0 1.3

Hydrocarbon 31 1.5 23 1.3 12 1.0

Total 1987 100.0 1706 100.0 1179 100.0



Recommendation History vs. Consensus eses

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

0

200

400

600

800

1,000

1,200

1,400

1,600

Jan-18Nov-17Sep-17Jun-17Apr-17Jan-17Nov-16Sep-16Jun-16Apr-16Jan-16Nov-15Aug-15Jun-15Apr-15Jan-15

(%

)

(|)

Series1 Idirect target Consensus Target Mean % Consensus with Buy

Source: Bloomberg, Company, ICICIdirect.com Research

Key events

Date Event

Dec-11 Mitsubishi Heavy Industries (MHI), Japan plans to sign a technological collaboration agreement with L&T Shipbuilding (LTSB) to provide a broad range of

technological support for the construction of commercial vessels

Mar-12 L&T and Samsung Techwin Co, Ltd (STW) of South Korea announce they would be cooperating with the Indian Army’s Tracked Self Propelled Artillery Programme.

Mar-13 LT anoounces bonus issue in the ratio of 1:2. This means 1 bonus share for every 2 share held

Jul-13 L&T wins its biggest ever civil construction order worth |8250 crore to build a metro rail project in Saudi Arabia

Dec-13 L&T applies with FIPB for induction of strategic equity partner. The investor will invest equity of | 1000 crore each in two tranches.

Mar-14 L&T ends FY14 with another strong set of financial performance with revneues and order inflows up 19% and 15% YoY, respectively. Coupled with L&T sets strong

set of guidance for FY15E performance

Sep-14 Weak execution mars L&T's perfromace in Q2FY15 even though L&T reported 17% YoY order inflows to the tune of | 39797 crore. The ghost of hydrocarbon bsuiness is gradullay receding back as L&T managed to post marginla EBIT loss of |54 crore as against |900 crore loss in Q1FY15.

Mar-16 L&T ends FY16 with another performance with revneues and order inflows up 5%. Coupled with L&T sets strong set of guidance for FY17E performance which

included 15% YoY growth each in order inflow and revneues growth

Mar-17 The company meets its revised guidance of 10% revneue growth coupled with strong cash flow generation. The compnay also floated IPO's of its two technology

based services thereby mionetising the value of subsidiaries


Top 10 Shareholders Shareholding Pattern

Rank Name Latest Filing Date % O/S Position (m) Change (m)

1 Life Insurance Corporation of India 30-Sep-17 17.4 246.5 0.0

2 L&T Employees Welfare Foundation 30-Sep-17 12.1 172.1 0.0

3 UTI Asset Management Co. Ltd. 30-Sep-17 4.0 56.1 0.0

4 HDFC Asset Management Co., Ltd. 30-Sep-17 3.8 53.7 4.4

5 ICICI Prudential Asset Management Co. Ltd. 30-Sep-17 2.4 34.5 5.8

6 ICICI Prudential Life Insurance Company Ltd. 30-Sep-17 1.9 26.4 -0.2

7 General Insurance Corporation of India 30-Sep-17 1.8 25.5 -0.2

8 SBI Funds Management Pvt. Ltd. 30-Nov-17 1.4 19.9 0.4

9 GIC Private Limited 30-Sep-17 1.3 19.1 -1.4

10 BlackRock Institutional Trust Company, N.A. 31-Dec-17 1.1 15.4 0.0

(in %) Dec-16 Mar-17 Jun-17 Sep-17 Dec-17

Promoter 0.00 0.00 0.00 0.00 0.00

FII 16.64 17.60 17.58 17.22 16.91

DII 39.91 39.28 39.54 40.08 40.68

Others 43.45 43.12 42.88 42.70 42.41

Source: Reuters, ICICIdirect.com Research

Recent Activity

Investor Name Value Shares Investor Name Value Shares

ICICI Prudential Asset Management Co. Ltd. +101.57M +5.81M GIC Private Limited -24.20M -1.38M

HDFC Asset Management Co., Ltd. +76.97M +4.40M Axis Asset Management Company Limited -15.80M -0.80M

Fidelity Management & Research Company +41.65M +2.21M Standard Life Investments Ltd. -14.11M -0.75M

Aditya Birla Sun Life AMC Limited +20.64M +1.05M Mukhija (R N) -7.36M -0.37M

JM Financial Asset Management Pvt. Ltd. +16.73M +0.89M Naik (A M) -7.58M -0.36M

Buys Sells

Source: Reuters, ICICIdirect.com Research


.

