Larsen & Toubro: L&T’s 2QFY15 standalone operating performance in-line

8 November 2014

2QFY15 Results Update | Sector:

Capital Goods

Larsen & Toubro

BSE SENSEX

27,869

Bloomberg

Equity Shares (m)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

S&P CNX

8,337

LT IN

928.2

1,775/912

9/11/-17

Financials & Valuation (INR Billion)

Y/E MAR

Revenues

Adj EBITDA

AdjConPAT

ConEPS(INR)

Gr. (%)

BV/Sh(INR)

RoE (%)

RoCE (%)

P/E (x)

P/BV (x)

2015E 2016E 2017E

617.7 765.5 911.5

67.8

40.1

43.3

(0.4)

13.3

11.8

38.2

4.1

80.3

57.3

61.9

43.0

14.7

13.1

26.7

3.7

95.7

78.1

84.2

36.1

16.3

14.4

19.6

3.2

CMP: INR1,653

TP: INR2,054

Buy

M.Cap. (INR b)/(USD b) 1,534/24.9

403.8 452.5 513.6

L&T’s

2QFY15 standalone operating performance in-line,

with Revenues at

INR127b (up 3% YoY, vs est of INR132b) and adj EBIDTA at INR13.4b (up 4% YoY,

vs est of INR13b). Adjusted for hive off of IES business into subsidiary, like-to-like

revenue growth is up 7% / EBIDTA up ~11-12%. Reported earnings supported by

lower depreciation / tax rates, and thus adjusted profits are up ~19% YoY.

Consolidated E&C execution remains constrained; large overseas project wins

yet to witness traction:

E&C execution had been impacted, given i) largely

stagnant domestic order intake at ~INR550-600b pa (excl slow moving) during

FY10-14, resulting in domestic E&C revenue growth of just 4-5% in 1HFY15 and ii)

overseas impacted by ~40% YoY decline in hydrocarbons (project specific issues)

and several of new infra wins yet to meaningfully contribute. For FY15, L&T has

revised guidance for consolidated revenue growth at 10-15%, vs earlier 15%; and

we calculate that this approx entails E&C execution growth of ~3-8% YoY.

Large projects wins in Domestic support intake, overseas muted:

During 2QFY15,

L&T’s consolidated order intake stands at INR398b (up 17% YoY); E&C intake at

INR323b (up 16% YoY). Management has retained FY15 consolidated order intake

guidance +20% YoY. E&C domestic intake at INR283b (up 103% YoY) vs average of

INR150b / qtr since FY12 is supported by large project wins (INR15b+) of INR130b

(vs just INR67b in entire FY14) while base order announcements at ~INR153b in

2QFY15 (is largely similar to the average run-rate of ~INR140b/qtr in FY14).

L&T Hydrocarbons EBIDTA breakeven; NWC deteriorates:

L&T Hydrocarbons

achieved EBIDTA break-even and is a positive surprise; still as the projects are

executed in next 6-9 months, there could be associated costs. NWC increased to

25%, vs ~17-18% YoY.

Cutting estimates, Well positioned to benefit from economic recovery:

L&T is

exposed to several levers across business/geographic segments. We cut FY15

consolidated earnings by 6% / FY16 by 4% to factor in constrained execution.

Maintain

Buy

and rollover SOTP based price target to INR2,054/sh (22x FY17E).

Satyam Agarwal

(AgarwalS@MotilalOswal.com); +91 22 3982 5410

Amit Shah

(Amit.Shah@MotilalOswal.com)

Nirav Vasa

(Nirav.Vasa@MotilalOswal.com)

Investors are advised to refer through disclosures made at the end of the Research Report.

Larsen & Toubro

Standalone operating performance in-line; adjusted revenues up

7% YoY / adjusted EBIDTA up 11% YoY

L&T’s 2QFY15 standalone operating performance is in-line, with: Revenues at

INR127b (up 3% YoY) and adjusted EBIDTA at INR13.4b (up 4% YoY). The

adjustments pertain to forex loss of INR1b in 2QFY14, including on the

unhedged forex debt. The reported numbers have been impacted by the hive off

of the IES business into L&T Technology; thus on a like-to-like basis revenue

growth stands at 7% and EBIDTA growth at ~11-12%. 2QFY14 numbers also

included losses on shipbuilding (largely interceptor boats, etc) of ~INR2b, partly

offset by claims received on projects post the warranty period.

Dividend income from subsidiaries stood at INR2.1b (vs INR2.3b YoY). Adjusted

net profits (excluding dividend from subsidiaries) are up 18.7% YoY, supported

by lower depreciation charge (based on revision of useful life of assets in

2QFY15) and lower tax rates (expect sustainable tax rates at ~25-26%).

Standalone earnings are being supported by traction in real estate business and

lower losses in shipbuilding businesses.

Exhibit 1: Segmental Analysis: Revenue growth remains constrained (INR m)

FY14

Gross Revenues

Infrastructure

Power

Metallurgical & Material Handling

Heavy Engineering

Electricals & Automation

Others

Total Revenues

Less: Intersegment Revenues

Net Segment Revenues

% YoY

Infrastructure

Hydrocarbon

Power

Metallurgical & Material Handling

Heavy Engineering

Electricals & Automation

Others

54,608

12,749

10,869

8,509

7,944

8,585

103,264

3,984

99,280

21.9%

24.1%

-44.2%

-17.9%

58.2%

4.5%

-2.6%

72,148

11,812

11,155

10,642

9,500

10,345

125,602

1,133

124,469

31.1%

-8.9%

-40.1%

-23.1%

64.8%

7.9%

15.6%

89,085

12,116

15,556

10,495

10,028

10,146

147,426

2,086

145,340

21.6%

-100.0%

-30.3%

-5.6%

25.0%

13.1%

-0.3%

135,395

14,723

17,880

13,573

11,602

13,821

206,994

4,700

202,294

67,554

9,358

9,027

8,071

7,698

4,725

106,433

1,967

104,466

FY15

88,985

10,233

7,789

8,048

9,844

5,829

130,727

2,321

128,406

17.7%

23.7%

23.3%

-34.9% -100.0%

-54.1%

-29.2%

-26.6%

-13.4%

-11.0%

-16.9%

-30.2%

38.5%

-5.1%

-24.4%

3.9%

-3.1%

3.6%

22.6%

-45.0%

-43.7%

Source: MOSL, Company

Exhibit 2: Margins supported by Real Estate and lower losses in Ship building

EBIT % of Gross Revenues

Infrastructure

Power

Metallurgical & Material Handling

Heavy Engineering

Electricals & Automation

Others

EBIT Margins

9.8%

7.7%

12.7%

10.6%

8.8%

6.1%

9.6%

FY14

11.9%

12.3%

14.3%

15.5%

8.7%

-2.9%

11.0%

10.3%

5.4%

14.1%

14.9%

11.6%

14.7%

11.0%

FY15

11.6%

9.6%

10.1%

14.1%

3.7%

4.8%

17.0%

9.8%

6.8%

20.2%

9.1%

11.0%

14.2%

8.3%

12.0%

18.3%

21.2%

17.4%

13.4%

9.5%

10.0%

Source: MOSL, Company

8 November 2014

Larsen & Toubro

Exhibit 3: EBIDTA margins supported by provisions write-back on project completions

(INR m)

Incremental net Provisions made

% of Revenues

FY10

2,328

0.6

FY11

3,879

0.9

FY12

2,724

0.5

FY13

FY14

-483

-951

-0.1

-0.2

Source: Company, MOSL

2QFY15 adjusted consolidated earnings up 7% YoY

Exhibit 4: Consolidated Quarterly Performance (INR m)

Y/E March

Net Sales

Change (%)

EBITDA

Change (%)

Margin (%)

Adjusted EBIDTA

Change (%)

Adjusted Margin (%)

Depreciation

Interest

Other Income

Extraordinary Inc/(Exp)

Reported PBT

Tax

Effective Tax Rate (%)