Financial summary

Profit and loss statement | Crore

(Year-end March) FY17 FY18E FY19E FY20E

Total operating Income 66,301.4 72,032.5 83,278.3 96,610.3

Growth (%) 10.9 8.6 15.6 16.0

Raw Material Expenses 8,938.3 9,282.8 10,717.7 12,552.9

Employee Expenses 5,146.9 5,707.0 6,763.9 7,878.7

Other Operating Expenses 36,636.4 40,454.3 46,937.1 54,438.8

Sales, administration & Other Expenses2,744.8 2,697.3 3,239.7 3,501.7

Other Manufacturing Expenses 6,409.9 6,338.5 6,934.2 8,065.7

Total Operating Expenditure 59,876.2 64,479.9 74,592.6 86,437.8

EBITDA 6,425.2 7,552.6 8,685.7 10,172.5

Growth (%) 3.9 17.5 15.0 17.1

Depreciation 1,020.2 1,108.8 1,212.9 1,262.7

Interest 1,318.0 1,370.3 1,169.3 1,197.7

Other Income 1,972.0 2,423.7 2,800.0 2,900.0

PBT 6,058.9 7,497.2 9,103.5 10,612.1

Others 0.0 0.0 0.0 0.0

Total Tax 1,350.7 1,962.1 2,731.1 3,183.6

PAT 4,708.2 5,535.1 6,372.5 7,428.5

Growth (%) -7.0 17.6 15.1 16.6

EPS (|) 33.9 39.9 45.9 53.5


Cash flow statement | Crore


Profit after Tax 4,708.2 5,535.1 6,372.5 7,428.5

Add: Depreciation 1,020.2 1,108.8 1,212.9 1,262.7

(Inc)/dec in Current Assets -4,413.1 -3,281.2 -11,175.9 -8,319.4

Inc/(dec) in CL and Provisions 1,807.4 815.4 6,630.7 3,768.9

Others - - - -

CF from operating activities 3,122.7 4,178.1 3,040.2 4,140.7

(Inc)/dec in Investments -1,000.0 -1,000.0 -1,000.0 -1,000.0

(Inc)/dec in Fixed Assets -1,050.0 -1,550.0 -1,000.0 -700.0

Others 0.0 0.0 0.0 0.0

CF from investing activities -2,100.0 -2,550.0 -2,000.0 -1,700.0

Issue/(Buy back) of Equity 0.0 0.0 0.0 0.0

Inc/(dec) in loan funds 0.0 0.0 0.0 0.0

Dividend paid & dividend tax -3,024.4 -3,326.9 -3,629.3 -3,780.5

Inc/(dec) in Sec. premium 0.0 0.0 0.0 0.0

Others 0.0 7.6 0.0 0.0

CF from financing activities -5,024.4 -2,826.9 -3,429.3 -2,780.5

Net Cash flow -4,001.7 -1,198.7 -2,389.1 -339.9

Opening Cash 12,232.3 8,230.6 7,031.8 4,642.7

Closing Cash 8,230.6 7,031.8 4,642.7 4,302.9


Balance sheet | Crore


Liabilities

Equity Capital 186.3 186.3 186.3 186.3

Reserve and Surplus 40,806.5 43,014.7 45,757.9 49,405.8

Total Shareholders funds 40,992.8 43,201.0 45,944.2 49,592.1

Total Debt 11,608.3 12,108.3 12,308.3 13,308.3

Deferred Tax Liability 153.4 153.4 153.4 153.4

Minority Interest / Others 0.0 0.0 0.0 0.0

Total Liabilities 53,054.6 55,762.9 58,706.0 63,354.0

Assets

Gross Block 14,583.0 16,083.0 17,083.0 17,083.0

Less: Acc Depreciation 6,843.9 7,952.8 9,165.6 10,428.3

Net Block 7,739.1 8,130.2 7,917.4 6,654.7

Capital WIP 300.0 300.0 300.0 1,000.0

Total Fixed Assets 8,039.1 8,430.2 8,217.4 7,654.7

Investments 13,339.6 14,339.6 15,339.6 16,339.6

Inventory 1,728.9 1,823.4 2,739.8 3,612.7

Debtors 28,030.9 29,602.4 31,942.4 34,409.2

Loans and Advances 14,486.6 15,046.7 16,599.0 17,214.6

Other Current Assets 23,243.2 24,298.3 30,665.4 35,029.6

Cash 8,230.6 7,031.8 4,642.7 4,302.9

Total Current Assets 75,720.2 77,802.6 86,589.3 94,568.9

Creditors 21,701.4 22,695.2 25,097.6 26,468.6

Provisions 3,038.2 3,177.3 3,513.7 3,970.3

Total Current Liabilities 44,347.1 45,162.5 51,793.2 55,562.1

Net Current Assets 31,373.1 32,640.1 34,796.2 39,006.8

Others Assets 0.0 0.0 0.0 0.0

Application of Funds 53,054.6 55,762.9 58,706.0 63,354.0


Key ratios


Per share data (|)