Reported PAT

Attributable PAT

Change (%)

Order Intake

Order book (INR b)

174,196

18,728

10.8

20,448

11.7

5,567

7,108

2,635

8,689

4,720

54.3

3,969

4,586

300

1,730

FY14

193,136

25,034

13.0

26,034

13.5

5,873

7,737

2,530

13,954

5,988

42.9

7,966

8,064

340

1,876

222,033

25,627

11.5

25,627

11.5

5,878

7,927

1,953

465

14,240

6,694

47.0

7,546

7,967

269,526

38,154

14.2

36,654

13.6

-2,859

8,643

2,701

2,938

38,009

8,881

23.4

29,128

28,404

FY15

191,233

213,311

9.8

10.4

25,153

23,342

34.3

-6.8

13.2

10.9

25,153

23.0

-100.0

13.2

8,073

5,486

7,787

6,904

2,770

2,145

2,493

14,556

13,097

4,490

4,692

30.8

35.8

10,066

8,406

9,669

8,618

110.8

6.9

334

398

1,954

2,144

Source: MOSL, Company

8 November 2014

Larsen & Toubro

Consolidated E&C execution remains constrained; large overseas

project wins yet to witness traction

E&C execution had been impacted, given i) largely stagnant order intake at ~INR550-

600b pa (excluding slow moving orders) during FY10-14 in India, resulting in

domestic E&C revenue growth of just 4-5% in 1HFY15 and ii) overseas execution was

impacted by ~40% YoY decline in hydrocarbons (given project specific issues) and

~15% YoY decline in Infrastructure (as several of the new project wins in overseas

are yet to meaningfully contribute).

For FY15, management has now revised guidance for consolidated revenue growth

of 10-15%, vs the earlier guidance of 15%; and we calculate that this approx entails

E&C execution growth of ~3-8% YoY. 1HFY15 E&C execution was down 2% YoY, and

the guidance entails asking rate of ~8-15% YoY growth in 2HFY15, necessitating a

pick-up in both domestic and overseas project execution.

Exhibit 5: L&T: Key infrastructure project wins in overseas market yet to contribute

meaningfully to revenues; expect traction in 2HFY15 / FY16

Award

2QFY14

4QFY14

1QFY15

Project Details

Al Bathinah Expressway, Package 4

Riyadh Metro Project

Bidbid Sur Section Road

Al-Wakrah Bypass

Doha Metro Project

INR m

Country

20,850

Oman

82,500

Saudi

15,500

Oman

36,550

Qatar

45,100

Qatar

Source: MOSL, Company

Exhibit 6: Domestic E&C execution growth impacted given Exhibit 7: Overseas E&C revenues impacted by project

constrained macros and stagnant intake during FY10-14

specific challenges in hydrocarbons, large infra wins

Domestic Revenues (% YoY)

Overseas Revenues (% YoY)

Source: MOSL, Company

8 November 2014

Larsen & Toubro

Large projects wins in Domestic support intake, overseas muted

During 2QFY15, L&T’s consolidated order intake stands at INR398b (up 17% YoY).

E&C order intake in 2QFY15 stands at INR323b (up 16% YoY). Management has

retained FY15 consolidated order intake guidance +20% YoY; 1HFY15 intake at

INR732b is ~48% of the targeted intake in FY15.

Order intake has been supported by domestic orders

at INR330b, with

domestic projects contributing ~83%+ of the order intake. E&C domestic intake

stands at INR283b (up 103% YoY) vs average domestic wins of INR150b / qtr

since FY12.

Another important trend is that the domestic wins have been supported by

large projects (INR15b+)

of INR130b (vs just INR67b in entire FY14, Western

DFCC). Base order announcements stood at ~INR153b in 2QFY15 (similar to the

average run-rate of ~INR140b/qtr in FY14). We believe that pick up in large

projects in segments like infrastructure, process industries, hydrocarbons,

power generation, defense, etc will be the key drivers for a trajectory change in

order intake, and the initial signs have been encouraging.