EPS 33.9 39.9 45.9 53.5

Cash EPS 41.3 47.9 54.7 62.6

BV 297.6 313.6 333.3 359.6

DPS 20.0 22.0 24.0 25.0

Cash Per Share 59.3 50.7 33.5 31.0

Operating Ratios (%)

EBITDA Margin 9.7 10.5 10.4 10.5

PBT / Total Operating income 9.2 10.4 10.9 11.0

PAT Margin 7.1 7.7 7.7 7.7

Inventory days 10.0 9.0 10.0 12.0

Debtor days 155.0 150.0 140.0 130.0

Creditor days 120.0 115.0 110.0 100.0

Return Ratios (%)

RoE 11.4 12.7 13.8 14.9

RoCE 10.2 11.6 12.8 14.1

RoIC 12.1 13.3 13.9 15.3

Valuation Ratios (x)

P/E 42.1 35.8 31.1 26.7

EV / EBITDA 31.4 26.9 23.7 20.4

EV / Net Sales 3.1 2.8 2.5 2.1

Market Cap / Sales 3.0 2.8 2.4 2.1

Price to Book Value 4.8 4.6 4.3 4.0

Solvency Ratios

Debt/EBITDA 1.8 1.6 1.4 1.3

Debt / Equity 0.3 0.3 0.3 0.3

Current Ratio 1.7 1.7 1.7 1.7

Quick Ratio 1.5 1.6 1.6 1.6



ICICIdirect.com coverage universe (Capital Goods)

CMP M Cap

(|) TP(|) Rating (| Cr) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E

L&T (LARTOU) 1230 1430 Buy 170970 33.9 42.0 47.2 36.2 29.3 26.1 10.2 12.1 13.1 11.4 13.3 14.0

Bhel (BHEL) 90 81 Hold 41608 1.2 3.4 4.8 72.6 26.8 18.8 0.6 0.5 3.0 1.3 3.6 4.9

AIA Engineering 1420 1,420 Hold 13064 43.9 40.9 54.2 32.3 34.7 26.2 24.7 21.9 22.4 22.1 19.6 19.9

Thermax (THERMA) 980 1050 Buy 10223 12.2 25.1 33.1 80.3 39.0 29.6 11.6 12.0 14.5 5.6 10.6 12.6

KEC International (KECIN) 317 410 Buy 8100 12.8 15.3 20.4 24.8 20.7 15.5 16.3 17.8 20.3 17.4 17.6 19.7

Greaves Cotton (GREAVE) 127 140 Hold 3099 7.3 8.3 8.7 17.4 15.3 14.6 28.7 31.1 31.7 21.2 22.1 22.6

Bharat Electronics (BHAELE) 185 215 Buy 48023 6.7 7.9 8.6 27.7 23.4 21.6 23.7 24.4 23.5 17.6 18.4 17.7

Engineers India (ENGIND) 200 190 Hold 12804 6.1 6.5 7.6 29.3 27.8 23.7 19.0 18.3 19.8 13.2 13.2 14.4

VaTech Wabag (VATWAB) 580 765 Buy 4154 18.8 37.7 46.4 31.0 15.4 12.5 25.8 27.8 28.9 10.6 19.1 20.3

SKF (SKFIND) 1700 1,850 Buy 9756 46.3 53.0 61.7 35.2 30.8 26.4 20.7 23.1 23.8 13.5 15.1 15.6

Timken India (TATTIM) 770 867 Buy 5895 14.3 15.9 19.3 48.3 43.3 35.8 22.7 24.2 25.5 16.0 15.7 16.6

NRB Bearing (NRBBEA) 142 170 Buy 1551 5.6 6.1 7.3 21.9 20.0 16.8 16.1 17.8 18.9 17.0 16.8 17.6

Grindwell Norton (GRINOR) 490 525 Hold 5813 12.5 14.4 16.4 39.3 34.1 29.9 21.3 22.4 23.0 14.2 15.0 15.4

RoE (%)EPS (|) P/E (x) RoCE (%)



RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them

as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional

target price is defined as the analysts' valuation for a stock.

Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;

Buy: >10%/15% for large caps/midcaps, respectively;

Hold: Up to +/-10%;

Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]


Disclaimer

ANALYST CERTIFICATION

We /I, Chirag Shah PGDBM; , Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also

certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

Terms & conditions and other disclosures:

ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities Limited is a Sebi registered Research Analyst with Sebi Registration Number – INH000000990. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com. ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months. ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report. It is confirmed that Chirag Shah PGDBM;, Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report. It is confirmed that Chirag Shah PGDBM; ), Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report. We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.

Date post:	17-Apr-2018
Category:	Documents
Upload:	duongduong
View:	215 times
Download:	0 times

February 1, 2018 Larsen & Toubro (LARTOU) |...

Documents