Overseas E&C project wins have been meaningfully lower

at just INR40b (vs

average award of INR115b in last 4 quarters). The sharp decline is also reflected

with project awards in Middle East down 72% YoY at USD14.3b (3mma) and is

near lowest levels since 2007. Also, project award in September 2014 in Middle

East stood at just USD2.3b, and is the lowest monthly level atleast since 2007.

Exhibit 8: Consolidated E&C intake: Large Domestic order Exhibit 9: Domestic E&C: Large project wins have supported

wins support intake in 2QFY15

intake in 2QFY15 (INR b)

Domestic

Overseas

Base Orders

Large Projects (INR15b+)

Source: MOSL, Company

Exhibit 10: ME Project awards (TTM, USD B) up just 6.7% YoY

180

160

140

120

100

USD B

% YoY

100%

80%

60%

40%

20%

-20%

-40%

-60%

Exhibit 11: ME Project awards (3mma, USD B) down 64% YoY

80.0

60.0

40.0

20.0

0.0

USD B

% YoY

300%

250%

200%

150%

100%

50%

-50%

-100%

Source: MOSL, Company

8 November 2014

Source: MOSL, Company

Larsen & Toubro

Exhibit 12: L&T: Announced Order Intake in 2QFY15 (INR m)

Residential towers in Mumbai, Kolkatta, etc

400 / 220 kV GIS grid substaiton at Oman; Transmission Towers at Saudi Arabia

Miscellaneous

Agra Water Supply Project, JICA Funded

Misc projects in Waste Water, Industrial Effluent Treatment, etc

EPC - combined cycle 225MW gas based power plant

EPC - 1320MW Shree Singaji, Malwa

EPC of 5 well head platforms at Mumbai High North Field, ONGC

EPC of dual service cryogennic storage tank facility

Boilers, 1320MW Tanda Power Plant, NTPC

Power T&D in India and Saudi Arabia

Construction of Resort, ATM Manufacturing Factory, etc

Miscellaneous

Adam Airbase in Oman for Defense

Residential Towers in Mumbai, etc

Transmission line by TANGEDCO, GIS substations by PGCIL, etc

Steel, Port and Bulk Material handling sectors

Lucknow Metro (8.5kms elevated viaducts and 8 elevated stations)

PGCIL (765kv transmission line), HPTCL (GIS substations), Bihar (33/11kv network)

Six lane Expressway from Unnao to Lucknow, Uttar Pradesh

Statue of Unity, Gujarat

10,080

6,240

2,000

4,100

8,730

12,000

51,000

13,400

5,800

18,850

12,130

7,750

620

12,310

3,460

20,300

6,310

7,920

16,300

29,890

Source: MOSL, Company

Prospect base of INR4t in bidding pipeline…

Management highlighted that the prospect base currently stands at ~INR4t; of

which 50% comprises of Infrastructure, including Dedicated Freight Corridor,

Roads / Expressways in India and Middle East, etc.

Bids for four Landing Platform Docks have been submitted (and media reports

indicate that possible size is ~INR40b/dock). Of the 4 projects, 2 will be awarded

to government docks and two to the private sector.

Hydrocarbons capex pipeline is largely mid and down-stream segments

including petchem, refinery, etc. ONGC projects in pipeline (~INR70-80b) can be

possibly bidded out in 2HFY15.

In Power BTG, expect ~10GW of projects to be tendered out in 2HFY15 on EPC

basis, excluding the UMPPs.

Exhibit 14: Consolidated Order Book Composition

Others

Electrical

Heavy Engg

Infrastructu

49%

Hydrocarbo

Exhibit 13: Consolidated Order Intake Composition

Services

11%

Electrical

Heavy Engg

MMH

Others Hydrocarbo

MMH

Power

11%

Infrastructu

68%

Power

19%

Source: MOSL, Company

8 November 2014

Larsen & Toubro

Hydrocarbons achieve EBIDTA break-even; closure costs can still

impact 2H

During 1QFY15, L&T Hydrocarbons reported a sharp deterioration in operating

performance with revenues at INR15.5b (down 49% YoY) and EBIDTA loss of

INR8.9b. During FY14 also, hydrocarbons was the key disappointment with

EBIDTA margins of just 3%, vs 11.6% in FY13. In 2QFY15, the business achieved

EBIDTA breakeven which has been a positive surprise; given the continued

losses of ~INR500-700m/qtr towards under-recovery of fixed overheads.

The management highlighted that the onerous contracts are likely to be

completed in next 6-9 months. There exists possibility of certain costs being

booked; and the max impact could be ~USD50-60m. Post project completion,

L&T will also raise claims with the customers and will be accounted for on

receipt basis.

The losses in 4QFY14 / 1QFY15 are pertaining to 5 overseas customers (2

upstream and 3 mid/downstream) with an aggregate value of INR100b. The new

orders factor in the initial learning’s in the project bids and hence the business

should bounce back to a more normative profit levels going forward.

Exhibit 15: Hydrocarbons Business: EBIDTA breakeven in 2QFY15 (INR M)

Order Inflows

Revenues

- Domestic

- Exports

EBIDTA

EBIDTA Margins %

FY13

71,580

102,340

47,050

55,290

11,840

11.6%

FY14

97,780

100,110

37,820

62,290

2,980

3.0%

% YoY

36.6%

-2.2%

-19.6%

12.7%

-74.8%

1QFY14

31,689

30,410

11,290

19,120

1,720

5.7%

1QFY15

57,040

15,530

7,600

7,930

(8,910)

-57.4%

% YoY

80.0%

-48.9%

-32.7%

-58.5%

-618.0%

2QFY14

42,267

23,760

2,067

8.7%

2QFY15

% YoY

25,360

-40.0%

18,010

-24.2%

7,036

11,040

(18)

-100.9%

-0.1%

Source: MOSL, Company

Exhibit 16: Hydrocarbons: Key project wins in overseas markets

Award

1QFY12

Project Details

PTTEP International (Zawtika Development Project, Phase-1A)

Technimont-Samsung JV (Construction of PO and LDPE plant)

Abu Dhabi Gas Inds (EPC pipeline)

Abu Dhabi Marine Operating Company (EPC Field Development)

Petroleum Development Oman (Gas treatment plant)

Petroleum Development Oman (EPC of Lekhwair Gas field development)

Petroleum Development Oman (EPC of Saih Rawl Depletion Compression)

Carigali Myanmar (Offshore EPC, installation & commissioning)

Midyan Field (Gas Processing and Transportation)

Petroleum Development Oman (EPC for Yibal 3rd stage depletion compression)

EPC for ATF Terminal at Abu Dhabi Airport & gas interconnecting facilities

Kuwait Oil Company (EPC contract for a Oil gathering centre)

INR M

Country

13,413

Myanmar

3,250

UAE

8,390

UAE

19,620

UAE

7,000

Oman

7,010

Oman

13,020

Oman

5,500

Myanmar

16,500

Saudi Arabia

15,000

Oman

11,000

UAE

50,760

Kuwait

Source: MOSL, Company

2QFY13

3QFY13

1QFY14

2QFY14

3QFY14

1QFY15

8 November 2014

Larsen & Toubro

Exhibit 17: Korean companies have witnessed improvement Exhibit 18: Order intake for Korean companies have increased

in gross margins (%)

from lows in 2011-13 (Billion Korean Won)

20,000

15,000

10,000

5,000

Order Intake

Source: MOSL, Company

8 November 2014

Larsen & Toubro

Net Working Capital remains at elevated levels; Nabha Power

impacts IDPL financial’s reporting

Consolidated Net Working Capital has deteriorated to 25% of consolidated

revenues (vs 18.2% YoY standalone) and is largely driven by vendor support,

lower customer advances, etc. We believe that the changes in NWC are led by

cyclical factors of customer advances / retention money and thus with improved

intake, these factors should correct in FY16.

L&T IDPL has successfully raised funds: i) FDI Investment (Canada Pension Fund,

INR20b in two tranches) ii) Asset sale (Dhamra Port at EV of INR55b - 50% stake,

etc). Also, the management stated that the intent is to unlock value in L&T

Infotech and L&T Technology through a listing by July 2016. The transactions will

also provide growth capital.

L&T IDPL reported a sharp decline in reported EBIDTA margins to 16.1%, vs

47.1% in FY14. This decline is largely given commissioning of the 1,320MW

Nabha Power projects in Jan 14 / July 14. The accounting is based on financial

lease, and thus interest is netted off from EBIDTA. Also, energy charges are a

pass through and hence impacts reported EBIDTA margins. We calculate that

the project contributed ~80-85% of the L&T IDPL’s revenues and reported

EBIDTA margins of sub 5-6%; while the rest of the operational asset portfolio

reported EBIDTA margins of 75%+.

Exhibit 19: Working capital remains at elevated levels Exhibit 20: Equity investments in subsidiaries should stabilize

impacted by cyclical factors

now, given fund raisings in L&T IDPL

Segmental Working Capital (% of sales)

21 22

24 25

Equity investment/ICD/ advances to Subsidiaries, INR b

11 11

9 9

8 8

13 13 12

17 17 16 17

FY15 data points are consolidated; Source: MOSL, Company

Source: MOSL, Company

Exhibit 21: Key segments / subsidiaries also report constrained performance

1HFY14 2HFY15

IT and Technology

Developmental Projects

L&T Finance

24%

56%

2.9%

19%

52%

3.0%

Particulars

EBIDTA %

Gross NPA %

Comments

Sales force ramp-up and US

compliance norms

Supported by Dhamra stake sale gains,

Impacted by Nabha Power accounting

as financial lease

Seasonality in Retail / Stress in Infra

Source: MOSL, Company

8 November 2014

Larsen & Toubro

Maintain Buy, Well positioned to benefit from economic

recovery

L&T is exposed to several levers across business/geographic segments and has

emerged as the E&C partner of choice in India, which provides a robust

foundation to capitalize on the next leg of investment cycle.

Management intent is to improve consolidated ROE to 20% (15.5% in FY13) and

ROCE to 15% (10% in FY13) in the medium term. Capping investments in

concession business / asset monetization are important parts of this strategy.

Manufacturing businesses (like Shipyard, Power BTG, Forgings etc) also present

interesting possibilities in the longer term. Many of these businesses are difficult

to replicate and L&T is strongly positioned as a dominant player.

We model consolidated EPS at INR43.3/sh in FY15 (stable YoY), INR61.9/sh in

FY16 (up 43% YoY) and INR84.2/sh in FY17 (up 36.1% YoY). We have cut FY15

earnings by 6% and FY16 by 4%, to factor in lower E&C execution. We maintain

Buy

and rollover SOTP based price target to INR2,054/sh (22x FY17E).

Exhibit 22: L&T: Sum of the Parts Value (FY17)

Method

Construction Business

L&T Standalone

L&T Hydrocarbons

International Ventures (L&T FZE)

Service Segments

Infotech / Technology

Finance

General Insurance

Sapura Shipping

L&T Realty

Asset Ownership / Project Developer

Infrastructure Development Projects

Power Development Projects

Manufacturing Ventures

Power Equipments

Shipbuilding / Container Port

Special Steel and Heavy Forgings

Less: Holding Company Discount of 20%

Total

FY17E PER (x)

FY17E PBV (x)

22.0

12.0

1.0

1.5

1.0

2.0

1,441

101

179

1,554

109

193

-90

2,054

Source: MOSL

At premium to Market average

Valuation Value

multiple (INR b)

Value

(INR/sh)

Rationale

At par to mid tier IT companies

At discount to peer group given relatively lower

ratios

At par with industry average

At Book Value to capture the macro volatility

At Book Value given Case 2 bid

8 November 2014

Larsen & Toubro

Larsen & Toubro: an investment profile

Company description

Larsen and Toubro (LT) is India's largest E&C company.

Apart from core construction activity, LT has made

significant inroads into a diverse range of products and

services through its subsidiaries and manufacturing JVs

in power BTG, forging and shipbuilding. The company is

also involved in various developmental projects in

roads, ports, railways and power. Overseas contributes

~18-20% of the business.

Recent developments

LT has recently sold Dhamra port to Adani Ports for

an enterprise value of INR 55b; L&T booked capital

gains of INR13.5b in 1QFY15.

Canada Pension Fund has invested INR10b in L&T

IDPL; deal includes second tranche of INR10b.

LT intends to list IT business subsidiaries by July

2016, as a part of value unlocking initiative.

FCCB of USD200m in Sept 2014.

Key investment arguments

Valuation and view

LT is well placed to capitalize on long-term

infrastructure demand. Order backlog stands at

INR2.1trn implying BTB ratio of 2.9x TTM.

For FY15 management has guided for 20% increase

in order inflows & 10-15% YoY increase in

consolidated revenues.

L&T is exposed to several levers across

business/geographic segments.

We cut FY15 consolidated earnings by 6% / FY16 by

4% to factor in constrained execution.

Maintain

Buy

and rollover SOTP based price target

of INR2,054/sh (22x FY17E).

Key investment risks

Working capital has increased to 25% of revenues at

the end of 2QFY15.

Significant part of LT’s capital is tied up in

manufacturing JVs and infrastructure concession

projects that are yet to show meaningful returns.

Higher contribution of overseas business has

increased the risk profile on margins.

Sector view

We maintain our

Positive

view on the sector. L&T is

exposed to several levers / geographies and has

emerged as the E&C partner of choice in India.

Comparative valuations

P/E (x)

P/BV (x)

EV/Sales (x)

EV/EBITDA (x)

FY15E

FY16E

FY15E

FY16E

FY15E

FY16E

FY15E

FY16E

L&T

38.5

26.9

4.1

3.7

2.5

2.0

22.8

18.8

BHEL

20.0

13.3

1.5

1.4

1.1

0.8

9.7

5.6

Thermax

41.7

26.2

4.7

4.2

1.8

1.4

23.3

15.3

EPS: MOSL forecast v/s consensus (INR)

MOSL

Forecast

FY15

FY16

53.5

66.7

Consensus

Forecast

55.2

65.8

Variation

(%)

-3.1

1.4

Target price and recommendation

Current

Price (INR)

1,653

Target

Price (INR)

2,054

Upside

(%)

24.3

Reco.

Buy

Shareholding pattern (%)

Promoter

DII

FII

Others

Sep-14

0.0

35.7

21.1

43.2

Jun-14

0.0

36.6

21.9

41.5

Sep-13

0.0

37.4

18.2

44.4

Stock performance (1-year)

Note: FII Includes depository receipts

8 November 2014

Larsen & Toubro

Financials and valuations

Income statement

Y/E Mar

Revenues

Change (%)

Adj EBITDA

EBITDA Margin (%)

Depreciation

EBIT

Interest

Other Income

Extraordinary items

PBT

Tax

Tax Rate (%)

Reported PAT

Adjusted PAT

Change (%)

Cons PAT

Adj Cons PAT

2014

566.0

9.7

67.2

11.9

7.8

58.7

10.8

18.8

-5.9

66.8

17.7

24.4

54.9

50.7

21.2

49.0

40.2

2015E

617.7

9.1

67.8

11.0

10.1

57.8

12.0

21.4

0.0

67.2

17.9

26.7

49.3

49.6

-2.2

42.3

40.1

(INR Billion)

2016E

765.5

23.9

80.3

10.5

11.4

68.9

11.5

25.0

0.0

82.4

20.6

25.0

61.8

24.5

57.3

2017E

911.5

19.1

95.7

10.5

12.7

83.0

11.0

30.0

0.0

102.0

24.5

24.0

77.5

25.4

78.1

Ratios

Y/E Mar

Basic (INR)

Adj Standalone EPS

Adj Consolidated EPS

Book Value

DPS

Payout (incl. Div. Tax.)

Valuation(x)

P/E (Consolidated)

Cash P/E

Price / Book Value

EV/Sales

EV/EBITDA

Dividend Yield (%)

Profitability Ratios (%)

RoE

RoCE

Cons ROE

Turnover Ratios (%)

Asset Turnover (x)

Debtors (No. of Days)

Inventory (No. of Days)

Leverage Ratios (%)

Net Debt/Equity (x)

2014

54.7

43.4

363.2

14.3

34.8

38.1

31.9

4.6

2.8

23.9

0.9

15.1

13.0

13.7

1.4

138.9

12.8

0.2

2015E

53.5

43.3

403.8

13.4

33.3

38.2

30.5

4.1

2.5

22.6

0.8

13.3

11.8

0.0

1.3

138.7

12.8

0.0

2016E

66.7

61.9

452.5

16.7

29.0

26.7

22.3

3.7

2.0

18.7

1.0

14.7

13.1

0.0

1.5

135.1

13.1

-0.1

2017E

83.6

84.2

513.6

20.9

26.7

19.6

16.9

3.2

1.6

15.1

1.3

16.3

14.4

0.0

1.6

131.4

13.7

-0.2

Balance sheet

Y/E Mar

Share Capital

Reserves

Net Worth

Debt

Deferred Tax

Total Capital Employed

Gross Fixed Assets

Less: Acc Depreciation

Net Fixed Assets

Capital WIP

Investments

Current Assets

Inventory

Debtors

Cash & Bank

Loans & Adv, Others

Curr Liabs & Provns

Curr. Liabilities

Provisions

Net Current Assets

Total Assets

2014

1.9

334.8

336.6

114.6

4.1

455.3

116.6

39.9

76.7

5.6

192.1

508.5

19.8

215.4

17.8

255.5

327.7

303.6

24.1

180.8

455.3

2015E

1.9

372.4

374.3

120.0

4.1

498.4

128.8

49.9

78.8

4.5

234.7

551.2

21.6

234.7

45.0

249.9

370.9

347.0

23.9

180.3

498.4

(INR Billion)

2016E

2017E

1.9

417.6

474.2

419.4

476.1

120.0

4.1

543.5

600.2

148.8

168.8

61.3

74.0

87.5

94.8

4.5

295.5

388.9

637.9

710.3

27.6

34.2

283.2

328.1

28.9

6.4

298.2

341.5

481.8

598.2

454.2

566.0

27.5

32.2

156.1

112.1

543.5

600.2

E: MOSL Estimates

Cash flow statement

Y/E Mar

OP/(Loss) before Tax

Depreciation

Others

Interest

Direct Taxes Paid

(Inc)/Dec in Wkg Cap

CF from Op. Activity

(Inc)/Dec in FA & CWIP

(Pur)/Sale of Invt

Others

CF from Inv. Activity

Inc/(Dec) in Net Worth

Inc / (Dec) in Debt

Interest Paid

Divd Paid (incl Tax)

CF from Fin. Activity

Inc/(Dec) in Cash

Add: Opening Balance

Closing Balance

2014

72.7

7.9

0.0

10.8

17.7

-43.7

29.9

-1.3

14.3

-48.9

-35.8

5.9

26.2

10.8

12.2

9.2

3.3

14.6

17.8

2015E

68.9

10.1

0.0

12.0

17.9

23.6

96.6

-11.0

-33.5

-4.3

-48.9

0.0

5.4

12.0

14.0

-20.6

27.1

17.8

45.0

(INR Billion)

2016E

82.4

11.4

0.0

11.5

20.6

4.9

89.6

-20.0

-50.0

-10.8

-80.8

0.0

11.5

13.3

-24.8

-16.1

45.0

28.9

2017E

102.0

12.7

0.0

11.0

24.5

17.3

118.5

-20.0

-75.0

-18.4

-113.4

0.0

11.0

16.6

-27.6

-22.5

28.9

6.4

8 November 2014

Larsen & Toubro

NOTES

8 November 2014

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